ICSID Additional Facility (A Primer)

By Sarthak Malhotra

What is ICSID ?

The International Centre for Settlement of Investment Disputes (ICSID) was established by ICSID Convention, entered into force on October 24, 1966. The idea behind establishing ICSID was to make a body that will provide dispute resolution facilities( arbitration or conciliation) for investment disputes between Contracting States and nationals of other Contracting States.

Article 25(1) of the Convention elaborates upon the jurisdiction of ICSID.

According to Article 25(1),
[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.

The Additional Facility Rules were adopted by the ICSID Administrative Council in 1978 to administer disputes that fall outside the scope of the ICSID Convention.

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How are ICSID arbitral awards enforced?

The enforcement of awards rendered pursuant to ICSID Convention is governed exclusively by the provisions of ICSID Convention. In other words, ICSID has an enforcement mechanism of its own. Article 53(1) the ICSID Convention requires each party to “ abide by and comply with the terms of the award”.
Article 54 states:

Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.

The execution, however, is governed by the law on the execution of judgements in the country where execution is sought. (See this article by Antonio R. Parra for more)

Why was ICSID Additional Facility created?

A number of disputes could not be brought before the Centre because either the Host state or the Investor’s state were not a contracting party of the ICSID Convention. Therefore, a need was felt to create a mechanism for those categories of disputes that fall outside the jurisdiction of the Convention. In order to fill this void, the Administrative Council adopted Additional Facility Rules.  The Additional Facility Rules authorises the Secretariat to administer (ICSID only administers proceedings and does not resolve a dispute per se) the following categories of disputes-

(i) fact finding proceedings;

(ii) conciliation or arbitration proceedings for the settlement of investment disputes between parties one of which is not a Contracting State or a national of a Contracting State; and

(iii) conciliation and arbitration proceedings between parties at least one of which is a Contracting State or a national of a Contracting State for the settlement of disputes that do not arise directly out of an investment, provided that the underlying transaction is not an ordinary commercial transaction.

This allows the nationals of those countries who are not signatories to the Convention or such countries to bring a claim.

However, the ICSID Convention, including Article 54, does not apply to the Additional Facility. Article 3 of the Additional Facility Rules states:

Since the proceedings envisaged by Article 2 are outside the jurisdiction of the Centre, none of the provisions of the Convention shall be applicable to them or to recommendations, awards, or reports which may be rendered therein.

This implies that awards passed under the Additional Facility Rules are not subject to the ICSID’s enforcement mechanism.

The most interesting provision of Additional Facility Rules is Article 2 para b). It extends ICSID Convention’s jurisdiction to disputes “not arising out of investment”. However, the  “underlying transaction must have features which distinguishes it from an ordinary transaction”. (Article 4  Para 3). A joint reading of both provisions suggest that there needs to be a certain “investment nexus” for Additional Facility dispute settlement.

The Additional Facility Rules comprise a principal set of Rules and three schedules: Fact-Finding Rules(Schedule A), Conciliation Rules(Schedule B) and Arbitration Rules(Schedule C).

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Additional Facility has gained a lot of importance in NAFTA Dispute Settlement, Cartagena Free Trade Agreement and the Energy Charter Treaty.

Additional Facility is very important in the context of NAFTA because Canada and Mexico are not parties to the ICSID Convention. Therefore, a dispute, for instance, between Canada and USA will involve an Additional Facility Arbitration. (NOTE: ICSID Additional Facility will not be available in a dispute between Canada and Mexico since none of them are party to the Convention).

How are ICSID Additional Facility awards enforced?

In absence of applicability of ICSID Convention, such awards become subject to the normal rules governing recognition and enforcement of arbitral awards.
Article 19 of Arbitration(Additional Facility) Rules states:

Arbitration proceedings shall be held only in States that are parties to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

This provision facilitates enforcement of Additional Facility arbitral awards by ensuring that such awards benefit from the enforcement regime of the New York Convention. An implication of making these awards subject to New York Convention is that they also become subject to the reasons for non-enforcement contemplated in Article V of the New York Convention.

The most important advantage of ICSID Additional Facility is that since the proceedings are administered by the Secretariat of the Centre, the dispute settlement benefits from the ICSID’s institutional support and expertise. The effectiveness of this dispute resolution mechanism is still debatable since the awards can be challenged in the municipal courts for the reasons contained Article V of the New York Convention. Therefore, the ever-existing problem of enforcement against the sovereign entities plagues Additional Facility too. Some of the famous cases are Metalclad v. Mexico and Waste Management.

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