The workload of the world bank's autonomous dispute settlement centre is growing, but so is the number of groups critical of its power. Jon Robins reports


Earlier this year more than 863 campaigning groups from 59 countries presented a petition to World Bank president Robert Zoellick accusing the bank's arbitration body of undermining democracy.



The protest against the International Centre for the Settlement of Investment Disputes (ICSID), by a coalition including Friends of the Earth, Water Watch and the National Lawyers Guild, followed a 2007 decision by the Bolivian government to become the first country to withdraw from ICSID's jurisdiction since the centre was set up in 1965.



‘Bolivia is just one of several governments that are challenging the excessive investor protections in free-trade agreements and bilateral investment treaties,’ wrote the groups, adding that ICSID was ‘the most widely used mechanism for enforcing these rules’.



It is a sign of the increasing importance of the arbitration body, set up by the World Bank in 1966 and intended to be autonomous of it, that it is creating waves with non-governmental organisations (NGOs). In the world of international arbitration, ICSID has certainly taken on a relatively new prominence. ‘It’s now a significant part of our practice,’ reports Nigel Blackaby, a partner in Freshfields’ international arbitration practice. ‘ICSID work probably amounts to half the practice nowadays, and that has grown more than anything else to serve the rocketing increase in this work.’



A decade ago it was relatively unusual for a company to launch a formal claim against a foreign government – then came the explosion in the number of bilateral investment treaties, or BITs. BITs are treaties signed often, but not always, between well-off countries and developing nations to give business safeguards when investing – ensuring, for example, fair treatment and protection from expropriation.



As Nigel Blackaby points out, there is ‘a degree of prestige’ about ICSID work. ‘You’re either defending a sovereign state or claiming against a sovereign state, and that raises all kinds of interesting legal issues,’ he says. ‘But we’re also dealing with a body of public international law which is in development and many of the cases make new case law, which is exciting. Decisions are also made public, unlike ordinary arbitration awards which remain confidential.’ Each decision that comes out of the ICSID process is ‘scrutinised, considered and builds part of the overall jurisdiction’, he adds.



As the attention of 800 NGOs suggests, the workings of this discreet tribunal can be of considerable interest. The controversial nature of investment treaties has been a theme in the run-up to the US election, with both Hilary Clinton and Barak Obama threatening to pull out of the North American Free Trade Agreement with Mexico and Canada. ‘We’re going to take out the ability of foreign companies to sue us because of what we do to protect workers,’ said Clinton.



One recent report reckoned that there are more than 2,500 such treaties, compared with 385 in 1989. Up to 2002 no more than 20 new cases were filed with ICSID each year, but from then there have never been fewer than 25 new cases a year, and last year 46 new cases were filed.



‘Cases often take several years to resolve, [and] this means that the number of cases ICSID is handling at any one time has risen steadily, from about 60 in 2003 to 130 in 2007,’ says James Nicholson of economists LECG, who act as experts appointed by parties, particularly in relation to assessing damages. ‘Although the number of cases is small,’ he says, ‘they are attracting a lot of attention, as the claim values are often large. Claims in the hundreds of millions of dollars are not unusual – the biggest we are aware of is a claim against Turkey for $10bn. The awards can be substantial too – the largest we know of is an award against Slovakia for $877m.’



Nicholson suggests there are various reasons for this growth spurt in ICSID’s caseload. ‘Government responses to the economic crisis in South America in 2001 and 2002 triggered a number of events that have given rise to claims,’ he says. ‘Increasing globalisation of trade and investment must also underlie the trend. Perhaps also the fact that there have been some large awards given by ICSID tribunals, and that’s increased awareness of bringing a case among practitioners and potential claimants.’



Stephen Jagusch, a partner at Allen & Overy who specialises in ICSID arbitration, reckons half of his firm’s international arbitration practice currently relates to the tribunal, although he acknowledges that ICSID represents ‘only a very thin slice of the global arbitration work that’s out there’.



Jagusch believes that the International Chamber of Commerce, the ICC, handles 500-600 a year, the China International Economic and Trade Arbitration Commission, CIETAC, handles 700, and the likes of the Stockholm Chamber of Commerce and the London Court of International Arbitration handle a few hundred. But, he says, there is no central repository of statistics. ‘Anecdotal evidence would suggest there are as many ad hoc arbitrations as there are institutional ones, so there are thousands of commercial arbitrations taking place every year.’



A&O is presently defending both Slovenia and Azerbaijan in ICSID arbitrations and the firm has expertise in energy charter treaty disputes, having been involved in five of the 12 that have so far taken place. Jagusch points out the constitutional uniqueness of the body: ‘Unlike all the other arbitration institutions it is supranational, not rooted in any domestic legal system,’ he explains. ‘So it exists completely outside of any domestic legal system. Awards can’t be challenged by any court, anywhere, and that makes it a significantly better institution to take your arbitration to than the ICC or Stockholm Chamber of Commerce, for example, because all those awards have a ‘nationality’, a place where they were made. Parties can go to courts and challenge them either there or where the awards are sought to be enforced.’ It is possible for parties to seek an annulment under the ICSID regime. But, he adds: ‘The realms of an annulment are phenomenally narrow. Although initially there were several cases that succeeded, the current trend is very much against annulment.’



ICSID was set up under the Convention on the Settlement of Investment Disputes (known as the Washington convention) in 1965, explains Jeanine Thompson, an associate in Norton Rose’s Moscow office. The convention now has more than 140 signatories and seeks, in ICSID’s words, ‘to remove major impediments to the free international flows of private investment posed by non-commercial risks and the absence of specialised international methods for investment dispute settlement’.



According to Thompson, who was on the ICSID secretariat in 2001, about half of the parties in BIT disputes end up opting for the centre as the preferred venue for arbitration. ‘It is dependent for its legitimacy upon the continued consent of those states,’ she says.



‘You are looking at a civil service-type bureaucracy more than a corporate entity,’ notes Joe Tirado, head of international arbitration at Norton Rose. ‘An extra string to ICSID’s arbitration bow is the authority of the World Bank. If a state consistently fails to fulfil its obligations under the convention, from a practical point of view there’s a risk that, because they’re dependent on World Bank funding, it is not going to look on them in friendly terms.’



ICSID’s authority has been questioned recently by the decision by Bolivia to pull out and Argentina’s refusal to pay any of the awards in relation to dozens of claims from foreign companies following its financial meltdown in 2001. Ken Fleuriet, a partner in the international arbitration practice group in the London office of the US firm King & Spalding, outlines how BITs are growing. ‘We have filed around 28 BIT claims over the last five or six years, and ICSID represents a predominant proportion of our caseload,’ he says. Fleuriet is currently working on arbitrations against Egypt, Romania, Armenia as well as a string of cases against Argentina. Has non-cooperation by the likes of Argentina and Bolivia weakened ICSID? ‘From our perspective, it shows that the system is working. Many investors had come into Argentina, invested in a significant way and, when the country ran into economic trouble, it revoked the safeguards it had put in place precisely in the event to protect them against such a crisis,’ he says. As for Bolivia, he says, ‘the jury is still out’ as to whether it can back out of the jurisdiction ‘especially in terms of its pre-existing investments’.



What about those concerns that the tribunal is providing a platform for promoting investor rights at the expense of human rights? ‘Our view is that foreign investment is very beneficial to the host state,’ says Fleuriet. ‘I have some trouble understanding why those very large investments into foreign countries, that probably wouldn’t have occurred otherwise, can be viewed as anti-democratic or against the environment.’



As for the perception that ICSID operates in a less than open manner, Audley Sheppard, a litigation and dispute resolution partner with Clifford Chance says this: ‘I think the concerns are exaggerated, but that is not to say they are totally without merit. The merits in the argument have been recognised by the introduction of amicus briefs [allowing interested groups or individuals who are not parties to have their say] and the fact that some hearings are now held in public.



‘Some groups might not like it, but it’s a fact that a government often enters into contracts that are confidential – a government wants it, and the private contractor wants it as well. That might not be foursquare with public procurement rules, but there is nothing inherently bad about it either.’



Jon Robins is a freelance journalist