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Some Aspects of the World Bank Convention on the Settlement of Investment Disputes

Published online by Cambridge University Press:  09 March 2016

Nigel S. Rodley
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Extract

The executive directors of the International Bank for Reconstruction and Development (IBRD), having formulated a Convention on the Settlement of Investment Disputes between States and Nationals of Other States, approved on March 18, 1965 the submission of the text of the Convention to member governments of the Bank. This action represents a milestone in the efforts of several international organizations to achieve some sort of harmony in an area of international economic development where there has been manifest disunity. The arbitration of private investment disputes has strong legal and political undertones, for it is set against a background of friction between capital-exporting countries that always seek to protect the interests of their nationals abroad, and capital-importing countries that normally recognize a need for foreign private capital to bolster their economic development, yet are wary of allowing external mechanisms to encroach on their sovereign jurisdiction within their own territory.

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Articles
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Canadian Yearbook of International Law/Annuaire canadien de droit international , Volume 4 , 1966 , pp. 43 - 63
Copyright
Copyright © The Canadian Council on International Law / Conseil Canadien de Droit International, representing the Board of Editors, Canadian Yearbook of International Law / Comité de Rédaction, Annuaire Canadien de Droit International 1966

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References

1 See Accompanying Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, March 18, 1965, at 1, reproduced in (1965) 4 Int’l Legal Materials 524–44.

2 See, e.g., UNCTAD, Final Act and Report, Report of the Third Committee, E/CONF.46/141, Vol. I, at 187 et seq. (1964); and, more recently, the March debates of the Economic and Social Council, E/SR.1360–1363.

3 Series of five Reports of the Secretary-General on The Promotion of the International Flow of Private Capital; E/3385, 1960; E/3492, 1961; E/3665/Rev. 1 1962; E/3905 and Add. 1, 1964; E4038 and Add. 1, 1965.

4 See Accompanying Report of the Executive Directors, supra note 1, especially at 3–5.

5 E.g., Jessup, , Transnational Law (1956),Google Scholar Friedmann, , The Changing Structure of International Law (1964)Google Scholar; Schwarzenberger, , International Law as Applied by International Courts and Tribunals (3rd ed. 1957)Google Scholar; McNair, , “The General Principles of Law Recognized by Civilized Nations,” (1957) 33 Brit. Yb. Int’l L. 1 Google Scholar; Verdross, , “The Status of Foreign Private Interests Stemming from Economic Development Agreements with Arbitration Clauses,” in Selected Readings on Protection by Law of Private Foreign Investments (The Southwestern Legal Foundation, Dallas, Texas, 1964)Google Scholar; Bourquin, , “Arbitration and Economic Development Agreements,” reprinted in Selected Readings, etc. (supra) from The Business Lawyer, July 1960.Google Scholar

6 The Convention enters into force 30 days after ratification by the twentieth state (Article 68). For the Convention to be truly effective much wider ratification will be necessary. The initial suspicions of states may be dispelled, once the Centre begins to operate in such a way as to inspire confidence in its work.

7 The European Convention on Human Rights, while of monumental importance in granting to individuals the right of recourse to international authority to protect their liberties, most sensitive of sensitive political issues, must of necessity remain of purely regional scope for the forseeable future. See Friedmann, supra note 5, at 18.

8 Significantly, any such agreement must be concluded between states.

9 E.g., the OECD Draft Convention on the Protection of Foreign Property, Article 7, (1963) 2 Int’l Legal Materials 241.

10 The advantages of such an organization are similar to those outlined in the Notes and Comments to Article 7 of the OECD Draft Convention, ibid., namely : (1) it will be a more appropriate forum for this particular type of dispute than any pre-existing international tribunal such as the International Court of Justice or the Permanent Court of Arbitration which are more geared to disputes between states; here the disputes are likely to be of a more technical nature; (2) the Arbitration Tribunal or Conciliation Commission will be easy to convene; (3) the decision would be given in a shorter time and the procedures entail less cost; (4) disputes could be settled with a minimum of publicity (see Article 48(5) : “The Center shall not publish the award without the consent of the parties.”); and (5) a country in the process of economic development might feel reassured by the possibility of choosing one of its own members. In this respect, Article 39 of the present Convention provides only that the majority of arbitrators shall not be nationals of the state party to the dispute or of the state whose national is the other party. However, Article 38, which permits the Chairman to appoint arbitrators in case of deadlock, does not permit the appointment of nationals of either such state.

11 Article 5 of section 2 provides for a chairman of the Administrative Council who shall have no vote; the President of the IBRD holds the Dosition ex officio.

12 Ibid.

13 For what constitutes “consent” see infra.

14 Article 25 defines “National of another Contracting State” thus:

  • (a)

    (a) “any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered …, but does not include any person who on either date also had the nationality of the Contracting State party to the dispute; and

  • (b)

    (b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.” (Italics added).

15 Preliminary Draft of a Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Working Paper for Consultative Meetings of Legal Experts Designated by Governments, Addis Ababa, December 1963; Santiago, February 1964; Geneva, February 1964; Bangkok, April 1964. These cities are the centres of the four regional Economic Commissions, and the document accordingly has the following four citations: Doc. COM/AF/1, Doc. COM/WH/1, Doc. COM/EV/1, Doc. COMA AS/1. The quotation is from the Preliminary Draft, Article IV, Section 15.

16 Report no. Z-12, September 1964.

17 SID/LC/SR. 21 and 22.

18 Report no. Z-8, June 1964, at 54.

19 See Collins, , “The Effectiveness of the Restrictive Theory of Sovereign Immunity,” (1965) 4 Colum. J. Transnat’l L. 119.Google Scholar

20 See UNCTAD and ECOSOC debates, supra note 2 ; also Summary Record of Proceedings at the Santiago Consultative Meeting, Report no. Z-8.

21 See the Accompanying Report of the Executive Directors, 8.

22 Ibid.

23 See Fatouros, , Government Guarantees to Foreign Investors 190–209 (1962).Google Scholar

24 Ibid., 192 et seq.

25 Ibid., 204 et seq.

26 See McNair, op. cit. supra note 5.

27 Article 25(1) provides: “Where the parties have given their consent, no party may withdraw its consent unilaterally.”

28 Industrial Policy of the Government of India, Statement of April 6, 1948 and Statement of April 6, 1949; also Industrial Policy Resolution, 1956, by the Government of India; cited in “Investment in India,” Appendix B, U.S. Department of Commerce 1961, at 193–96.

29 For a useful summary of the issues involved, see Brierly, , Law of Nations (6th ed. Waldock, 1963).Google Scholar

30 Supra note 1, at 11. Article 27(1) reads: “No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute.”

31 There was one drafting objection by the representative of the Netherlands at the Geneva meeting; see Report no. Z-9, at 109–10.

32 Article IV, Section 17(2) of the Preliminary Draft read: “Nothing in this Section shall be construed as precluding a Contracting State from founding an international claim against another Contracting State upon the facts of a dispute which one of these Contracting States and a national of the other shall have consented to submit or shall have submitted to arbitration pursuant to the Convention, where those facts also give rise to a dispute concerning the interpretation or application of an agreement between the States concerned; without prejudice, however, to the finality and binding character of any arbitral award rendered pursuant to this Convention as between the parties to the arbitral proceedings.” (Italics added.)

33 See Comment to Article IV, Section 17(2), Preliminary Draft, 36.

34 Report no. Z-8, at 59–62.

35 Report no. Z-9, at 83.

36 Article IV, Section 17(1) was practically identical to Article 27(1), cited supra note 30.

37 Report no. Z-9, at 84.

38 Italics added. Somewhat redundandy, Article 26 continues to provide that a “Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.” Clearly any condition may be made to consent, except one providing for diplomatic protection. The special reference to local remedies has more psychological than legal value.

39 Report no. Z-9, at 35–49.

40 Report no. Z-10, at 51–52.

41 SID/LC/SR. 4, at 4.

42 E/3905/Add. 1; see supra note 3.

43 Ibid., 21–23.

44 Ibid., 21.

45 SID/LC/SR. 4, at 4.

46 Ibid.

47 Article 36(3) gives the Secretary-General a similar power in relation to arbitration proceedings.

48 SID/LC/SR. 17, at 1.

49 SID/LC/49.

50 It should be noted that the Commission is the judge of its own competence (Article 32), and that in deciding the issue in relation to its jurisdiction, the Commission need not deal with it as a preliminary question, but may join it to the merits of the dispute. This would at least permit an airing of the issues in a case where renegotiation may be desirable.

51 (1952) 1 Int’l and Comp. L.Q. 247.

52 (1939–30) 5 Ann. Dig. Pub. Int’l L. Cases, at 3 and 428.

53 (1953) 20 I. L. R. 534.

54 Cited and discussed in Friedmann, op. cit. supra note 5, at 308–09.

55 Article 38(1) of the Statute of the International Court of Justice calls upon the Court in reaching its decision to apply, inter aliai, (a) international conventions; (b) international custom, as evidence of a general practice accepted as law; (c) the general principles of law recognized by civilized nations.

56 See infra note 76.

57 While the International Court of Justice is enjoined to apply, inter alia, general principles of law recognized by civilized nations (Article 38(1)) in reaching its decision, thus avoiding the possibility of lacunae in the law, it seems that a finding of non liquet may still occur for other reasons. See Rosenne, , The International Court of Justice (Leyden, 1957),Google Scholar as to the “sources” of the international law which the Arbitral Tribunal should apply; it seems that they would be the same as for the World Court.

58 The agreement which was the subject of the Arbitration between the Ruler of Qatar and International Marine Oil Company Limited, in 1953, apparently was silent as to the law governing it or the arbitration. See supra note 53 and McNair, supra note 5, at 13.

59 Broches, “International Legal Aspects of the Operations of the World Bank,” 98 Recuiel des Cours 397 (1959-II). The author, who is General Counsel of the World Bank, was chairman of all the regional meetings and the Legal Committee of experts referred to in this article.

60 Supra note 15.

61 Preliminary Draft, Article IV, Section 4(1). Italics added.

62 Reports no. Z-10 and no. Z-7.

63 Report no. Z-10, at 64.

64 Ibid., 66.

65 Report no. Z-7, at 36, 7.

66 Report no. Z-9. See especially the views of the Turkish (p. 64) and Spanish (p. 65) representatives.

67 Ibid., 68.

68 Italics added.

69 Report no. Z-12.

70 SID/LC/S 14. Dec. 30,1964.

71 As the chairman himself pointed out (ibid., 2), international law itself would in the first place refer to the laws of the host country.

72 See supra note 55.

73 Report no. Z-9.

74 Ibid., 65.

75 Ibid.

76 Ibid., 66.

77 Ibid., 66, 7.

78 Ibid., 66.

79 For a good selected bibliography of works relating to international responsibility, see Castel, International Law 937 (Toronto, 1965).

80 Supra note 14.

81 For general surveys of the Convention, see Hynning, , 51 A.B.A.J. 558 (1965)Google Scholar; Sassoon, , 1965 J. Bus. L. 334 Google Scholar; Sirefman, , 20 ARB.J. 168 (1965).Google Scholar

82 That this is not a mere pious hope is indicated by the wide approval the Convention seems to have earned. By March 9, 1966, thirty-four states, both capital-importing and capital-exporting, had signed the Convention and four states had ratified it. These statistics are based on information received from the International Bank for Reconstruction and Development.