International Investment Law Symposium LLM Perspectives Online Publications

Denunciation of ICSID: Does it Really Mean no ICSID Arbitration?

I. Introduction

The ICSID Convention (also known as the “Washington Convention”) is a multilateral treaty that created the institution known as “ICSID” or “the Centre,” as a platform to resolve investment disputes. The executive directors of the International Bank of Reconstruction and Development (“World Bank”) approved the final draft of the agreement, known as the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, and the president of the World Bank disseminated the convention to its Member States for signature on 18 March 1965.01International Centre for Settlement of Investment Disputes, Wikipedia, https://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputes (last visited Feb. 26, 2017). As of April 12, 2016, 161 States have signed the Convention and 153 States have deposited their instruments of ratification.02International Centre for Settlement of Investment Disputes, List of Contracting States and Other Signatories of the Convention (as of April 12, 2016), https://icsid.worldbank.org/en/Documents/icsiddocs/List%20of%20Contracting%20States%20and%20Other%20Signatories%20of%20the%20Convention%20-%20Latest.pdf (last visited Feb. 26, 2017). ICSID is the main forum for settlement of disputes between foreign investors and host States.03Jeswald W. Salacuse, The Law of Investment Treaties 379 (2010). It provides administrative support for arbitration of these disputes.04K.V.S.K. Nathan, ICSID Convention: The Law of International Centre for Settlement of Investment Dispute 51 (2000). International investment law forms part of public international law,05See, e.g., José Enrique Alvarez, The Public International Law Regime Governing International Investment (2011). but is also influenced by other spheres, including international commercial arbitration.06Anthea Roberts, ‘Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System’, 107 Am. J. Int’l L. 45 (2013). The relationship between investment law and the law of treaties, for example, is therefore often contested. As a general matter, it should be noted at the outset that treaty law, as largely contained in the Vienna Convention on the Law of Treaties,07Vienna Convention on the Law of Treaties, Jan. 27, 1980, 1155 U.N.T.S. 331 (hereinafter Vienna Convention). represents general international law (in some areas amounting to customary international law). International Investment Agreements (“IIAs”) represent a more specific law between two or more countries. Accordingly, where there is inconsistency, the lex specialis of a particular IIA will prevail over the lex generalis of general provisions of treaty law.08See, e.g., Joost Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law 391–92 (2003). However, whether due to lack of foresight or drafting perfection, the tribunal must often decide the real meaning by interpreting the particular provision in the IIA and determining the exact point that general provisions of treaty law will take over. There are several different effects of termination or denunciation from an IIA or from a Bilateral Investment Treaty (“BIT”), including in the case of unilateral or mutual termination, as well as the effect of any applicable “survival clauses.” These clauses purport to continue treaty operation after its termination, because the objective of the overall treaty is to protect investors from the risks and changes in the policy or the investment climate in the host State.

This article focuses on denunciation from multilateral or plurilateral treaties. The denunciation of ICSID has not prevented investors from initiating arbitrations against Bolivia, Ecuador and Venezuela.09See Diana Marie Wick, The Counter-Productivity of ICSID Denunciation and Proposals for Change, 11 J. Int’l Bus. L. 239, 242 (2012). BITs contain mechanisms through which investors can initiate arbitration, and most BITs provide for alternatives to ICSID for settlement of investment disputes. Therefore, alternative mechanisms can still be initiated by the investors from States which currently have a relevant BIT in force.10See Kenneth J. Vandevelde, Bilateral Investment Treaties: History, Policy & Interpretation, 434–35 (2010).

II. Framework

Under Article 41 of ICSID Convention, the tribunal is the judge of its own competence, and the competence of the Centre is determined by Article 25 of the ICSID Convention. Article 25(1) states:

“[t]he jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.”11Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Mar. 18, 1965, 575 U.N.T.S. 8359 [hereinafter ICSID Convention].

The consent of each party, as well as each party being a Contracting State to the Convention, are both important requirements for establishing jurisdiction of the Centre. State consent can be given through various instruments, including BIT provisions. Nothing requires that the consent of each party must necessarily be contained within the same instrument. For example, by initiating a claim in ICSID, an investor perfects consent against a State which has already agreed to submit to ICSID jurisdiction. The Centre has jurisdiction, and Article 25 applies, as long as the State parties are Contracting States to the ICSID Convention.

After denunciation of the ICSID Convention, the host State ceases to be a Contracting State and Article 25 does not apply or establish jurisdiction. On a reading of Article 25(1), Bolivia, Ecuador and Venezuela ceased to be a “Contracting State” after the denunciation took effect six months after the receipt of notice, as per the requirements of Article 71.12Diana Marie Wick, supra note 9, at 260. However, in such a case, Article 72 provides that notice of denunciation of the ICSID Convention by a Contracting State “shall not affect the rights or obligations under this Convention of that State or of any of its constituent subdivisions or agencies or of any national of that State arising out of consent to the jurisdiction of the Centre given by one of them before such notice was received by the depositary.”13ICSID Convention, supra note 11, art. 72.

Consequently, it can be argued that Article 72 is an exception to Article 25, as it has no requirement that a party be a “Contracting State.” Thus, for an investor to initiate a claim in ICSID, he must find the existence of “consent” given by the State before the notice of denunciation, and delineate the obligations arising out of that consent. Evaluating the legal implications arising out of denunciation of the ICSID Convention confirms the continued fundamental importance of the existence of an arbitration agreement between the parties concerned, something dealt with by the tribunal in Plama Consortium Limited v. Republic of Bulgaria.14Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (Feb. 8, 2005).

III. Denunciation Under Article 72

A. Denunciation’s Effective Date

Article 71 of the ICSID Convention states:

“Any Contracting State may denounce this Convention by written notice to the depositary of this Convention. The denunciation shall take effect six months after receipt of such notice.”15 ICSID Convention, supra note 11, at 32.

It provides that denunciation of the Convention by a Contracting State takes effect six months after receipt of the notice of denunciation. Therefore, for the period of six months, the rights and obligations arising from the Convention continue to apply to the denouncing State.16Christoph Schreuer, Denunciation of the ICSID Convention and Consent to Arbitration, in The Backlash Against Investment Arbitration: Perceptions and Reality, 353, 355 (Balchin, Chung, et al. eds., 2010).

In comparison, Article 72 states:

“Notice by a Contracting State pursuant to Articles 70 or 71 shall not affect the rights or obligations under this Convention of that State or of any of its constituent subdivisions or agencies or of any national of that State arising out of consent to the jurisdiction of the Centre given by one of them before such notice was received by the depositary.”17 ICSID Convention, supra note 11, at 32.

Article 72 is a modification of Article 71, and there is a different rule on the effective date of denunciation in the context of consent. The interpretation is that if the consent is given before the notice of denunciation under Article 71, the arising rights or obligations shall remain unaffected. This interpretation of Article 72 modifies Article 71 in two key ways. First, the critical and decisive date for the denunciation’s effect on consent is not when notice of denunciation takes effect (six months after receipt), but the actual date of receipt. Second, any rights or obligations arising from consent to jurisdiction remain unaffected by the denunciation, beyond the six-month period. The date of consent is of decisive importance to the operation of Article 72, which will only apply if consent was given before the denunciation date.18Christoph Schreur, supra note 16, at 355.

B. Consent

Article 25 of the ICSID Convention determines the competence of the Centre.19Memorandum from Wolfgang Alschner et al. to Elisabeth Tuerk, Chief of International Investment Agreements, UNCTAD (May 9, 2010), available at http://graduateinstitute.ch/files/live/sites/iheid/files/sites/ctei/shared/CTEI/Law%20Clinic/UNCTAD%20-%20International%20Investment%20Treaties%20Denunciations%20(final%20-%20June).pdf. It imposes cumulative conditions for ICSID jurisdiction: The dispute should be a legal one, it should directly arise out of an investment, it should be between Contracting States, and both parties should consent to jurisdiction in writing. Denunciation of the ICSID Convention affects two of these requirements: that a State be a Contracting State, and that a State consent to jurisdiction. Thus, consent to jurisdiction has an element of mutuality and reciprocity. There is freedom in the Convention in expressing consent by States and investors. Consent to ICSID arbitration may be achieved through a compromiser clause in an investment agreement between the host State and the investor, by which parties agree to submit to ICSID jurisdiction to resolve future disputes arising from the investment.20Christoph Schreur, supra note 16, at 357.

More recently, this form of consent has been largely displaced by consent expressed through legislation and treaties.21Id. By analogy of contract law, consent given by the host State is an “offer,” and the investor’s consent is an “acceptance of the offer,” thereby constituting a “consent of agreement” by both parties. Even where consent is based on the host State’s legislation or on a treaty, it can only come into existence through an agreement between the parties, that is, the host State and the investor.22Id. Today, the basis for jurisdiction in the majority of cases decided by ICSID is consent through a BIT. This phenomenon has been called “arbitration without privity.”23Jan Paulsson, Arbitration without Privity, 10 ICSID Rev. 232, 232 (1995). The requirement of consent in writing by both parties also applies in these cases, and a single party’s unilateral offer of consent to ICSID’s jurisdiction is insufficient.24George R. Delaume, How to Draft an ICSID Arbitration Clause, 7 ICSID Rev. 168, 172 (1992). The possibility that a host State might express its consent to the Centre’s jurisdiction through a provision in its national legislation or through some other form of unilateral declaration was discussed during the Convention’s initial preparations. In response to several questions, then-Chairman Broches pointed out that unilateral acceptance of the Centre’s jurisdiction constituted an offer that could be accepted by a foreign investor by instituting a claim, and thereby become binding upon both parties.25ICSID, History of the ICSID Convention: Documents Concerning the Origin and the Formulation of the Convention (Vol. II-1), at 274–75 (1968).

Most investment arbitration cases in recent years are based on consent established through an offer of consent contained in a BIT accepted by the investor through a separate written communication or by instituting proceedings. The first such case, AAPL v. Sri Lanka, was decided in 1990.26AAPL v. Sri Lanka, ICSID Case No. ARB/87/3, Final Award (June 27, 1990). Some tribunals have simply applied this principle without discussing its rationale.27Fedax v. Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction (Jul. 11, 1997); Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (Jan. 25, 2000); Olguı́n v. Paraguay, ICSID Case No. ARB/98/6, Decision on Jurisdiction (Aug. 8, 2000); Gruslin v. Malaysia, ICSID Case No. ARB/99/3, Award (Nov. 27, 2000). Other tribunals have explained the nature of consent to jurisdiction through the combination of the offer given by the host State in the BIT and the acceptance by the investor in the request for arbitration.28American Manufacturing & Training v. Zaire, ICSID Case No. ARB/93/1, Award (Feb. 21, 1997), Goetz v. Burundi, ICSID Case No. ARB/95/3, Award (Feb. 10, 1999), CSOB v. Slovakia, ICSID Case No. ARB 97/4, Decision on Jurisdiction (May 24, 1999).

In ICSID proceedings the claimant is mostly the investor, but cases initiated by host States against investors are possible and do arise from time to time.29Gabon v. Société Serete S.A., ICSID Case No. ARB/76/1, Order Taking Note of the Discontinuance Issued by the Tribunal (Feb. 27, 1978); Tanzania Electric Supply v. IPTL, ICSID Case No. ARB/98/8, Award (Jul. 12, 2001). Thus, the reciprocal nature of consent to jurisdiction under ICSID convention means institution of proceedings by an investor is always contingent upon the mutuality of consent. The debatable point here is that an investor may institute proceedings against the host State on the basis of BIT, perfecting the consent, but that a host State wishing to file a claim cannot do so without a prior expression of consent on the part of the investor. The rationale is that the host State has already given its a unilateral consent at the time that it signs the BIT.

Applied to Article 72, this means that consent must be perfected through an acceptance by the investor before the date of the denunciation, in order to preserve rights and obligations under the ICSID Convention.30Christoph Schreur, supra note 16, at 361. A mere offer of consent to arbitration contained in a treaty or in national legislation cannot have this effect.31Id. Since the ICSID Convention’s drafting, numerous treaties, especially BITs, have entered into force that provide for ICSID arbitration.

C. The Irrevocability of Consent

The last sentence in Article 25(1) provides for the irrevocability of consent in the following terms:

“When the parties have given their consent, no party may withdraw its consent unilaterally.”32ICSID Convention, supra note 11, at 18.

The irrevocability of consent provided for in the last sentence of Article 25(1) operates only after the consent has been perfected through its acceptance by both parties. The provision refers to consent given by “the parties” and to unilateral withdrawal. This is confirmed by the Convention’s Preamble which refers to “mutual consent” and to the nature of consent as a “binding agreement.” Similarly, the Report of the Executive Directors to the Convention stresses the mutuality of consent and the impossibility of its unilateral withdrawal:

“Consent of the parties is the cornerstone of the jurisdiction of the Centre. Consent to jurisdiction must be in writing and once given cannot be withdrawn unilaterally.”33ICSID Convention, supra note 11, at 43.

The binding, irrevocable nature of consent to ICSID’s jurisdiction is a manifestation of the maxim pacta sunt servanda,34Vienna Convention, supra note 7, at 339. which applies generally to arbitral undertakings.35George R. Delaume, The Finality of Arbitrations Involving States: Recent Developments, 5 ARB. INT’L 21, 24 et seq. (1989). The maxim applies not only where consent to jurisdiction is contained in a compromissory clause contained in an investment contract, but also where an offer of consent is contained in national legislation or in a treaty that has been accepted by the investor.

The irrevocability of consent operates after the consent has been perfected. In the case of national legislation and treaty clauses offering consent to ICSID jurisdiction, the investor must have first accepted the consent in writing to make it irrevocable. Therefore, it is inadvisable for an investor to rely on an ICSID consent clause contained in the host State’s domestic law or in a treaty, without first making a reciprocal declaration of consent. The investor may wait with its acceptance of the offer of consent until it institutes proceedings before the Centre, but in so doing, it runs the risk that the offer may be summarily withdrawn.

Article 72 of the ICSID Convention constitutes a special application of the principle of irrevocability, expressed in more general terms in the last sentence of Article 25(1). When the parties have given their consent, no party may withdraw its consent unilaterally by direct or indirect means.36ICSID Convention, supra note 11, at 18. This includes an attempted withdrawal of consent by way of a denunciation of the Convention. Without Article 72 of the ICSID Convention, all rights and obligations of a denouncing State, including those that arise from consent, would cease from the date the denunciation takes effect.37United Nations, Art 70, supra note 34, at 349. This would include the obligation not to seek another remedy and the obligation to abide by and comply with an award.
At the same time, the provision against unilateral withdrawal of consent, as contained in the last sentence of Article 25(1) and as specified in Article 72 of the ICSID Convention, can only apply to perfected consent, that is, consent expressed by both parties. It would run counter to the system of the Convention to provide for the irrevocability of a mere offer of consent to jurisdiction that has not been taken up by the other party.

D. Rights or Obligations under the Convention arising out of consent

Under Article 72 the denunciation of the ICSID Convention “shall not affect the rights or obligations under the Convention.”38ICSID Convention, supra note 11, at 32. This refers to the rights and obligations under the convention arising out of consent to ICSID’s jurisdiction given before receipt of the notice of denunciation. Therefore, in order to benefit from Article 72, a right or obligation must cumulatively meet two requirements: it must (1) arise out of consent, and also (2) be a right or obligation under the ICSID Convention.
Consent, once given, triggers a number of rights and obligations under the Convention. First and foremost, is the right to institute proceedings (Article 36) and to participate in the constitution of the tribunal (Article 37) and in the proceedings (Articles 41, 44). Another right is access to the post-Award remedies (Articles 49(2), 50, 51 and 52). An important obligation arising from consent is the duty to abide by and comply with an award (Article 53), as well as the duty to refrain from resorting to other remedies, including diplomatic protection (Articles 26, 27). Article 72’s inter-temporal rule applies directly to these rights and obligations.

E. Given by one of them

Article 72, after referring to “consent to the jurisdiction of the Centre” adds the words “given by one of them.” At first sight, these words may create the impression that the preceding term “consent” refers to a unilateral act. However, a more careful analysis of the context of the phrase “given by one of them” reveals that it does not refer to the potentially opposing parties to ICSID proceedings (the host State and the investor). Rather, the phrase refers to the range of possible parties to a consent agreement on the side of the denouncing State. The enumeration of these possible parties in Article 72 confirms and clarifies this interpretation. The possible parties listed in Article 72 are (a) the denouncing State, (b) any of the denouncing State’s constituent subdivisions or agencies, and (c) any national of the denouncing State. The enumeration of these three potential types of parties in Article 72 is similar to Article 25(1). But that provision is different in that it refers to a State, to a constituent subdivision or agency of that State and to a national of another State.

The interpretation of consent as a unilateral consent, the balance of Article 72 seems to be inclining towards the investor. If the Consent is given by the host State, it binds the State even after denunciation of ICSID takes effect. As long as such consent is effective, investor may at any time accept the unilateral offer of consent and initiate arbitral proceedings.39Memorandum from Wolfgang Alschner et al., supra note 19, at 50. Considering that consent is usually given in a BIT, a State may be bound by the consent given to ICSID up to twenty years after the BIT has been terminated, by virtue of a BIT survival clause.40Id.

On the contrary, the unilateral consent derived by Article 72 and expressed in a BIT has a critical advantage: By applying Article 26 of the ICSID Convention, States may condition arbitral consent so as to not impede the functioning of ICSID. As the BITs are negotiated by the States themselves, this is possible with no extra cost. Thus, while the interpretation may support investors, awareness in BIT negotiation can re-balance the system without detrimental effects to the overall investment arbitration.41Id.

IV. Interpretations

Despite the fact that international investment law in general, and the investor-State dispute settlement mechanism provided by the ICSID Convention in particular, have received considerable attention among practitioners and scholars in recent years, the specific legal implications of a State’s withdrawal from this regime have so far hardly been addressed in the literature, and thus it largely remains “unexplored legal territory.”42Marco E. Schnabl & Julie Bédard, The Wrong Kind of “Interesting,” Nat’l. L. J., July 30, 2007, at S1. The first award on jurisdiction which explores the interpretation of Article 72 is the Venoklim v. Venezuela award.43Venoklim v. Venezuela, ICSID Case No. ARB/12/22, Award of the Tribunal (Apr. 3, 2015). In this case, Venezuela ordered the forced asset acquisition of five companies owned and controlled by Venoklim Holding B.V. (“Venoklim”), incorporated in the Netherlands. Venezuela argued that the tribunal did not have personal jurisdiction.44Martin Dietrich Brauch, Looking to Venezuela’s Investment Law, Majority Finds that Venoklim was not a Foreign Investor and Dismisses Case Against Venezuela (Aug. 4, 2015), https://www.iisd.org/itn/2015/08/04/venoklim-holding-b-v-v-bolivarian-republic-of-venezuela-icsid-case-no-arb-12-22/. It read ICSID Convention Article 72 to mean that valid consent would only exist if the arbitration request had been received before the notice of denunciation. In response, Venoklim maintained that under ICSID Convention Article 71, Venezuela’s denunciation would only be effective six months after receipt of the notice of denunciation, and the arbitration was initiated before the six months lapsed.45Id. The tribunal rejected Venuzuela’s interpretation of Article 72 and ultimately dismissed the objection. According to the tribunal, Venuzuela’s interpretation would give the denunciation immediate effect, disregarding the six-month period provided for by Article 71, and violating the principle of legal security to the detriment of investors.46Id. What effect does the denunciation have on ICSID’s availability for current or future investment claims? Can an investor still benefit from ICSID arbitration if denunciation occurs? The central regulation in this regard is the interpretation of ICSID Convention Article 72. Different views concerning the regulatory content of this provision appear possible.47Marco Tulio Monatanes, Introductory Note to Bolivia’s Denunciation of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, 46 I.L.M. 969 (2007).

A. Strict Interpretation / Unilateral Consent

Following the strict interpretation by leading commentators of the ICSID Convention, “the Host State must be a party to the Convention in the date of proceedings are instituted. The same applies to the State of the investor’s nationality: It must be a party to the Convention by the time the proceedings are instituted.”48Rudolf Dolzer & Christoph Schreuer, Principles of International Investment Law 42 (2008). Once the denunciation of the ICSID Convention becomes effective, ICSID is no longer an available forum, because the denouncing State ceases to be a Contracting Party and, therefore, an important condition for ICSID jurisdiction under Article 25(1) of the ICSID Convention is not satisfied. The interpretation is based on that unilateral expression of consent by the host State in a BIT would not suffice because under this interpretation it does not in itself constitute “consent” but rather an “offer of consent.”49Christoph Schreuer, The ICSID Convention: A Commentary 1286 (2001). It needs to be accepted in writing by the investor. Once accepted, it benefits from the continued validity under Article 72. Consequently, “consent” in Article 72 would in fact be read as “arbitration agreement.”50“”Christian Tietje, Karsten Nowrot & Clemens Wackernagel, Once and Forever? The Legal Effects of a Denunciation of ICSID, 74 Beiträge zum Transnationalen Wirtschaftsrecht 8 (2008). By contrast, where consent to ICSID arbitration has been given by the country, for example, in a concession agreement with an investor, ICSID proceedings could be started even after the denunciation takes effect.51Sergey Ripinskey, Venezuela’s Withdrawal From ICSID: What it Does and Does Not Achieve, Investment Treaty News (Apr. 13, 2012), https://www.iisd.org/itn/2012/04/13/venezuelas-withdrawal-from-icsid-what-it-does-and-does-not-achieve/. See, e.g., Agreement Between Chile and Venezuela for the Reciprocal Promotion and Protection of Investments, art 8(2), Chile-Venez., Apr. 2, 1993. This is because there is an advance consent to arbitrate by the parties. Thus, Consent in the investment treaty is not sufficient to bind the host State as consent is unilateral, and not perfected.

B. Consent prior to expiration of six month

An alternative interpretation is to distinguish consent to jurisdiction from submission of claim. Investors have the option and may perfect the consent given in a BIT by accepting it until the denunciation becomes effective in accordance with the requirements of Article 71, that is, six months after receipt of the notice of denunciation by the depositary. According to this view, investors could accept consent expressed by denunciating State in a BIT within that six-month period. One of the arguments may be that the investor accepts or perfects the consent by initiating the claim in ICISD. If no dispute has yet arisen between the parties between this six-month period, the investors have no reason to initiate a claim. In this circumstance, the investors will have to step up and accept the consent in writing by communicating with the concerned authorities and the host State.

C. Plausible Interpretation

A third understanding of Article 72 provides for the possibility of accepting a State’s consent to ICSID arbitration as long as the respective BIT remains effective.52 Id. In support of this view, it has been argued that the legislative history of the ICSID Convention indicates that the word “consent” in Article 72 must be read as “unilateral consent” and not as “arbitration agreement,”53Emmanuel Gaillard, The Denunciation of the ICSID Convention, 237 N.Y. L. J., 122, Jun. 26, 2007. and that the consent given by the host State under a BIT has to be regarded not merely as a revocable “offer to arbitrate” but rather as an “independent legal obligation” with the result that “protected investors will be unaffected by the denunciation of the [ICSID] Convention not just for 6 months, but for the life of the treaty.”54Christian Tietje, Karsten Nowrot & Clemens Wackernagel, supra note 50, at 8. On this interpretation of Article 72, unilateral consent of the State extends for lifetime of the BIT, and in the event that a State withdraws from or denounces the BIT, the consent extends to the period stated in the BIT survival clause.

D. Liberal Interpretation

Finally, another interpretation of the consent requirement in the BIT involves looking at the purpose to determine if, in fact, there is a binding irrevocable offer by the host State.55Emmanuel Gaillard, supra note 53. If the BIT has an express and unequivocal consent to jurisdiction by the host State, not subject to any future ratification, then the requirement of having a Contracting State’s consent to submit to ICSID is met, and this consent cannot later be withdrawn.56ICSID Convention, supra note 11, at 18. A more liberal interpretation is that the consent of the investor is not necessary when a BIT provides for ICSID arbitration, since the investor’s State has negotiated this in its favor, and the host State has agreed to this negotiated clause. ICSID should not ignore this kind of assent to jurisdiction. An investor of a country with a BIT calling for ICSID arbitration could be deemed to have its country’s consent to the ICSID jurisdiction for its benefit when it makes its investment. The acceptance by the investor of this consent is inferred by the conduct of making the investment. This consent by conduct is, in a way, dormant, only to be awakened when the investor initiates a procedure against the other State before ICSID. This interpretation is only possible when the BIT does not indicate otherwise. For example, both the Venezuela-Lithuania and the Venezuela-Canada BITs expressly require the consent of the investor.57James O Rodner & Jaime Martinez Estevez, BITs in Pieces: The Effectiveness of ICSID Jurisdiction after the ICSID Convention Has Been Denounced, 29 J. Int’l Arb., 437–51 (2012).

Thus, the unresolved issue of how to interpret Article 72 has considerable repercussions on the future investment climate in Bolivia, Ecuador, Venezuela and potentially other Latin American countries as well. Section 6 (Articles 53-55) of ICSID Convention provides for a powerful regime for recognition and enforcement of any award.58ICSID Convention, supra note 11, at 27–28. Scholars, arbitrators and academics still debate whether the ICSID Convention provides the most suitable arbitration procedure for investors, as any award rendered in ad hoc or institutional arbitration other than ICSID requires an exequatur to be effective, which might be subject to various uncertainties.59Christian Tietje, Karsten Nowrot & Clemens Wackernagel, supra note 50, at 9. Furthermore, other dispute resolution mechanisms are possible only where the relevant BIT or another investment instrument so provides. If a BIT contains a clause providing only for ICSID arbitration, investors may be concerned about whether the host State will adhere to its commitments.60Id. Especially where investments have been made with confidence in such a clause, the requirement of the jurisdiction of the ICSID Convention in case of denunciation are crucial.

V. Brief: Bolivia, Ecuador, and Venezuela

Three contracting States have denounced the ICSID Convention by giving their six month notice pursuant to Article 71: Bolivia (2007), Ecuador (2009), and Venezuela (2012).61International Centre for Settlement of Investment Disputes, supra note 2, at 4–5. These countries have all faced ICSID claims62See, e.g., Aguas del Tunari v. Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction (Oct. 21, 2005); Perenco Ecuador v. Ecuador, ICSID Case No. ARB/08/6, Decision on Jurisdiction (June 30, 2011). See, e.g., Saint-Gobain Performance Plastics Europe v. Venezuela, ICSID Case No. ARB/12/13, Decision on Liability and the Principles of Quantum (Dec. 30, 2016). and have also unilaterally terminated BITs.63UNCTAD, International Investment Agreements Navigator, http://investmentpolicyhub.unctad.org/IIA (visited Feb. 26, 2017). There is notable uncertainty in scholarly debates64Benjamin Woodring, ‘Denunciations Plus: Evaluating ICSID Withdrawals Bearing Additional New ICSID Provisions, 6 Transnat’l Disp. Mgmt. 5–14 (2015). and ongoing investment disputes65Many cases against Venezuela where these issues might be raised are still pending. See, e.g., Saint-Gobain Performance Plastics v. Venezuela, supra note 62; Valores Mundiales v. Venezuela, ICSID Case No ARB/13/11, Notice of Arbitration (June 6, 2013).‘’‘’ regarding the implications of the survival-type clause in Article 72 of the ICSID Convention. Much of the debate focuses on whether a host State’s consent to ICSID arbitration in an IIA constitutes a binding offer that cannot be withdrawn66ICSID Convention, supra note 11 at 18 (“When the parties have given their consent, no party may withdraw its consent unilaterally’”). despite denunciation of the ICSID Convention, or whether it merely constitutes an acceptable offer. Even in the latter case, there is debate regarding whether an investor may accept the offer within the six-month period before notification or denunciation takes effect.

The reasoning so far appears more political than legal. By denouncing the Convention, these countries are not going against the set establishment of resolving the investment disputes through ICSID forum; however, it still sends a strong political signal that the system has been unfair and that ICSID should not expect any future cooperation from that State. This non-cooperation may mean that the State would not comply with any damages ordered by ICSID tribunals in ongoing proceedings. Withdrawals from ICSID by the three Latin American countries, Bolivia, Ecuador and Venezuela, and termination of their BITs are a radical expressions of an imperative need to revisit few important aspects of an international investment regime. Resolving the broader issues emanating from these denunciations requires further collective thinking and constructive engagement on these issues.

VI. Conclusion

Denunciation of the ICSID Convention by a Member State may be a method to exclude ICSID as a dispute resolution mechanism from the Bilateral Investment Treaty. Once the host State, under Article 71, issues a notice of denunciation, the denunciation takes effect after six months. At the time of the denunciation, the operation of all other Articles of the Convention is estopped except for the operation of Article 72, the only Article which lays down the effects of denunciation. That said, when deciding the issue of jurisdiction between a denunciated State and an investor or other State, a tribunal should read Article 72 together with the respective bilateral trade agreement. The tribunal should apply principles of international convention interpretations. After an in-depth analysis of the articles and scholarly debates related to this topic, the tribunal should conclude that, in the case of most BITs, where the investments were completed before the date of denunciation, ICSID jurisdiction would survive the denunciation of the ICSID Convention until the termination of the BIT and any applicable survival clauses.

References   [ + ]

01. International Centre for Settlement of Investment Disputes, Wikipedia, https://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputes (last visited Feb. 26, 2017).
02. International Centre for Settlement of Investment Disputes, List of Contracting States and Other Signatories of the Convention (as of April 12, 2016), https://icsid.worldbank.org/en/Documents/icsiddocs/List%20of%20Contracting%20States%20and%20Other%20Signatories%20of%20the%20Convention%20-%20Latest.pdf (last visited Feb. 26, 2017).
03. Jeswald W. Salacuse, The Law of Investment Treaties 379 (2010).
04. K.V.S.K. Nathan, ICSID Convention: The Law of International Centre for Settlement of Investment Dispute 51 (2000).
05. See, e.g., José Enrique Alvarez, The Public International Law Regime Governing International Investment (2011).
06. Anthea Roberts, ‘Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System’, 107 Am. J. Int’l L. 45 (2013).
07. Vienna Convention on the Law of Treaties, Jan. 27, 1980, 1155 U.N.T.S. 331 (hereinafter Vienna Convention).
08. See, e.g., Joost Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law 391–92 (2003).
09. See Diana Marie Wick, The Counter-Productivity of ICSID Denunciation and Proposals for Change, 11 J. Int’l Bus. L. 239, 242 (2012).
10. See Kenneth J. Vandevelde, Bilateral Investment Treaties: History, Policy & Interpretation, 434–35 (2010).
11. Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Mar. 18, 1965, 575 U.N.T.S. 8359 [hereinafter ICSID Convention].
12. Diana Marie Wick, supra note 9, at 260.
13. ICSID Convention, supra note 11, art. 72.
14. Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (Feb. 8, 2005).
15. ICSID Convention, supra note 11, at 32.
16. Christoph Schreuer, Denunciation of the ICSID Convention and Consent to Arbitration, in The Backlash Against Investment Arbitration: Perceptions and Reality, 353, 355 (Balchin, Chung, et al. eds., 2010).
17. ICSID Convention, supra note 11, at 32.
18. Christoph Schreur, supra note 16, at 355.
19. Memorandum from Wolfgang Alschner et al. to Elisabeth Tuerk, Chief of International Investment Agreements, UNCTAD (May 9, 2010), available at http://graduateinstitute.ch/files/live/sites/iheid/files/sites/ctei/shared/CTEI/Law%20Clinic/UNCTAD%20-%20International%20Investment%20Treaties%20Denunciations%20(final%20-%20June).pdf.
20. Christoph Schreur, supra note 16, at 357.
21. Id.
22. Id.
23. Jan Paulsson, Arbitration without Privity, 10 ICSID Rev. 232, 232 (1995).
24. George R. Delaume, How to Draft an ICSID Arbitration Clause, 7 ICSID Rev. 168, 172 (1992).
25. ICSID, History of the ICSID Convention: Documents Concerning the Origin and the Formulation of the Convention (Vol. II-1), at 274–75 (1968).
26. AAPL v. Sri Lanka, ICSID Case No. ARB/87/3, Final Award (June 27, 1990).
27. Fedax v. Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction (Jul. 11, 1997); Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (Jan. 25, 2000); Olguı́n v. Paraguay, ICSID Case No. ARB/98/6, Decision on Jurisdiction (Aug. 8, 2000); Gruslin v. Malaysia, ICSID Case No. ARB/99/3, Award (Nov. 27, 2000).
28. American Manufacturing & Training v. Zaire, ICSID Case No. ARB/93/1, Award (Feb. 21, 1997), Goetz v. Burundi, ICSID Case No. ARB/95/3, Award (Feb. 10, 1999), CSOB v. Slovakia, ICSID Case No. ARB 97/4, Decision on Jurisdiction (May 24, 1999).
29. Gabon v. Société Serete S.A., ICSID Case No. ARB/76/1, Order Taking Note of the Discontinuance Issued by the Tribunal (Feb. 27, 1978); Tanzania Electric Supply v. IPTL, ICSID Case No. ARB/98/8, Award (Jul. 12, 2001).
30. Christoph Schreur, supra note 16, at 361.
31. Id.
32. ICSID Convention, supra note 11, at 18.
33. ICSID Convention, supra note 11, at 43.
34. Vienna Convention, supra note 7, at 339.
35. George R. Delaume, The Finality of Arbitrations Involving States: Recent Developments, 5 ARB. INT’L 21, 24 et seq. (1989).
36. ICSID Convention, supra note 11, at 18.
37. United Nations, Art 70, supra note 34, at 349.
38. ICSID Convention, supra note 11, at 32.
39. Memorandum from Wolfgang Alschner et al., supra note 19, at 50.
40. Id.
41. Id.
42. Marco E. Schnabl & Julie Bédard, The Wrong Kind of “Interesting,” Nat’l. L. J., July 30, 2007, at S1.
43. Venoklim v. Venezuela, ICSID Case No. ARB/12/22, Award of the Tribunal (Apr. 3, 2015).
44. Martin Dietrich Brauch, Looking to Venezuela’s Investment Law, Majority Finds that Venoklim was not a Foreign Investor and Dismisses Case Against Venezuela (Aug. 4, 2015), https://www.iisd.org/itn/2015/08/04/venoklim-holding-b-v-v-bolivarian-republic-of-venezuela-icsid-case-no-arb-12-22/.
45. Id.
46. Id.
47. Marco Tulio Monatanes, Introductory Note to Bolivia’s Denunciation of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, 46 I.L.M. 969 (2007).
48. Rudolf Dolzer & Christoph Schreuer, Principles of International Investment Law 42 (2008).
49. Christoph Schreuer, The ICSID Convention: A Commentary 1286 (2001).
50. “”Christian Tietje, Karsten Nowrot & Clemens Wackernagel, Once and Forever? The Legal Effects of a Denunciation of ICSID, 74 Beiträge zum Transnationalen Wirtschaftsrecht 8 (2008).
51. Sergey Ripinskey, Venezuela’s Withdrawal From ICSID: What it Does and Does Not Achieve, Investment Treaty News (Apr. 13, 2012), https://www.iisd.org/itn/2012/04/13/venezuelas-withdrawal-from-icsid-what-it-does-and-does-not-achieve/. See, e.g., Agreement Between Chile and Venezuela for the Reciprocal Promotion and Protection of Investments, art 8(2), Chile-Venez., Apr. 2, 1993.
52. Id.
53. Emmanuel Gaillard, The Denunciation of the ICSID Convention, 237 N.Y. L. J., 122, Jun. 26, 2007.
54. Christian Tietje, Karsten Nowrot & Clemens Wackernagel, supra note 50, at 8.
55. Emmanuel Gaillard, supra note 53.
56. ICSID Convention, supra note 11, at 18.
57. James O Rodner & Jaime Martinez Estevez, BITs in Pieces: The Effectiveness of ICSID Jurisdiction after the ICSID Convention Has Been Denounced, 29 J. Int’l Arb., 437–51 (2012).
58. ICSID Convention, supra note 11, at 27–28.
59. Christian Tietje, Karsten Nowrot & Clemens Wackernagel, supra note 50, at 9.
60. Id.
61. International Centre for Settlement of Investment Disputes, supra note 2, at 4–5.
62. See, e.g., Aguas del Tunari v. Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction (Oct. 21, 2005); Perenco Ecuador v. Ecuador, ICSID Case No. ARB/08/6, Decision on Jurisdiction (June 30, 2011). See, e.g., Saint-Gobain Performance Plastics Europe v. Venezuela, ICSID Case No. ARB/12/13, Decision on Liability and the Principles of Quantum (Dec. 30, 2016).
63. UNCTAD, International Investment Agreements Navigator, http://investmentpolicyhub.unctad.org/IIA (visited Feb. 26, 2017).
64. Benjamin Woodring, ‘Denunciations Plus: Evaluating ICSID Withdrawals Bearing Additional New ICSID Provisions, 6 Transnat’l Disp. Mgmt. 5–14 (2015).
65. Many cases against Venezuela where these issues might be raised are still pending. See, e.g., Saint-Gobain Performance Plastics v. Venezuela, supra note 62; Valores Mundiales v. Venezuela, ICSID Case No ARB/13/11, Notice of Arbitration (June 6, 2013).‘’‘’
66. ICSID Convention, supra note 11 at 18 (“When the parties have given their consent, no party may withdraw its consent unilaterally’”).

You Might Also Like