Today, direct and indirect foreign capital investments have an important place in international trade. In order to support and encourage foreign investments, which are considered important in terms of economic development since the beginning of the 20th century, especially after the Second World War, many countries have made supporting, encouraging and protective domestic law regulations and signed international agreements.
The future and stability of the investment is closely related to the economic, political and social stability of the country where the investment is made. The instability in developing countries that need foreign capital also poses a risk to foreign investment, which has revealed the need for regulation in this area.
A number of steps have been taken towards resolving the non-commercial risks and disputes that may be faced with regard to foreign investments, which are an important economic development tool especially for developing countries.
The first of these is the "Multilateral Investment Guarantee Establishment Agreement" (MIGA), prepared under the auspices of the World Bank. With this agreement, a Guarantee Fund was established in order to meet the non-commercial risks that foreign investments may face to face. Another important agreement is the “Agreement on Settlement of Investment Disputes Between States and Citizens of Other States” dated 1965, also known as the ICSID Convention (Convention) or Washington Agreement, prepared under the leadership of the World Bank. With this agreement, the (International Center for Settlement of Investment Disputes) ICSID, was established. The contract entered into force on 14.10.1966. It was approved by Turkey. ICSID, established within the World Bank, is located in Washington.
The purpose of the agreement is to enable the settlement and arbitration of disputes arising from investment disputes between foreign investors and the host state or public institutions and organizations.
The ICSID Agreement provides for a special institutional arbitration procedure for dispute resolution. The arbitration will be administered by the International Center for the Settlement of Investment Disputes established by this agreement. As a rule, the parties are free to choose arbitrators to deal with the case. The chief arbitrator is also determined by the arbitrators ed by the parties. The center cannot choose any party arbitrator. The center is involved in the establishment of the arbitrator tribunal if the parties cannot agree on the ion of the chief arbitrator. According to Article 25 of the Agreement, the jurisdiction of the Center covers legal disputes arising from investments between the Contracting countries (or their sub-units or representatives appointed to the center by the country) and the citizens of other Contracting States who have submitted their written consent to the Center in case of dispute. In other words, the application to ICSID arbitration is limited in terms of subject and parties.
In order for a dispute to be submitted to ICSID arbitration, it must first have certain properties. The first of these is the requirement that there is a written agreement between the parties to go to ICSID arbitration. Second, the dispute must have arisen between a state party to the ICSID Convention and a citizen of another contracting state. The last condition is that the dispute is a legal dispute arising from the investment, that is, an investment dispute. If any of these conditions are missing, the case cannot be taken to the ICSID.
The ICSID Agreement covers investment disputes arising between states or their sub-units and other state citizens, natural person and legal entities.
In order for the Center to exercise its jurisdiction, it is not sufficient that the Agreement is in force between the host state and the country where the foreign investor is a member, where investment disputes arise. In addition, in each concrete dispute, there must be a mutual special agreement between the foreign investor and the host state or sub-units of the state, stipulating the authority of the center.
The center is not a court that directly resolves disputes. The duty of the center is to provide technical and administrative facilities in resolving disputes.
It should also be noted that the agreements that authorize ICSID are not limited to bilateral agreements, and the jurisdiction of the center has been accepted in some multilateral agreements. The most typical example regarding this issue is the Energy Charter Agreement. Turkey is party to this agreement. According to the 26th article of the agreement, investment disputes can be brought to ICSID, depending on the choice of the investor.
ICSID arbitration has a very important property that distinguishes it from commercial arbitration. In cases where the public interest is at stake in ICSID arbitration, third parties who are not parties to the arbitration agreement may be involved in the case. An example of this is the Methanéx case.
The state of California banned the use of the substance in 2002 on the grounds that the MTBE substance produced by the Canadian-based Methanex company was mixed with potable water and endangered public health. The investor company claimed that the state of California did not take adequate environmental protection measures against this ban and that the ban was unfair. The company stated that the aforementioned ban had a severe negative impact on the investment, and for these reasons, it requested compensation amounting to 1 billion USD.
Civil society organizations were allowed to participate in the proceedings as interveners. For this reason, the decision sets an example in terms of the involvement of third parties who are not parties to the arbitration agreement.
Another important issue in ICSID arbitration is the issue of determining the law to be applied at the point of dispute resolution. Article 42 of the agreement has made a regulation regarding the law that the arbitral tribunal will apply to the merits.
According to Article 42, the Committee will settle the dispute within the framework of the legal rules agreed on by the parties. In the absence of agreement, the Committee will apply the applicable rules of the law of the Contracting State party to the dispute (including its conflict of laws rules) and of International Law articles. In fact, the Agreement has adopted an understanding that the law of the ccontracting state shall apply to contracts between states and private person if the parties have not made any choice of laws.
Appeal Against Arbitration Decisions
According to Article 53 of the agreement, "the decision will be binding on the parties, it will not be brought to a higher authority before the local courts, or it will not be subject to a solution other than those stipulated in this contract." As it is clearly stated in the article, it is not possible to file an action for annulment against arbitral awards in local courts. According to the ICSID agreement, an appeal against the decision will be made to the Center.
The agreement provides for certain grounds for objection to the decisions made by the arbitral tribunal. These reasons are limited. If one of these reasons is proven, the decision of the arbitrator is canceled.
According to the ICSID agreement, the means to appeal against the decision will be used before the Center within the framework of the procedures stipulated by the Agreement. According to Article 52 of the Agreement, one of the parties may request the annulment of the decision by a written application to the Secretary General in the presence of one or some of the following situations. These procedures;
can be requested against the decision by stating the reasons. There is a requirement that this request for cancellation is put forward within 120 days from the date of the decision.
When such a cancellation request arrives, the President (World Bank President and also Chairman of the Executive Council) appoints 3 members of the Arbitration Panel to the ad hoc Committee. This Ad Hoc Committee consists of arbitrators foreign to the citizenship of the parties from the list of arbitrators. The committee examines the request, if it detects the existence of one or more of the reasons, it cancels all or part of the decision. If the entire decision is canceled, a new arbitration committee is formed for the dispute upon the request of one of the parties.
Execution of Decisions
According to Article 54 of the Agreement, each member state shall accept as binding any decision made in accordance with this agreement and shall fulfill the monetary obligations of the decision within its borders as a final decision of its own State's court. These decisions will be executed in the contracting states like local court decisions.
According to Article 54 of the Agreement, the states party to the Convention have agreed to be bound by the decisions taken by the arbitration court. Contracting states will execute these decisions in their own countries as final decisions made in their own courts.
No recognition or enforcement decision is required for ICSID arbitral awards. These decisions are in the nature of Turkish court decisions in Turkish law and before Turkish courts. Accordingly, according to Article 53 of the agreement, the decision will be binding on the parties, will not be taken to a higher authority before the local courts, or will not be subject to a settlement other than those stipulated in this contract. The parties shall comply with the decision and fulfill its provisions unless the execution of the decision is stopped according to the provisions of this contract.
For the execution of the decisions, it is sufficient to submit a certified copy of the ICSID decision to the relevant authorities or courts. According to Article 54 of the Agreement, a party requesting enforcement within the borders of a Contracting State shall submit a copy of the decision approved by the Secretary General to an appropriate court or authority appointed by the Contracting State for this purpose.
Given the role of international cooperation and international investments for economic development, ICSID is a big step forward in resolving disputes that may arise in relation to investments. In this sense, while enabling investors to advance their investments on a more secure and stable ground, ICSID has become an important agreement for developing and developing countries with investments that constitute an important part of economic progress.