ICSID Addresses Practical Aspects of Responding to an Investment Claim

In a newly published document styled “Practice Notes for Respondents in ICSID Arbitation,” the International Centre for Settlement of Investment Disputes (ICSID), the World Bank’s arbitration institution, addresses questions frequently asked by users of ICSID arbitration and provides practical suggestions for the prevention and management of investment disputes by respondent States.

States hosting foreign investments increasingly get embroiled in investment disputes with investors: at least 106 States are known to have faced investor claims based on alleged breaches of investment treaties and agreements concluded by them. Such investor-State disputes are commonly resolved through ICSID arbitrations conducted under the ICSID Convention or the ICSID Additional Facility (in situations where the Contracting Party of the investor or the Contracting Party to the dispute, but not both, is a party to the ICSID Convention). The ICSID Convention, currently in force for 152 States, provided the legal framework for the settlement of investor-State disputes in 381 of 668 publicly known arbitrations involving international investment instruments.

The ICSID Practice Notes contain practical approaches to dispute prevention by States, including considerations specific to drafting investment treaties:

• When entering into investment instruments, States should ensure that their domestic laws and international legal obligations are consistent with their investment instruments;
• States should ensure that their relevant public officials are aware generally of the State’s investment obligations;
• Formal dispute prevention and management systems established by States may include training regarding the State’s investment obligations, reviewing proposed measures for compliance with investment instruments, creating an early warning system and coordinating the management of investment disputes by a designated department;
• Counsel experienced in investment law and arbitration should be consulted in treaty drafting “to ensure the treaty language takes into account best practices and recent cases interpreting investment treaty provisions.”

The Practice Notes also address practical issues relevant to the pre-arbitration phase:

• States receiving an informal notice of dispute from a foreign investor should take stock of the situation and assess the cost-benefit of a settlement if the dispute is susceptible to settlement;
• States should make a preliminary assessment of potential liability, considering also the systemic implications of a potential settlement;
• States may also offer non-financial terms of settlement, which may be relevant to keeping the investor operating in the host State;
• Regardless whether there is a formal “cooling-off” period, States should engage in preliminary discussions with the investors to learn about the background to the dispute and the claims of the investors;
• As investor claims often involve multiple government entities, States should ensure that all of their relevant entities are engaged in, or informed about, the process, and are effectively coordinated so that the defence in the arbitration represents the overall position of the State;
• States should be aware of the suitability of different legal representation models: in-house counsel, outside counsel or a combination of the two;
• In deciding case strategy, a State also should consider if its position is tenable and/or consistent with its positions taken in past or other pending cases and if it is in line with the State’s policy objectives;
• States should determine their media strategy as part of the overall case approach;
• States should address cost budgeting issues considering the likely complexity and duration of the case.

The ICSID Practice Notes also include a step-by-step summary of the arbitration process from the filing of the request for arbitration to the post-award phase.

CONCLUSION

The ICSID Practice Notes provide helpful tips and other practical information to users of ICSID arbitration, in particular State representatives, in relation to the prevention and management of investment disputes and the ICSID arbitral process. Investor-State arbitration has been criticised in the public arena for a number of reasons, including for its perceived lack of transparency. The ICSID Practice Notes are a commendable institutional contribution to promoting the transparency of the ICSID arbitration process.

The full version of the ICSID Practice Notes is available here.