Dispute Settlement Clauses in Investment Treaties

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A vital element of investment treaty arbitration is the dispute settlement clause found in investment treaties. It grants investors the right to institute arbitration proceeding directly against a state. This type of clause represent a change from traditional international law practice where by an investor was generally dependent on its home sate to pursue a diplomatic protection claim on behalf of the investor.[1]

3.8.1. International Center for Settlement of Investment Disputes

The ICSID is an autonomous international institution formulated under the auspices of the World Bank to facilitate as a specialized method of international dispute settlement. The claimant in this form of arbitration is a private party and the respondent is a foreign state. The convention also known as the Washington convention entered into force in October 14, 1996. The ICSID is based in Washington; the center offers special autonomous procedures for administering investment arbitration between a state, or state entity and a foreign private investor. ICSID was created as n independent international organization (article 18 of ICSID), but it’s structurally linked to the World Bank. The banks governor sits on the administrative council of ICSID, the chairman of the administrative council is the World Bank president and the ICSID secretariat is funded through the World Bank. The ICSID has a comprehensive o structure consisting of a council and a secretariat. The administrative council is composed of all contracting states, the secretariat on the other hand provides the day to day administrative and support function for arbitration. Initially numbers of cases registered with the ICSID was low. After the conventions entry to force in 1966 no case was registered with ICSID,[2] between 1966 to 1996 only 35 cases were registered, an average of one case per year approximately.[3] Today though the picture is totally different, the number of cases registered at the ICSID has increased significantly. The ICSID has also brought some revolutionary change in private vs. state arbitrations. Traditionally investors depended on their home state to pursue claims on their behalf against a host state before an international court or tribunal. The ICSID conventions grants investors’ direct arbitration rights against states. In contrast with other arbitral institutions, ICSID procedure is self contained and insulated from domestic court involvement during arbitral procedure.[4] The insulation of ICSID arbitral proceedings from the influence of domestic court is achieved through a number of provisions in the ICSID convention. Under the ICSID convention domestic courts have no power to set aside ICSID awards. Under international law submission of a private party claim against states before an international tribunal requires that the party first needs to exhaust the local domestic legal remedies available in the respondents states domestic courts. The ICSID reverse these notion and it presumes that parties to the convention have waived there requirement of exhaustion of domestic remedies. Due to its advantages, ICSID is a major actor in the field of international investment and economic development, the ICSID stands as a leading international arbitration institution devoted to investor vs. state dispute.

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3.8.2. Permanent Court of Arbitration

The PCA was established in 1899 at the first Hague peace conference. The PCA provides arbitration for cases involving states, intergovernmental organizations against private parties.At the conference “Convention for the Pacific Settlement of International Disputes,” was adopted which established which set the foundation for an institution resolving international commercial dispute. The Permanent Court of Arbitration was founded. It was the first in its character to have a political character because it was created bu states pooling their resources. The PCA was founded in 1899; the PCA holds the pride for being the oldest institution that deals with international dispute resolution. At the time it was established referring disputes or international disputes to international tribunals for resolutions was rare. In the same way, international law the basis for dispute resolution wasn’t quite relatively undeveloped. Hamilton elaborates that ‘while a rudimentary set of principles had emerged from a combination of state practice and the theoretical wok of writers such as Grotius, Vattel and Pufendor, neither the substantive rules needed to regulate the complex relation of states nor, naturally, the adjectival law indispensable to third party processes of dispute resolution, had been properly developed[5] The PCA back then is todays forms of international dispute solving mechanism, including the International Court of Justice (“ICJ”).[6] The PCA headquarters is located in Hague, and it house in the peace place, the Peace Palace now also houses the ICJ, the Carnegie Library and The Hague Academy of International Law. When it was first founded, the PCA establishment purpose was to settle dispute between states. During it first existence year’s significant number of interstate disputes were submitted to tribunal under PCA auspices. The PCA has to solve issues relating to territorial disputes, state responsibilities, treaty interpretation more generally issues related to international public law. Many of the principles laid down in the early PCA cases are still good law today, and are cited by other international tribunals, including the ICJ.[7] Mentioned earlier, the PCA was established to resolve interstate disputes, but in the 1930s the PCA was authorized to use its facilities for conciliation, and for the arbitration of international disputes between States and private parties, making it available for resolving c commercial and investment disputes. In 1962, the PCA elaborated a set of “Rules of Arbitration and Conciliation for settlement of international disputes between two parties of which only one is a State,” which undoubtedly inspired the subsequent adoption of the 1965 Agreement establishing the ICSID at the World Bank. The PCA was revived in the 1980s by the the United Nations (UNCITRAL), it adopted a set of non-institutional arbitration rules for settling international commercial disputes. There was a setback for the United Nations though, having created all these rules to foster international trade, they had no method for appointing arbitrators and deciding challenges. The UNICITRL rules had given disputant parties the choice of setting their own rules for arbitration and also the choice to choose their own arbitrator. It also stated in cases in which the parties were unable to agree on the choice of an appointing authority, a trusted international institution was needed. Since 1981, nearly 200 requests for designation of an appointing authority have been submitted to the Secretary-General, the vast majority of them since the mid-1990s. This increase, as well as, the increasing complexity of the cases in which requests are made, has brought the PCA squarely into the realm of international commercial arbitration. Since then, the PCA has expanded and internationalized its staff, increased worldwide awareness of its facilities and services, and improved and modernized the functioning of its system of dispute settlement primarily by adopting several sets of procedural rules, nearly all of which are based closely on the comparable UNCITRAL texts.[8] The basic organizational structure of the PCA is set out in the 1899 and 1907 Conventions. The PCA is not an actual court true in the sense it doesn’t have permanent judges residencing in it. Instead, a permanent secretariat, known as the International Bureau and headed by the Secretary-General, assists the parties by establishing and administering for each case an ad hoc tribunal. The Bureau serves as the operative as the engine of the PCA. It holds the permanent list of arbitrators; it handles communication for the PCA. Supervisory and overseeing of the PCA is held by the Administrative Council, the administrative council consists of the diplomatic representatives of member countries. The Council duty is to guide the work of the PCA, and control its administration and expenses.

[1] Greenberg, Simon, International Commercial Arbitration: An Asia-Pacific Perspective, Cambridge university press, 2011, p.481. [2] Greenberg, Simon, International Commercial Arbitration: An Asia-Pacific Perspective, Cambridge university press, 2011, p.481 [3] icsid.worldbank.org [4] Greenberg, Simon, International Commercial Arbitration: An Asia-Pacific Perspective, Cambridge university press, 2011, p.492. [5] Hamilton, P, The Permanent court of Arbitration: international arbitration and dispute resolution: summaries of awards, settlement agreements and reports, kluwer law international, 1999, p.3. [6] Unctad.org [7] Hamilton, P, The Permanent court of Arbitration: international arbitration and dispute resolution: summaries of awards, settlement agreements and reports, kluwer law international, 1999, p.3. [8] Unctad.org

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