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International Oil and Gas Law and Policy Research Paper:

Who benefits from the Internationalization of Petroleum Disputes: An appraisal of the ICSID dispute resolution mechanism?

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Introduction

The International Centre for the Settlement of Investment Disputes (ICSID) is an independent arbitral institution established in 1966 under the auspices of the World Bank. The Centre is given legal authority by virtue of Article 1 (1) of the Washington Convention 1965.1 ICSID’s primary purpose, as set out in Article 2, is to provide an effective medium that facilitates the settlement of investment disputes that arise out of transnational commercial ventures between host governments and foreign investors through the instruments of mediation, arbitration and other forms of alternative dispute resolution.2 ICSID provides an invaluable service to global transnational commercial trade by facilitating a means of reconciliation between host nations and foreign investors that are engaged in a conflict over contractual disputes benefitting both contractual parties by safeguarding the foreign investor’s investment and enhancing the attractiveness of a developing economy to foreign investors, which in turn will promote increased Foreign Direct Investment (FDI) and the positive economic growth that will inevitably stem from that. Signatories to the Washington Convention have agreed to ratify and be bound by ICSID’s Rules and the institution’s awards are given binding judicial authority by virtue of the New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards3. As a result of this, countries that have ratified the New York Convention have bound themselves to recognize the world wide enforcement of arbitration awards, further strengthening the power of ICSID as decisions issued by ICSID tribunals are not encumbered by the same stumbling block of jurisdiction that hinders other forms of adjudicatory dispute resolution such as litigation. Arbitration enables the successful party to enforce the arbitral award overseas. This is an advantage that is of untold value to both parties. The problem with jurisdiction and conventional litigation is that neither party would be willing to concede to settle their disputes in the national courts of the opposing party due to the plethora of problems this poses such as language barriers, unfamiliarity with the foreign state’s legal procedure and the risk of a biased adjudication leading to an unfavorable outcome. Internationalization of the dispute resolution mechanism in cross-border petroleum investment contracts prima facie extends to both parties the benefits of confidentiality, neutrality, relative speed of procedure and the equitable cost-effective resolution of disputes that can be enforced on an international level.

Arbitral proceedings before an independent international tribunal have predominantly replaced conventional litigation as the ‘go-to’ method for parties to reconcile their commercial disputes. Evidence of this can be found in the staggering growth after the late 1970s petroleum disputes of the number of arbitration centers, arbitrators and arbitrations4. International arbitration is supposed to be an easy, user-friendly process. However, the classic model of 1 Article 1 (1) of The Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID) 19652 Article 2 (1) of The Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID) 19653 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) 19584 Ibid

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arbitration vastly differs5 from what some commentators refer to as the modern ‘arbitral litigation’6 of today. Arbitration is meant to be an informal means for the resolution of contractual disputes that is entered into consensually by both parties, who submit their case to an arbitral tribunal formulated by one arbitrator representing each party and a final neutral head arbitrator appointed by the institution in order to receive a private and final equitable decision or award.7 The increasing popularity of international arbitration however has seen the classic model evolve over time towards modern arbitral practice. This ‘judicialization’ of international arbitration bears increasing semblance to private litigation, and indeed modern arbitral practices have been referred to by commentators as private arbitral litigation.8 The problem with this is that a process that is touted as having the benefits of being the confidential, simple, quick and cost effective procedure that its proponents claim it to be at the heart of its design has gradually been transmogrified by industry practice into the very beast it boasts to better and be superior to. The cause of this issue is that due to the high-profile and international context, the disputes being brought towards ICISD have increasingly grown in complexity in recent years, creating the need for a parallel increase in the complexity of the rules and procedure necessary to resolve the issues. Due to the commercial nature of the legal profession this has effectively increased the costs of parties to surrender to international arbitration – a problem that was probably not foreseen by those less economically developed nations that bought into the dream of international dispute resolution in hopes of securing the much needed foreign direct investment that is so crucial to prosperity of their economies.

Scope of Application

In terms of scope of application, the ICSID Dispute Resolution Rules only apply to transnational commercial investments between host nations and investors. The ICSID Rules do not therefore cater to claims brought by host nations against other host nations nor investor against other investors. This position is set out within Article 25(1) of the ICSID Convention9. The definitions of ‘investment’ and the ‘investor-state’ relationship are not explicitly defined within the Convention but have rather developed as a result of interpretation by arbitral tribunals during proceedings.10 Tribunals have considered whether there are certain criteria attributed to its provisions to best define the scope of application and whether an ‘investment’ falls under ICSID jurisdiction. In the Salini Costruttori SpA and Italstrade SpA v. Morocco Case11, the Salini Test 5 M. Ball, The Legal Structure for Domestic and International Commercial Arbitration6 T.W. Wälde (†); "Mediation/Alternative Dispute Resolution in Oil, Gas and Energy Transactions: Superior to Arbitration/Litigation from a Commercial and Management Perspective" OGEL 2 (2003) www.ogel.org/article.asp?key=65 last accessed 20/11/147 M. Ball, The Legal Structure for Domestic and International Commercial Arbitration8T.W. Wälde (†); "Mediation/Alternative Dispute Resolution in Oil, Gas and Energy Transactions: Superior to Arbitration/Litigation from a Commercial and Management Perspective" OGEL 2 (2003) www.ogel.org/article.asp?key=65 last accessed 20/11/149 Article 25 (1) of The Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID) 196510 O. E. Garcia-Bolivar, 'Defining an ICSID Investment: Why Economic Development Should be the Core Element' (International Institute for Sustainable Development 2012) <http://www.iisd.org/itn/2012/04/13/defining-an-icsid-investment-why-economic-development-should-be-the-core-element/> accessed 20/11/1411 Salini Costruttori SpA and Italstrade SpA v. Morocco (ICSID Case No ARB/00/4, Decision on Jurisdiction of 23 July 2001)

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emerged which concluded that ‘contributions, a certain duration of performance of the contract, and participation in the risks of the transaction’ coupled with the added condition of the ‘contribution to the economic development of the host state of the investment’12 were necessary criteria for determining investments that fall under the scope of the ICSID Convention. Tribunals of subsequent disputes from ICSID’s case docket have built upon this criteria to include the need to transfer technological know-how and increase the GDP of the local economy13 as well as have a positive impact on the host state’s development before an investment will fall under the jurisdiction of the ICSID Convention.14 The significance of the ICSID Institution is that it is the very first international institution whose tribunals have the judicial power necessary to enable private investors to bring actionable claims against a state in the event of disputes that have arisen after the commencement of their contract and as such it has been compared with the International Court of Justice’s Permanent Court of Arbitration in terms of its ability to host a forum for the resolution of transnational commercial disputes via arbitral tribunals.15

Types of Dispute Resolution Mechanisms

Dispute resolution mechanisms are seen as the crux in the argument for maintaining and promoting an economy that is favorable for international investment. Professor Maniruzzaman16 highlights the risks that are faced by any long-term international investment endeavor. With the large amount of capital and value of the assets at hand, the security of foreign investment is paramount to an amicable long term relationship. Foreign investors need to be certain that their investment is secure and is not in danger of political and economic risk. Typical political risks that pose threats to investment contracts are unstable or changing political powers and governments. Some economic risks to investment contracts would be unlawful expropriation of investment assets or a change in the commercial position that the parties contracted into. This is of particular significance when dealing with developing nations as the risk of this occurrence is drastically higher. In order to address this concern developing host governments are therefore coerced into contractual dispute resolution and investment stabilization mechanisms which may come in a wide range. The significance of the relationship between the parties that have taken steps to incorporate arbitration clauses into their private commercial contracts on an investor-state level, or through bilateral investment treaties on a state-to-state level is that if in the event that a dispute will arise the claims would not be subject to the decision of either parties national courts but rather will be on neutral ground, ‘internationalizing’ the issue as it is offered up to an impartial international arbitral tribunal. The commercial dispute would then fall under the jurisdiction of an institutional tribunal like the International Chamber of Commerce (ICC), the

12 C. Schreuer et al, The ICSID Convention: A Commentary (Cambridge University Press, 2nd ed, 2009), Article 25, paras. 153-17413 As set out in Malaysian Historical Salvors Sdn Bhd v. Malaysia (ICSID Case No. ARB/05/10, Award on Jurisdiction of 17 May 2007)14 As set out in Ceskoslovenska Obchodni Banka, A.S. v Slovak Republic (ICSID Case No. ARB/97/4, Decision on Jurisdiction of 24 May 1999)15 N. Nakib, ‘FDI Related Dispute Settlement and the role of ICSID: Striking Balance Between Developed and Developing Economies’16 Maniruzzaman, A. F. M, the Pursuit of Stability in International Energy Investment Contracts: A Critical Appraisal of the Emerging Trends (June 24, 2008). Journal of World Energy Law and Business, Vol. 1, No. 2, 2008 http://ssrn.com/abstract=1338053 last accessed 20/11/14

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International Center for the Settlement of Investment Disputes (ICSID), American Arbitration Association (AAA) or the London Court of International Arbitration – the choice of institution will usually be selected at the time of the contract drafting. The final decision usually comes down to familiarity with the selected applicable arbitral law or “lex arbitri” and other factors such as the geographical location, neutrality and reputation of the tribunals. Arbitral proceedings can also be ad hoc free from institutional rules but usually proceedings will follow model guidelines17 such as those set out by the United Nations Commission on International Trade Law (UNCITRAL).18 The choice of law is another crucial decision as it dictates the procedural rules applicable to each case – this is evidenced by the syntax of s.46 (1)(a) of the Arbitration Act 19 which expressly recognizes that the arbitral tribunal ‘should’ decide disputes in accordance with the law chosen by the parties. This provision embodies the notion of freedom of contract, which is the backbone for modern commercial law. A study carried out by the 2010 International Arbitration Survey has shown that a 40% majority of petroleum contracts have chosen to apply English common law. The reasons for this are because English common law is long-standing, predictable and transparent and as such will afford parties the security of a certain degree of predictability. This position is supported by the following quote by Lord Justice Potter in Shamil Bank of Bahrain v Beximco Pharmaceuticals:

“English law is the law to be applied in ascertaining the liability of the parties under the terms of the agreement… English law is a law commonly adopted internationally as the governing law for banking and commercial contracts, having a well-known and well developed jurisprudence in the respect that it is not open to doubt or disputation on the basis of religious or philosophical principle.”20

As it says on the box, dispute resolution mechanisms are tools that facilitate the resolving of disputes between parties in the event of conflict. Various methods may be employed to achieve this goal, however the different types of alternative dispute resolution mechanisms can be classified into two distinct species: adjudicative processes and consensual processes. An adjudicative process is a system of dispute resolution wherein the matter of dispute is put forward a judge, jury or arbitrator whom will decide the case and determine the winner of the conflict based on the respective facts of each individual case coupled with merit of each party’s arguments. The types of dispute resolution mechanisms that fall under this category are traditional litigation proceedings and arbitrative processes. The second species of dispute resolution mechanism is the consensual process. This category includes mediation, conciliation, negotiation and mini-trials and expert determination. These forms of alternative dispute resolution differ from the adjudicative mechanisms in that the coercive process does not seek to find a resolution to a tie-breaker between the host and the foreign investor. The dispute in the consensual process is not properly resolved to the detriment of one party, but rather these tools

17 United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006) see http://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf last accessed 20/11/1418 Y. Dezalay and B. G. Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order (1st, University of Chicago Press, Chicago 1998) p.519 S.46(1)(a) Arbitration Act 199620 Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Limited and Others [2004] 4 All E.R. 1072

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are intended to facilitate negotiation and promote the reconstruction of the inter-party relationship. They settle and reconcile the rift between the parties by bringing the parties back into agreement once again, typically through the medium of a neutral third-party intermediary. These are the kinds of services that dispute resolution institutions facilitate and ICSID has built a reputation based on its arbitral and mediatory prowess. The following sections will develop on key consensual methods of alternative dispute resolution available to parties and the benefits that they confer.

Expert Determination

Expert Determination is the least adversarial dispute resolution mechanism available to parties seeking recourse to a conflict. It is a low intensity non-adjudicatory process in which an appointed expert with significant experience in a particular field will be appointed to mediate over a specific technical or operational matter. The benefits of expert determination are that the parties will be guaranteed a solution that is technically accurate and appropriate whilst maintaining party autonomy and confidentiality in attaining the desired end product of a legally binding determination that carries obligatory power over the parties whom enter into it.21 Expert determination is a useful tool in the arsenal of petroleum dispute resolution as it can be utilized effectively in small scale operational disputes such as the valuation of participatory interests and the redetermination of unit interests for example in Unitization Agreements.22

Conciliation

Conciliation is a negotiation based method of dispute resolution wherein the parties agree to consult a conciliator whom facilitates a forum between the parties to attempt to reconcile and resolve their differences. The role of the conciliator is usually carried out by improving communication between parties, conveying an interpretation of issues from multiple perspectives, suggesting and encouraging parties to consider potential solutions to their issues. The outcome of conciliation is finding a mutually acceptable middle ground between the parties and fostering a reconciliation of contractual differences. The process itself however has no legal standing, serving merely as a tool for the reparation of a damaged personal or business relationship. Any binding decisions as a result of a conciliation proposal will be binding based on the new accord between the contractual parties. This is applicable to many petroleum disputes wherein talks between the parties have broken down. Successful conciliation or negotiation rests on the notion that the parties are entering into voluntary talks and as such it aims to deliver results that are time and cost efficient, and confidential whilst keeping in line with party-autonomy. Conciliation offers the parties a chance to put their interests directly on the table and come towards a mutually beneficial amicable agreement that takes into account the parties personal, legal and commercial interests.23 The main difference between conciliation and other negotiation based dispute resolution mechanisms is that the conciliator is tasked with creating a

21 Halifax Life Ltd v The Equitable Life Assurance Society [2007] EWHC 50322 G. Gordon and J. Paterson, Oil and Gas Law: Current Practice and Emerging Trends (2nd, Edinburgh University Press, Edinburgh 2010)23 Dispute Resolution Hamburg on Conciliation http://www.dispute-resolution-hamburg.com/conciliation/what-is-conciliation/ last accessed 20/11/14

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proposal settlement that will attempt to remedy the dispute, based on the interest of the parties and the concerns and opinions they have voiced. The parties are not obliged to accept the proposal and the final decision on matters in conciliation will always remain with the parties in dispute.

Mediation

Mediation is another dispute resolution mechanism that is employed by parties in the attempt to resolve contractual disputes. In the petroleum and other industries with complex commercial contracts at the forefront of proceedings, mediation offers the parties an informal avenue to reach a mutually beneficial agreement. Mediation is a consensual power of dispute resolution and as such the parties agree to mediate based on their own volition. The voluntary nature of mediatory dispute resolution creates a resolution tool that can be very flexibly utilized. In commercial mediation it is the role of the mediator to assist the parties in reaching an amicable settlement through negotiation. The mediator performs the role of facilitating non-adversarial communication between parties, whom will meet and discuss their specific and separate interests, allowing for those interests to be heard and catered for if and when an agreement has been reached. Mediation proceedings bear a resemblance to conciliation, as mentioned above, however the mediators role does not extend to drafting a settlement proposal. The decision of the parties to reconcile the dispute is in their hands, with the mediator merely serving the role of overseeing and facilitating effective communication of both parties’ interests, promoting a platform that will hopefully culminate in a settlement. The attraction of parties to mediation has been strong. Lord Justice Ward in Burchell v Bullard & Ors24 stated that meditation had established its importance as a parallel track to the court system emphasizing on the fact that both had a ‘proper part to play in the administration of justice.’ Mediation offers them an alternative to adjudicatory dispute resolution tools such as litigation and arbitration whose adversarial nature is not conducive to a healthy environment for reconciliation and the fostering of amicable party relations. The following quote from Thomas Walde serves to further illustrate this point:25

‘The distinctive feature of ‘mediation’ as compared to settlement by bargaining between the parties and their lawyers, or settlement imposed by judges under the shadow of their decision-power, is that a neutral, non-adjudicating person chosen by both parties seeks to move them to a settlement, either by shuttling between them and persuading them (with his/her insight knowledge) to move towards a mutually acceptable bargaining position.’

The benefits of mediation are that it offers a non-biased, cost effective and confidential forum of dispute resolution that empowers the parties to come to a settlement. Mediation is particularly significant in light of the rapidly increasing cost of litigation and arbitration. Lord Ward’s decision further goes on to highlight that it would folly to not mediate when presented the

24 Burchell v Bullard & Ors [2005] EWCA Civ 35825 T.W. Wälde (†); "Mediation/Alternative Dispute Resolution in Oil, Gas and Energy Transactions: Superior to Arbitration/Litigation from a Commercial and Management Perspective" OGEL 2 (2003) www.ogel.org/article.asp?key=65 last accessed 20/11/14 p.4

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opportunity. In light of all these benefits however a weakness that is shared between all negotiation-based forms of dispute resolution is that the voluntary, confidential and non-binding nature of the mechanism limits its effectiveness to the extent of information dissemination and co-operation that parties are willing to comply with. Added to this drawback is that with the increasingly complex nature of petroleum disputes, the speed and efficient conclusion of the settlement is counter-balanced by the extent of specialist knowledge that the mediator possesses, more complex matters would have a negative impact on the efficiency of mediation as a tool for dispute resolution.

The Significance of Internationalization and the Evolution of Global Trends in Trade and Petroleum Dispute Resolution

It is in the interest of developing countries that are naturally endowed with a large berth of hydrocarbon and other such natural resources to utilize their geological inheritance to stimulate both social and economic growth within their domestic economy. This is a position that has received support from major proponents of international law as evidenced by the provisions and preamble of UN General Resolution 1803.26 The major stumbling block to this notion is that usually, a less economically developed nation will be lacking the large capital power, technical expertise and domestic infrastructure to efficiently undertake the substantial risk involved in any hydrocarbon extraction venture and therefore will be more or less forced to attract foreign direct investment and contract with international companies in an endeavor to realize an economic return from their sovereign resources. Typically control of a state’s hydrocarbon resources is vested within the hands of the state government by virtue of the domestic constitution. This imposes a duty on the government of that state to foster an economy that is ripe, attractive and viable for international investment. Such economic development is commonly achieved through the ‘internationalization’ of the contracts by virtue of the establishment of legal trade mechanisms to promote transnational commerce and economic growth such as Bilateral Investment Treaties (BITs) and free trade agreements with investment protection provisions.27 The necessity of securing this favorable economic environment is evidenced by the rapid rate of BITs that have been prevalent in the recent years, and there has been a strong correlation between the increase of BITs and an increase in ICSID arbitral activity. This is largely due to the fact that at the heart of every bilateral investment treaty is a dispute resolution clause that forces the contractual parties to submit any conflict arising from the performance of that contract to international arbitration,28 of which in recent times the ICSID institution has been the most popular choice.29

There had undoubtedly been a noticeable paradigm shift away from legal nationalism in the sense that no longer were states seeking to adjudicate disputes within their domestic borders,

26 Art 1(1) General Assembly Resolution 1803 (XVII) 14 December 196227 International Institute for Sustainable Development (IISD) http://www.iisd.org/investment/law/treaties.aspx28 See Article 8(1) in the Settlement of Disputes between and Investor and a Host State in the Bilateral Investment Treaty Between the UK and Vietnam 200229 I F.I. Shihata, “The Settlement of Dispute Regarding Foreign Investment: The Role of the World Bankwith Particular Reference to ICSID and MIGA”, (1986) 1 American University Journal of International Law &Policy

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but rather many signed onto the new trend of entering into bilateral investment treaties and surrendering their disputes to international arbitration under the ICSID Rules. This new trend saw the decline of legal nationalization practices such as the Calvo Doctrine within prominent Latin American States and an increase in alternative dispute resolution cases brought before ICSID. The Calvo Doctrine, whose inception by Carlos Calvo, a prominent 19 th century Argentinean lawyer sparked a wave of legal nationalism that asserted the concept of non-intervention. The Calvo Doctrine promoted the notion that foreigners and nationals should be treated on an equal footing and advocated for commercial disputes to be referred to the local courts. The Calvo Doctrine also placed emphasis on rejecting the superiority of foreign sanctions within Latin America.30 Undoubtedly the doctrine was largely dismissed by American and European courts however the significance of the Calvo Doctrine is still relatively widespread with its influence extending out of the Latin Americas to Eastern Asia and Africa as well. According to the ICSID Caseload statistics there has been a rapid global increase in the amount of cases brought to ICSID in the last 10 years. The previous record of 38 registered cases in a single calendar year set in 2011 was succeeded by a staggering 56 cases in 2012 showing a profound increase that can be perhaps be attributed to the apparent correlation between the prevalence of BITs and a subsequent global move towards ICSID Dispute Resolution.

Diagram 1 31

30W. Shan, From “North-South Divide” to “Private-Public Debate”: The Revival of the Calvo Doctrine and the Changing Landscape in International Investment Law 27 Nw. J. Int'l L. & Bus. 631 (2006-2007)31 See Chart 1, The ICSID Caseload Statistics (2013) found at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/01/15/000333037_20140115155248/Rendered/PDF/839910NWP0ICSI0Box0382124B00PUBLIC0.pdf last accessed 20/11/14

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The Necessity of the Move Away from Internationalization and the Issues of Western Bias Prevalent Within International Investment Dispute Resolution

The sharp decline illustrated by the chart in Diagram 1 in the year 2013 can possibly be attributed to the wake of recent Latin American nations propagating the revival of the Calvo Doctrine and taking steps to renounce their affiliation with the ICSID Tribunal.32 According to the ICSID Caseload statistics and United Nations Conference on Trade and Development’s (UNCTAD) Report on Investor State Disputes Latin American nations accounted for over two-thirds of the ICSID’s total caseload, by far outweighing other regions in terms of cases of conflict requiring international arbitration. This dramatic number illustrates to the ‘teeth’ of the bilateral investment treaties and the power of investment treaty based arbitration cases. This has served the purpose of delivering a worldwide notice to states that are parties to such arbitration cases to seriously reconsider the merits of such an agreement and re-evaluate their approach towards the internationalization of the investment contracts they are party to.33 The precarious position has been significantly recognized by Latin American states such as Venezuela, Bolivia and Ecuador whom have gone as far as sever ties with the ICSID Tribunal, going back to the pre-Latin American bilateral investment treaty era that bears echoes of anti-western judicial propaganda in line with initial Latin American opposition to international investment settlement disputes colloquially referred to as the ‘El No De Tokyo’34 and Calvo Doctrine principles.

The issue with international arbitration under ICSID is that as it stands today, the vast majority of claims made under the ICSID Convention are from the foreign investors bringing an action against a host state government, this is what Gustav Laborde refers to as the archetypal ‘classic paradigm’. Laborde continues to argue that the foundation of ICSID would be fortified by making international arbitration more handsome and viable to host states, fostering the possibility that they might opt to utilize it as this would be a better representation of ICSID’s true purpose. The occurrence of the classical paradigm is not erroneous in the sense that it was surely within the contemplation of the World Bank when they drafted the ICSID Convention however it is not the full image of the goal they set out to achieve, as it does little to highlight the importance of the ‘reverse paradigm’. Gustav Laborde in his work, ‘The Case for Host State

32 W. Shan, From “North-South Divide” to “Private-Public Debate”: The Revival of the Calvo Doctrine and the Changing Landscape in International Investment Law 27 Nw. J. Int'l L. & Bus. 631 (2006-2007) p.63533 Ibid34 Andreas F. Lowenfeld, The ICSID Convention: Origins and Transformation, 38 Ga. J. Int’l & Comp. L. 47,54 (2009)

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Claims in International Investment’35 makes use of a quote from the report that the executive directors of the World Bank institution provided to accompany the convention which states that:

‘The broad objective of the Convention is to encourage a larger flow of private international investment, the provisions of the Convention maintain a careful balance between the interests of investors and those of host States. Moreover, the Convention permits the institution of proceedings by host States as well as by investors and the Executive Directors have constantly had in mind that the provisions of the Convention should be equally adapted to the requirements of both cases.’

Whilst this may have been the intended purpose of ICSID as Laborde points out, this is not how it has been received. Statistically, out of more than 300 cases registered in the ICSID Docket only a handful of cases have been documented that actually show the existence of the Reverse Paradigm of host states acting as the claimant within an international arbitration dispute.36 This would serve to illustrate an imbalance in the benefits to host nations of subscribing to international institutional dispute resolution. The following are to name a few:

- Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited37 - Gabon v Société Serete S.A. 38

- Government of the Province of East Kalimantan v PT Kaltim Prima Coal.39

As evidenced by the above statistics it can be inferred that whilst on principle the ‘reverse paradigm’ is accepted in practice it is hardly ever an occurrence. Laborde stresses that whilst it is not safe to base a presumption on such a small number of data pool the number of reverse paradigm claims brought to ICSID has doubled over the last 10 years which may be the herald of a new era in dispute resolution. Upon further research this may be down to the increase in the scope of the applicability of ICSID as mentioned in the commentary of Antonio Parra a legal advisor to the ICSID Institution in ‘ICSID and New Trends in International Dispute Settlement’.40 The ICSID Convention is cemented on and draws its power from the consent between the parties to surrender to international arbitration with the provisions of the Washington and New York Conventions as the cornerstone of its authority. Over the years we know based on ICSID Caseload statistics that it was the western member states that signed on to ICSID whom were the main users of the convention but now we see parties have begun to

35 G. Laborde, ‘The Case for Host State Claims in International Investment’ J Int. Disp. Settlement (2010) 1(1): 97–12236 M. Waibel, ‘The State as Claimant in Contract-Based Arbitration’ in ‘The Backlash Against Investment Arbitration: Perceptions and Reality’, Kluwer Law International (2010)37 Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited (ICSID Case No ARB/98/8 decision on 22nd June 2001)38 Government of Gabon v Société Serete S.A. (ICSID Case No ARB/76/1 decision on 5th of October 1976)39 Government of the Province of East Kalimantan v PT Kaltim Prima Coal and others (ICSID Case No ARB/07/3)40 M.K. Young, A. Parra et al, ‘ICSID and New Trends in International Dispute Settlement’ Remarks Presented at the 87th Meeting of the American Society of International Law, Washington (1993)

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recognize the significance of its implementation by relying on the international arbitral dispute resolution terms within their agreements to resolve disputes, taking a leaf out of the western book. Parra argues that similar terms can be seen imputed into bilateral investment treaties and other such contracts and it is the proliferation of these terms which may all contribute to the growth of international arbitration cases ICSID has seen in recent years. With more cases a year, the amount of reverse paradigm arbitrations brought before ICSID is statistically set to increase.

Entrenched in the historical origins of the Convention are themes that would suggest it was bias free in terms of its applicability to host states and foreign investors alike. Looking at the make-up of the actual convention there are many features that bolster this statement. The article ‘FDI Related Dispute Settlement and the role of ICSID: Striking Balance Between Developed and Developing Economies’ by Nakib Nasrullah41 points out the various procedures that were devised cleverly by ICSID to balance the interest of the parties. These include the equal voting rights of the participating state representative, renunciation of the right of diplomatic protection, investor’s right to direct access to the arbitral forum, consent based jurisdiction, application of the law, formation of the arbitral tribunal and the enforcement of arbitral award. Even with the existence of these balancing mechanisms many commentators have offered that the technical composition of the process of commencing ICSID dispute resolution tip the scales of balance against any developing host nations and can be construed be pro-investor in nature as is evidenced by statement by L. Sundra42 who commented that there is an evidential ‘institutional bias’ that fosters a ‘sense that the system is rigged’.43

One of the biggest critiques of the ICSID arbitration is the lack of recourse to an appeals process. Judicial review of the institution’s awards is not feasible due to the ‘high threshold’ for proving impropriety in the conduct of the tribunal44 and despite agreeing to increased transparency in its procedural reform in 2006 the institution refused to move forward with plans for an appellate body.45 The final and binding nature of ICSID awards46 is necessary for conclusive settlement of disputes but places a potentially unfair burden on the losing party. Also concerns of arbitral mistakes not having recourse for correction leads to growing concerns. International Arbitration has also been critiqued as not yielding uniform results across the board with similar fact cases producing disparate results depending on the tribunals the cases were heard in.47 If there is no uniform approach in arbitration and same-fact-cases are producing 41 N. Nakib, ‘FDI Related Dispute Settlement and the role of ICSID: Striking Balance Between Developed and Developing Economies’ International Law Annual (2013) p.9342 S. L. Cuba, “Resolving International Investment Disputes in Globalized World” (2007) 13 N.Z., Business Law Quarterly 12843 N. Nakib, ‘FDI Related Dispute Settlement and the role of ICSID: Striking Balance Between Developed and Developing Economies’ International Law Annual (2013) p.93

44 Article 52(1) of The Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID) 196545 S. D. Franck, ‘The ICSID Effect? Considering Potential Variations in Arbitral Awards’ 2011 Virginia Journal of International Law46 Article 53 of The Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID) 196547 K. F. Gomez, ‘Latin America and ICSID: David versus Goliath?’ Law & Business Review of the Americas 17, 2011, 185-230

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divergent results it would lead to the logical conclusion that it is the procedural nature of international arbitration and the independent election of arbitrators by parties on a case-by-case basis that is to blame for this disparate occurrence. ICSID arbitration has additionally been critiqued as being pro-investor biased because the drafters of the convention included provisions that necessitate the consent of investors before the initiation of arbitration. Of course this does not pose an issue when the investor stands to benefit from the arbitration i.e. in the event of expropriation by the host state, however foreign investors will be more reluctant to participate in disputes regarding development obligations or human rights concerns for example.

Conclusion

Whilst arbitration and other forms of dispute resolution mechanism are very powerful tools, they are by no means a panacea.48 Very often undertaking dispute resolution proceedings will not culminate in a resolution of the dispute at hand. The conduct of the parties is the most important ingredient towards fruitful alternative dispute resolution. Noncompliance or reluctance by one party or another to co-operate in the dispute resolution will make the task of reaching an amicable decision more difficult and costly. It is the accepted norm, or tradition for parties in a contractual disagreement to move towards the courts in favor of gaining a settlement by litigation. This promotes an antagonistic relationship between the parties and the arduous ensuing legal battle will typically bear a very high cost due to the high-risk, high-profile and high-value conflicts that arise out of modern petroleum contracts requiring the procurement services of the best and most specialized teams of lawyers by both parties. Thus international arbitration, particularly in the scope of cross-border petroleum disputes, has been largely popularized and has become big legal business.49 In efforts to capitalize on this commercial opportunity the increased demand for forms of designer justice and ‘private adjudication awards’ has corrupted the mutually beneficial medium that ICSID was purported to be at its inception.

International arbitration still has many distinct advantages in terms of effecting successful dispute resolution on a world-wide scale. There are aspects of the formation of the rules that seem to suggest a semblance of a ‘loaded deck’. Perhaps the disparity between the rate of successful claims for host nations and foreign investors is completely an unintentional and non-meditated occurrence. However, there is no denying the existence of certain disadvantages faced by host nations in embarking upon international arbitration-based dispute resolution. In light of the inherent risk of the costs of dispute resolution, it is important to remember that there is no love lost until the walls of the glass house come crashing down. When the relationship between host nations and their international partners are good there is hardly any conflict, with both parties reaping the rewards of international trade and commerce. The symbiotic relationship between developing host nations and foreign investors can be seen as a necessary evil that is tolerated in favor of promoting crucial economic realization of national resources for states that 48 T.W. Wälde (†); "Mediation/Alternative Dispute Resolution in Oil, Gas and Energy Transactions: Superior to Arbitration/Litigation from a Commercial and Management Perspective" OGEL 2 (2003) www.ogel.org/article.asp?key=65 last accessed 20/11/1449 Y. Dezalay and B. G. Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order (1st, University of Chicago Press, Chicago 1998) p.6

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are unable to take advantage and exploit their own geological inheritance. The arbitration clauses embedded within the bilateral investment treaties are a necessity to attract the kind of foreign direct investment that invigorates social and economic growth for developing nations. In truth, both parties benefit from the internationalization of petroleum investment contracts for the most part. Without these dispute resolution mechanisms, crucial trans-national commercial practices would be a lot more difficult to realize, resulting in a global downturn of commerce and a lose-lose situation for both host nations and private investors on a global scale.

Word Count - 6993

Bibliography

Books

- Y. Dezalay and B. G. Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order (1st, University of Chicago Press, Chicago 1998)

- M.K. Young, A. Parra et al, ‘ICSID and New Trends in International Dispute Settlement’ Remarks Presented at the 87th Meeting of the American Society of International Law, Washington (1993)

- M. Waibel, ‘The State as Claimant in Contract-Based Arbitration’ in ‘The Backlash Against Investment Arbitration: Perceptions and Reality’, Kluwer Law International (2010)

- G. Gordon and J. Paterson, Oil and Gas Law: Current Practice and Emerging Trends (2nd, Edinburgh University Press, Edinburgh 2010)

- C. Schreuer et al, The ICSID Convention: A Commentary (Cambridge University Press, 2nd ed, 2009)

Articles

- T.W. Wälde (†); "Mediation/Alternative Dispute Resolution in Oil, Gas and Energy Transactions: Superior to Arbitration/Litigation from a Commercial and Management Perspective" OGEL 2 (2003)

- K. F. Gomez, ‘Latin America and ICSID: David versus Goliath?’ Law & Business Review of the Americas (2011)

- S. D. Franck, ‘The ICSID Effect? Considering Potential Variations in Arbitral Awards’ Virginia Journal of International Law (2011)

- M. Ball, The Legal Structure for Domestic and International Commercial Arbitration

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- N. Nakib, ‘FDI Related Dispute Settlement and the role of ICSID: Striking Balance Between Developed and Developing Economies’ International Law Annual (2013)

- G. Laborde, ‘The Case for Host State Claims in International Investment’ J Int. Disp. Settlement (2010)

- Andreas F. Lowenfeld, The ICSID Convention: Origins and Transformation, 38 Ga. J. Int’l & Comp. L. 47, 54 (2009)

- S. L. Cuba, “Resolving International Investment Disputes in Globalized World” 13 N.Z., Business Law Quarterly (2007)

- W. Shan, From “North-South Divide” to “Private-Public Debate”: The Revival of the Calvo Doctrine and the Changing Landscape in International Investment Law 27 Nw. J. Int'l L. & Bus. 631 (2006-2007)

- I F.I. Shihata, “The Settlement of Dispute Regarding Foreign Investment: The Role of the World Bank with Particular Reference to ICSID and MIGA”, American University Journal of International Law &Policy (1986)

- O. E. Garcia-Bolivar, 'Defining an ICSID Investment: Why Economic Development Should be the Core Element' (International Institute for Sustainable Development 2012)

- Maniruzzaman, A. F. M, the Pursuit of Stability in International Energy Investment Contracts: A Critical Appraisal of the Emerging Trends (June 24, 2008). Journal of World Energy Law and Business, Vol. 1, No. 2 (2008)

Legislation

- The Arbitration Act 1996- General Assembly Resolution 1803 (XVII) 14 December 1962- The Washington Convention on the Settlement of Investment Disputes Between

States and Nationals of Other States (ICSID) 1965- The Bilateral Investment Treaty Between the UK and Vietnam 2002- Convention on the Recognition and Enforcement of Foreign Arbitral Awards

(New York Convention) 1958- United Nations Commission on International Trade Law (UNCITRAL) Model

Law on International Commercial Arbitration 1985

Cases and Arbitral Awards

- Burchell v Bullard & Ors [2005] EWCA Civ 358- Ceskoslovenska Obchodni Banka, A.S. v Slovak Republic (ICSID Case No.

ARB/97/4, Decision on Jurisdiction of 24 May 1999) - Halifax Life Ltd v The Equitable Life Assurance Society [2007] EWHC 503- Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Limited and Others [2004] 4

All E.R. 1072

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- Salini Costruttori SpA and Italstrade SpA v. Morocco (ICSID Case No ARB/00/4, Decision on Jurisdiction of 23 July 2001)

- Malaysian Historical Salvors Sdn Bhd v. Malaysia (ICSID Case No. ARB/05/10, Award on Jurisdiction of 17 May 2007)

- Government of Gabon v Société Serete S.A. (ICSID Case No ARB/76/1 decision on 5th of October 1976)

- Government of the Province of East Kalimantan v PT Kaltim Prima Coal and others (ICSID Case No ARB/07/3)

- Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited (ICSID Case No ARB/98/8 decision on 22nd June 2001)

Oth er

- The ICSID Caseload Statistics (2013)

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