International Judicial Monitor
Published by the International Judicial Academy, Washington, D.C., with assistance from the
American Society of International Law

Spring 2013 Issue

Private International Law Discourse


The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention)

Carolyn A. Dubay

By: Carolyn A. Dubay, Associate Editor, International Judicial Monitor and Assistant Professor, Charlotte Law School

In 1966, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States entered into force and paved the way for the orderly resolution of international investment disputes through the creation of the International Centre for Settlement of Investment Disputes, commonly known as ICSID.  ICSID, which operates under the auspices of the World Bank, serves as an independent international institution that provides support for the private adjudication of international investment disputes. 

One of the major thrusts of the ICSID Convention was to improve the flow of investment capital into foreign countries, allowing those countries to develop while at the same time providing investors with a reliable means of resolving any investment disputes.  ICSID was thus created to serve as an impartial international organization to support the private resolution of legal disputes (through arbitration and conciliation) between investors and host States.  As such, ICSID has been integral in facilitating international investment in aid of economic development.  Reflective of its success, there are currently 158 signatory States to the ICSID Convention, including the United States. 

While ICSID was originally limited to disputes between signatory states and nationals of other signatory states, in 1978, ICSID's mandate was supplemented through the Additional Facility for the Administration of Conciliation, Arbitration and Fact-Finding Procedures (known simply as the Additional Facility).  The Additional Facility Rules authorize ICSID to administer certain types of proceedings outside the scope of the ICSID Convention, such as conciliation and arbitration of disputes where one or both parties are not an ICSID signatory or a national thereof, and where the subject matter of the dispute does not directly arise out of an investment.   Beyond the Additional Facility, the Secretary-General of ICSID is also authorized to assist in the administration of ad hoc international arbitration proceedings in other areas of commercial law, such as arbitration pursuant to the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), or through other international arbitration institutions such as the International Chamber of Commerce (ICC) and the Permanent Court of Arbitration (PCA). 

With the popularity of international arbitration as a means of dispute settlement and the expanded role of ICSID, its caseload has gradually grown.  As of December 31, 2012, and since its inception, ICSID has registered a total number of 419 cases under the ICSID Convention and Additional Facility Rules.  Statistics also show a steady rise in the number of cases registered annually, with the number more than doubling since 2008.  According to ICSID’s statistics, despite the growth of ICSID’s mandate and jurisdiction, however, the vast majority of its cases (87%) have been core ICSID Convention arbitration proceedings.

A critical element of the ICSID structure is that it is not a standing court, but instead offers administrative support to facilitate private dispute settlement of matters within its jurisdiction.  Jurisdiction is generally found where (1) the dispute is between an ICSID Contracting State and national (usually a corporation) of another ICSID Contracting State, (2) the dispute arises directly out of the foreign investment at issue; and (3) the parties consented in writing to the submission of their dispute to ICSID arbitration or conciliation. Under the ICSID Convention, the Secretary-General may refuse registration if the dispute is manifestly outside ICSID’s jurisdiction.


To support its mission, ICSID’s organizational structure consists of an Administrative Council and a Secretariat.  The Administrative Council is made up of representatives of each of the ICSID Contracting States and serves to elect leadership, adopt the regulations and rules for ICSID proceedings, adopt the ICSID budget and approve the annual report.  The Secretariat is led by the Secretary-General, who serves as ICSID’s legal representative and the registrar of all ICSID proceedings.  In that capacity, the Secretariat also provides the framework and administrative structure for the initiation and conduct of ICSID proceedings, including maintaining the ICSID Panels of Conciliators and of Arbitrators.  The ICSID Panels provide a source for potential arbitrators and conciliators and are designated by each Contracting State and the Chairman of the Administrative Council.  Selection of an arbitrator or conciliator from the ICSID panels is not mandatory in ICSID-administered proceedings unless the Chairman of the Administrative Council is designated by the parties to make such appointment, in which case the appointees must be drawn from the Panels. 

A central aspect of the ICSID framework is that arbitration and conciliation under the ICSID Convention is entirely voluntary.  Once the parties have consented to arbitration through ICSID, however, they are bound by the agreement to arbitrate (or mediate) and, in the case of arbitration, to recognize and enforce the award.  Provisions on ICSID arbitration are commonly found in investment contracts between governments of member countries and investors from other member countries, through various domestic investment laws, and in hundreds of bilateral investment treaties (BITs).  According to ICSID’s statistics, by far, most consent agreements are contained in BITs.  Other consent agreements are embedded in free trade agreements, such as the North American Free Trade Agreement (NAFTA). 

Importantly, in recent years, the nature of disputes settled through the ICSID facility have evolved from disputes about contract performance issues by the state, towards disputes relating to the impact of political shifts and civil unrest that threaten expropriation of assets.  As a result, looking at the ICSID statistics, most disputes resolved through the ICSID process have involved investment contracts relating to South American countries, followed by countries in Eastern Europe/Central Asia.   A troubling sign for ICSID has been moves by several South American countries to denunciate the ICSID Convention.  For example, on January 24, 2012, the World Bank received a written notice of denunciation of the ICSID Convention from Venezuela, which followed the lead of Bolivia and Ecuador, which had denunciated ICSID several years ago.  Although denunciation under the Convention is to have no impact on pending cases, prior to his death, Venezuelan President Hugo Chavez indicated publicly that Venezuela would not comply with future ICSID awards.  Although it remains to be seen what will occur under Venezuela’s new president, concerns continue to mount that other South American countries may withdraw from the ICSID Convention, particularly Argentina as it is involved in several ongoing ICSID-supported arbitration proceedings.

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© 2013 – The International Judicial Academy
with assistance from the American Society of International Law.

Editor: James G. Apple.
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