Who benefits from the Internationalization of Petroleum Disputes

Quincy Izibili 1103256 20/11/14
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International Oil and Gas Law and Policy Research Paper:
Who benefits from the Internationalization of Petroleum Disputes: An appraisal of the ICSID
dispute resolution mechanism?
Quincy Izibili 1103256

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Introduction
The International Centre for the Settlement of Investment Disputes (ICSID) is an
independent arbitral institution established in 1966 under the auspices of the World Bank. The
Centre is given legal authority by virtue of Article 1 (1) of the Washington Convention 1965.1
ICSID’s primary purpose, as set out in Article 2, is to provide an effective medium that facilitates
the settlement of investment disputes that arise out of transnational commercial ventures between
host governments and foreign investors through the instruments of mediation, arbitration and other
forms of alternative dispute resolution.2 ICSID provides an invaluable service to global
transnational commercial trade by facilitating a means of reconciliation between host nations and
foreign investors that are engaged in a conflict over contractual disputes benefitting both
contractual parties by safeguarding the foreign investor’s investment and enhancing the
attractiveness of a developing economy to foreign investors, which in turn will promote increased
Foreign Direct Investment (FDI) and the positive economic growth that will inevitably stem from
that. Signatories to the Washington Convention have agreed to ratify and be bound by ICSID’s
Rules and the institution’s awards are given binding judicial authority by virtue of the New York
Convention for the Recognition and Enforcement of Foreign Arbitral Awards3. As a result of this,
countries that have ratified the New York Convention have bound themselves to recognize the
world wide enforcement of arbitration awards, further strengthening the power of ICSID as
decisions issued by ICSID tribunals are not encumbered by the same stumbling block of
jurisdiction that hinders other forms of adjudicatory dispute resolution such as litigation.
Arbitration enables the successful party to enforce the arbitral award overseas. This is an advantage
that is of untold value to both parties. The problem with jurisdiction and conventional litigation is
that neither party would be willing to concede to settle their disputes in the national courts of the
opposing party due to the plethora of problems this poses such as language barriers, unfamiliarity
with the foreign state’s legal procedure and the risk of a biased adjudication leading to an
unfavorable outcome. Internationalization of the dispute resolution mechanism in cross-border
petroleum investment contracts prima facie extends to both parties the benefits of confidentiality,
neutrality, relative speed of procedure and the equitable cost-effective resolution of disputes that
can be enforced on an international level.
Arbitral proceedings before an independent international tribunal have predominantly
replaced conventional litigation as the ‘go-to’ method for parties to reconcile their commercial
disputes. Evidence of this can be found in the staggering growth after the late 1970s petroleum
disputes of the number of arbitration centers, arbitrators and arbitrations4. International arbitration
1 Article 1 (1) of The Washington Convention on the Settlement of Investment Disputes Between States and Nationals
of Other States (ICSID) 1965
2 Article 2 (1) of The Washington Convention on the Settlement of Investment Disputes Between States and Nationals
3 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) 1958
4 Ibid

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is supposed to be an easy, user-friendly process. However, the classic model of arbitration vastly
differs5 from what some commentators refer to as the modern ‘arbitral litigation’6 of today.
Arbitration is meant to be an informal means for the resolution of contractual disputes that is
entered into consensually by both parties, who submit their case to an arbitral tribunal formulated
by one arbitrator representing each party and a final neutral head arbitrator appointed by the
institution in order to receive a private and final equitable decision or award.7 The increasing
popularity of international arbitration however has seen the classic model evolve over time towards
modern arbitral practice. This ‘judicialization’ of international arbitration bears increasing
semblance to private litigation, and indeed modern arbitral practices have been referred to by
commentators as private arbitral litigation.8 The problem with this is that a process that is touted
as having the benefits of being the confidential, simple, quick and cost effective procedure that its
proponents claim it to be at the heart of its design has gradually been transmogrified by industry
practice into the very beast it boasts to better and be superior to. The cause of this issue is that due
to the high-profile and international context, the disputes being brought towards ICISD have
increasingly grown in complexity in recent years, creating the need for a parallel increase in the
complexity of the rules and procedure necessary to resolve the issues. Due to the commercial
nature of the legal profession this has effectively increased the costs of parties to surrender to
international arbitration – a problem that was probably not foreseen by those less economically
developed nations that bought into the dream of international dispute resolution in hopes of
securing the much needed foreign direct investment that is so crucial to prosperity of their
economies.
Scope of Application
In terms of scope of application, the ICSID Dispute Resolution Rules only apply to
transnational commercial investments between host nations and investors. The ICSID Rules do
not therefore cater to claims brought by host nations against other host nations nor investor against
other investors. This position is set out within Article 25(1) of the ICSID Convention9. The
definitions of ‘investment’ and the ‘investor-state’ relationship are not explicitly defined within
the Convention but have rather developed as a result of interpretation by arbitral tribunals during
proceedings.10 Tribunals have considered whether there are certain criteria attributed to its
provisions to best define the scope of application and whether an ‘investment’ falls under ICSID
5 M. Ball, The Legal Structure for Domestic and International Commercial Arbitration
6 T.W. Wälde (†); "Mediation/Alternative Dispute Resolution in Oil, Gas and Energy Transactions: Superior to
Arbitration/Litigation from a Commercial and Management Perspective" OGEL 2 (2003)
www.ogel.org/article.asp?key=65 last accessed 20/11/14
7 M. Ball, The Legal Structure for Domestic and International Commercial Arbitration
8T.W. Wälde (†); "Mediation/Alternative Dispute Resolution in Oil, Gas and Energy Transactions: Superior to
9 Article 25 (1) of The Washington Convention on the Settlement ofInvestment Disputes Between States and Natio nals
10 O. E. Garcia-Bolivar, 'Defining an ICSID Investment: Why Economic Development Should be the Core Element'
(International Institute for Sustainable Development 2012) <http://www.iisd.org/itn/2012/04/13/defining-an-icsid-
investment-why-economic-development-should-be-the-core-element/> accessed 20/11/14

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jurisdiction. In the Salini Costruttori SpA and Italstrade SpA v. Morocco Case11, the Salini Test
emerged which concluded that ‘contributions, a certain duration of performance of the contract,
and participation in the risks of the transaction’ coupled with the added condition of the
‘contribution to the economic development of the host state of the investment’12 were necessary
criteria for determining investments that fall under the scope of the ICSID Convention. Tribunals
of subsequent disputes from ICSID’s case docket have built upon this criteria to include the need
to transfer technological know-how and increase the GDP of the local economy13 as well as have
a positive impact on the host state’s development before an investment will fall under the
jurisdiction of the ICSID Convention.14 The significance of the ICSID Institution is that it is the
very first international institution whose tribunals have the judicial power necessary to enable
private investors to bring actionable claims against a state in the event of disputes that have arisen
after the commencement of their contract and as such it has been compared with the International
Court of Justice’s Permanent Court of Arbitration in terms of its ability to host a forum for the
resolution of transnational commercial disputes via arbitral tribunals.15
Types of Dispute Resolution Mechanisms
Dispute resolution mechanisms are seen as the crux in the argument for maintaining and
promoting an economy that is favorable for international investment. Professor Maniruzzaman16
highlights the risks that are faced by any long-term international investment endeavor. With the
large amount of capital and value of the assets at hand, the security of foreign investment is
paramount to an amicable long term relationship. Foreign investors need to be certain that their
investment is secure and is not in danger of political and economic risk. Typical political risks that
pose threats to investment contracts are unstable or changing political powers and governments.
Some economic risks to investment contracts would be unlawful expropriation of investment
assets or a change in the commercial position that the parties contracted into. This is of particular
significance when dealing with developing nations as the risk of this occurrence is drastically
higher. In order to address this concern developing host governments are therefore coerced into
contractual dispute resolution and investment stabilization mechanisms which may come in a wide
range. The significance of the relationship between the parties that have taken steps to incorporate
arbitration clauses into their private commercial contracts on an investor-state level, or through
bilateral investment treaties on a state-to-state level is that if in the event that a dispute will arise
the claims would not be subject to the decision of either parties national courts but rather will be
11 Salini Costruttori SpA and Italstrade SpA v. Morocco (ICSID Case No ARB/00/4, Decision on Jurisdiction of 23
July 2001)
12 C. Schreuer et al, The ICSID Convention: A Commentary (Cambridge University Press, 2nd ed, 2009), Article 25,
paras. 153-174
13 As set out in Malaysian Historical Salvors Sdn Bhd v. Malaysia (ICSID Case No. ARB/05/10, Award on Jurisdiction
of 17 May 2007)
14 As set out in Ceskoslovenska Obchodni Banka, A.S. v Slovak Republic (ICSID Case No. ARB/97/4, Decision on
Jurisdiction of 24 May 1999)
15 N. Nakib, ‘FDI Related Dispute Settlement and the role of ICSID: Striking Balance Between Developed and
Developing Economies’
16 Maniruzzaman, A. F. M, the Pursuit of Stability in International Energy Investment Contracts: A Critical Appraisal
of the Emerging Trends (June 24, 2008). Journal of World Energy Law and Business, Vol. 1, No. 2, 2008
http://ssrn.com/abstract=1338053 last accessed 20/11/14

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on neutral ground, ‘internationalizing’ the issue as it is offered up to an impartial international
arbitral tribunal. The commercial dispute would then fall under the jurisdiction of an institutional
tribunal like the International Chamber of Commerce (ICC), the International Center for the
Settlement of Investment Disputes (ICSID), American Arbitration Association (AAA) or the
London Court of International Arbitration – the choice of institution will usually be selected at the
time of the contract drafting. The final decision usually comes down to familiarity with the selected
applicable arbitral law or “lex arbitri” and other factors such as the geographical location,
neutrality and reputation of the tribunals. Arbitral proceedings can also be ad hoc free from
institutional rules but usually proceedings will follow model guidelines17 such as those set out by
the United Nations Commission on International Trade Law (UNCITRAL).18 The choice of law
is another crucial decision as it dictates the procedural rules applicable to each case – this is
evidenced by the syntax of s.46 (1)(a) of the Arbitration Act19 which expressly recognizes that the
arbitral tribunal ‘should’ decide disputes in accordance with the law chosen by the parties. This
provision embodies the notion of freedom of contract, which is the backbone for modern
commercial law. A study carried out by the 2010 International Arbitration Survey has shown that
a 40% majority of petroleum contracts have chosen to apply English common law. The reasons
for this are because English common law is long-standing, predictable and transparent and as such
will afford parties the security of a certain degree of predictability. This position is supported by
the following quote by Lord Justice Potter in Shamil Bank of Bahrain v Beximco Pharmaceuticals:
“English law is the law to be applied in ascertaining the liability of the parties under
the terms of the agreement… English law is a law commonly adopted
internationally as the governing law for banking and commercial contracts, having
a well-known and well developed jurisprudence in the respect that it is not open to
doubt or disputation on the basis of religious or philosophical principle.”20
As it says on the box, dispute resolution mechanisms are tools that facilitate the resolving
of disputes between parties in the event of conflict. Various methods may be employed to achieve
this goal, however the different types of alternative dispute resolution mechanisms can be
classified into two distinct species: adjudicative processes and consensual processes. An
adjudicative process is a system of dispute resolution wherein the matter of dispute is put forward
a judge, jury or arbitrator whom will decide the case and determine the winner of the conflict based
on the respective facts of each individual case coupled with merit of each party’s arguments. The
types of dispute resolution mechanisms that fall under this category are traditional litigation
proceedings and arbitrative processes. The second species of dispute resolution mechanism is the
consensual process. This category includes mediation, conciliation, negotiation and mini-trials and
expert determination. These forms of alternative dispute resolution differ from the adjudicative
mechanisms in that the coercive process does not seek to find a resolution to a tie-breaker between
17 United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial
Arbitration 1985 (with amendments as adopted in 2006) see http://www.uncitral.org/pdf/english/texts/arbitration/ml-
arb/07-86998_Ebook.pdf last accessed 20/11/14
18 Y. Dezalay and B. G. Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of a
Transnational Legal Order (1st, University of Chicago Press, Chicago 1998) p.5
19 S.46(1)(a) Arbitration Act 1996
20 Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Limited and Others [2004] 4 All E.R. 1072

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the host and the foreign investor. The dispute in the consensual process is not properly resolved to
the detriment of one party, but rather these tools are intended to facilitate negotiation and promote
the reconstruction of the inter-party relationship. They settle and reconcile the rift between the
parties by bringing the parties back into agreement once again, typically through the medium of a
neutral third-party intermediary. These are the kinds of services that dispute resolution institutions
facilitate and ICSID has built a reputation based on its arbitral and mediatory prowess. The
following sections will develop on key consensual methods of alternative dispute resolution
available to parties and the benefits that they confer.
Expert Determination
Expert Determination is the least adversarial dispute resolution mechanism available to
parties seeking recourse to a conflict. It is a low intensity non-adjudicatory process in which an
appointed expert with significant experience in a particular field will be appointed to mediate over
a specific technical or operational matter. The benefits of expert determination are that the parties
will be guaranteed a solution that is technically accurate and appropriate whilst maintaining party
autonomy and confidentiality in attaining the desired end product of a legally binding
determination that carries obligatory power over the parties whom enter into it.21 Expert
determination is a useful tool in the arsenal of petroleum dispute resolution as it can be utilized
effectively in small scale operational disputes such as the valuation of participatory interests and
the redetermination of unit interests for example in Unitization Agreements.22
Conciliation
Conciliation is a negotiation based method of dispute resolution wherein the parties agree
to consult a conciliator whom facilitates a forum between the parties to attempt to reconcile and
resolve their differences. The role of the conciliator is usually carried out by improving
communication between parties, conveying an interpretation of issues from multiple perspectives,
suggesting and encouraging parties to consider potential solutions to their issues. The outcome of
conciliation is finding a mutually acceptable middle ground between the parties and fostering a
reconciliation of contractual differences. The process itself however has no legal standing, serving
merely as a tool for the reparation of a damaged personal or business relationship. Any binding
decisions as a result of a conciliation proposal will be binding based on the new accord between
the contractual parties. This is applicable to many petroleum disputes wherein talks between the
parties have broken down. Successful conciliation or negotiation rests on the notion that the parties
are entering into voluntary talks and as such it aims to deliver results that are time and cost
efficient, and confidential whilst keeping in line with party-autonomy. Conciliation offers the
parties a chance to put their interests directly on the table and come towards a mutually beneficial
amicable agreement that takes into account the parties personal, legal and commercial interests.23
The main difference between conciliation and other negotiation based dispute resolution
21 Halifax Life Ltd v The Equitable Life Assurance Society [2007] EWHC 503
22 G. Gordon and J. Paterson, Oil and Gas Law: Current Practice and Emerging Trends (2nd, Edinburgh University
Press, Edinburgh 2010)
23 Dispute Resolution Hamburg on Conciliation http://www.dispute-resolution-hamburg.com/conciliation/what-is-
conciliation/ last accessed 20/11/14

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mechanisms is that the conciliator is tasked with creating a proposal settlement that will attempt
to remedy the dispute, based on the interest of the parties and the concerns and opinions they have
voiced. The parties are not obliged to accept the proposal and the final decision on matters in
conciliation will always remain with the parties in dispute.
Mediation
Mediation is another dispute resolution mechanism that is employed by parties in the
attempt to resolve contractual disputes. In the petroleum and other industries with complex
commercial contracts at the forefront of proceedings, mediation offers the parties an informal
avenue to reach a mutually beneficial agreement. Mediation is a consensual power of dispute
resolution and as such the parties agree to mediate based on their own volition. The voluntary
nature of mediatory dispute resolution creates a resolution tool that can be very flexibly utilized.
In commercial mediation it is the role of the mediator to assist the parties in reaching an amicable
settlement through negotiation. The mediator performs the role of facilitating non-adversarial
communication between parties, whom will meet and discuss their specific and separate interests,
allowing for those interests to be heard and catered for if and when an agreement has been reached.
Mediation proceedings bear a resemblance to conciliation, as mentioned above, however the
mediators role does not extend to drafting a settlement proposal. The decision of the parties to
reconcile the dispute is in their hands, with the mediator merely serving the role of overseeing and
facilitating effective communication of both parties’ interests, promoting a platform that will
hopefully culminate in a settlement. The attraction of parties to mediation has been strong. Lord
Justice Ward in Burchell v Bullard & Ors24 stated that meditation had established its importance
as a parallel track to the court system emphasizing on the fact that both had a ‘proper part to play
in the administration of justice.’ Mediation offers them an alternative to adjudicatory dispute
resolution tools such as litigation and arbitration whose adversarial nature is not conducive to a
healthy environment for reconciliation and the fostering of amicable party relations. The following
quote from Thomas Walde serves to further illustrate this point:25
‘The distinctive feature of ‘mediation’ as compared to settlement by bargaining
between the parties and their lawyers, or settlement imposed by judges under the
shadow of their decision-power, is that a neutral, non-adjudicating person chosen
by both parties seeks to move them to a settlement, either by shuttling between
them and persuading them (with his/her insight knowledge) to move towards a
mutually acceptable bargaining position.’
The benefits of mediation are that it offers a non-biased, cost effective and confidential forum of
dispute resolution that empowers the parties to come to a settlement. Mediation is particularly
significant in light of the rapidly increasing cost of litigation and arbitration. Lord Ward’s decision
further goes on to highlight that it would folly to not mediate when presented the opportunity. In
light of all these benefits however a weakness that is shared between all negotiation-based forms
24 Burchell v Bullard & Ors [2005] EWCA Civ 358
www.ogel.org/article.asp?key=65 last accessed 20/11/14 p.4

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of dispute resolution is that the voluntary, confidential and non-binding nature of the mechanism
limits its effectiveness to the extent of information dissemination and co-operation that parties are
willing to comply with. Added to this drawback is that with the increasingly complex nature of
petroleum disputes, the speed and efficient conclusion of the settlement is counter-balanced by the
extent of specialist knowledge that the mediator possesses, more complex matters would have a
negative impact on the efficiency of mediation as a tool for dispute resolution.
The Significance of Internationalization and the Evolution of Global Trends in Trade and
Petroleum Dispute Resolution
It is in the interest of developing countries that are naturally endowed with a large berth
of hydrocarbon and other such natural resources to utilize their geological inheritance to stimulate
both social and economic growth within their domestic economy. This is a position that has
received support from major proponents of international law as evidenced by the provisions and
preamble of UN General Resolution 1803.26 The major stumbling block to this notion is that
usually, a less economically developed nation will be lacking the large capital power, technical
expertise and domestic infrastructure to efficiently undertake the substantial risk involved in any
hydrocarbon extraction venture and therefore will be more or less forced to attract foreign direct
investment and contract with international companies in an endeavor to realize an economic return
from their sovereign resources. Typically control of a state’s hydrocarbon resources is vested
within the hands of the state government by virtue of the domestic constitution. This imposes a
duty on the government of that state to foster an economy that is ripe, attractive and viable for
international investment. Such economic development is commonly achieved through the
‘internationalization’ of the contracts by virtue of the establishment of legal trade mechanisms to
promote transnational commerce and economic growth such as Bilateral Investment Treaties
(BITs) and free trade agreements with investment protection provisions.27 The necessity of
securing this favorable economic environment is evidenced by the rapid rate of BITs that have
been prevalent in the recent years, and there has been a strong correlation between the increase of
BITs and an increase in ICSID arbitral activity. This is largely due to the fact that at the heart of
every bilateral investment treaty is a dispute resolution clause that forces the contractual parties to
submit any conflict arising from the performance of that contract to international arbitration,28 of
which in recent times the ICSID institution has been the most popular choice.29
There had undoubtedly been a noticeable paradigm shift away from legal nationalism in
the sense that no longer were states seeking to adjudicate disputes within their domestic borders,
but rather many signed onto the new trend of entering into bilateral investment treaties and
surrendering their disputes to international arbitration under the ICSID Rules. This new trend saw
the decline of legal nationalization practices such as the Calvo Doctrine within prominent Latin
26 Art 1(1) General Assembly Resolution 1803 (XVII) 14 December 1962
27 International Institute for Sustainable Development (IISD) http://www.iisd.org/investment/law/treaties.aspx
28 See Article 8(1) in the Settlement of Disputes between and Investor and a Host State in the Bilateral Investment
Treaty Between the UK and Vietnam 2002
29 I F.I. Shihata, “The Settlement of Dispute Regarding Foreign Investment: The Role of the World Bank
with Particular Reference to ICSID and MIGA”, (1986) 1 American University Journal of International Law &
Policy

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American States and an increase in alternative dispute resolution cases brought before ICSID. The
Calvo Doctrine, whose inception by Carlos Calvo, a prominent 19th century Argentinean lawyer
sparked a wave of legal nationalism that asserted the concept of non-intervention. The Calvo
Doctrine promoted the notion that foreigners and nationals should be treated on an equal footing
and advocated for commercial disputes to be referred to the local courts. The Calvo Doctrine also
placed emphasis on rejecting the superiority of foreign sanctions within Latin America.30
Undoubtedly the doctrine was largely dismissed by American and European courts however the
significance of the Calvo Doctrine is still relatively widespread with its influence extending out of
the Latin Americas to Eastern Asia and Africa as well. According to the ICSID Caseload statistics
there has been a rapid global increase in the amount of cases brought to ICSID in the last 10 years.
The previous record of 38 registered cases in a single calendar year set in 2011 was succeeded by
a staggering 56 cases in 2012 showing a profound increase that can be perhaps be attributed to the
apparent correlation between the prevalence of BITs and a subsequent global move towards ICSID
Dispute Resolution.
Diagram 1 31
30W. Shan, From “North-South Divide” to “Private-Public Debate”: The Revival of the Calvo Doctrine and the
Changing Landscape in International Investment Law 27 Nw. J. Int'l L. & Bus. 631 (2006-2007)
31 See Chart 1, The ICSID Caseload Statistics (2013) found at http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/01/15/000333037_20140115155248/Rend
ered/PDF/839910NWP0ICSI0Box0382124B00PUBLIC0.pdf last accessed 20/11/14

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The Necessity of the Move Away from Internationalization and the Issues of Western Bias
Prevalent Within International Investment Dispute Resolution
The sharp decline illustrated by the chart in Diagram 1 in the year 2013 can possibly be
attributed to the wake of recent Latin American nations propagating the revival of the Calvo
Doctrine and taking steps to renounce their affiliation with the ICSID Tribunal.32 According to the
ICSID Caseload statistics and United Nations Conference on Trade and Development’s
(UNCTAD) Report on Investor State Disputes Latin American nations accounted for over two-
thirds of the ICSID’s total caseload, by far outweighing other regions in terms of cases of conflict
requiring international arbitration. This dramatic number illustrates to the ‘teeth’ of the bilateral
investment treaties and the power of investment treaty based arbitration cases. This has served the
purpose of delivering a worldwide notice to states that are parties to such arbitration cases to
seriously reconsider the merits of such an agreement and re-evaluate their approach towards the
internationalization of the investment contracts they are party to.33 The precarious position has
been significantly recognized by Latin American states such as Venezuela, Bolivia and Ecuador
whom have gone as far as sever ties with the ICSID Tribunal, going back to the pre-Latin American
bilateral investment treaty era that bears echoes of anti-western judicial propaganda in line with
initial Latin American opposition to international investment settlement disputes colloquially
referred to as the ‘El No De Tokyo’34 and Calvo Doctrine principles.
The issue with international arbitration under ICSID is that as it stands today, the vast majority
of claims made under the ICSID Convention are from the foreign investors bringing an action
against a host state government, this is what Gustav Laborde refers to as the archetypal ‘classic
paradigm’. Laborde continues to argue that the foundation of ICSID would be fortified by making
international arbitration more handsome and viable to host states, fostering the possibility that they
might opt to utilize it as this would be a better representation of ICSID’s true purpose. The
occurrence of the classical paradigm is not erroneous in the sense that it was surely within the
contemplation of the World Bank when they drafted the ICSID Convention however it is not the
full image of the goal they set out to achieve, as it does little to highlight the importance of the
‘reverse paradigm’. Gustav Laborde in his work, ‘The Case for Host State Claims in International
Investment’35 makes use of a quote from the report that the executive directors of the World Bank
institution provided to accompany the convention which states that:
‘The broad objective of the Convention is to encourage a larger flow of private
international investment, the provisions of the Convention maintain a careful
balance between the interests of investors and those of host States. Moreover, the
32 W. Shan, From “North-South Divide” to “Private-Public Debate”: The Revival of the Calvo Doctrine and the
Changing Landscape in International Investment Law 27 Nw. J. Int'l L. & Bus. 631 (2006-2007) p.635
33 Ibid
34 Andreas F. Lowenfeld, The ICSID Convention: Origins and Transformation, 38 Ga. J. Int’l & Comp. L. 47,
54 (2009)
35 G. Laborde, ‘The Case for Host State Claims in International Investment’ J Int. Disp. Settlement (2010) 1(1): 97–
122

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Convention permits the institution of proceedings by host States as well as by
investors and the Executive Directors have constantly had in mind that the
provisions of the Convention should be equally adapted to the requirements of both
cases.’
Whilst this may have been the intended purpose of ICSID as Laborde points out, this is not how it
has been received. Statistically, out of more than 300 cases registered in the ICSID Docket only a
handful of cases have been documented that actually show the existence of the Reverse Paradigm
of host states acting as the claimant within an international arbitration dispute.36 This would serve
to illustrate an imbalance in the benefits to host nations of subscribing to international institutional
dispute resolution. The following are to name a few:
- Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited37
- Gabon v Société Serete S.A. 38
- Government of the Province of East Kalimantan v PT Kaltim Prima Coal.39
As evidenced by the above statistics it can be inferred that whilst on principle the ‘reverse
paradigm’ is accepted in practice it is hardly ever an occurrence. Laborde stresses that whilst it is
not safe to base a presumption on such a small number of data pool the number of reverse paradigm
claims brought to ICSID has doubled over the last 10 years which may be the herald of a new era
in dispute resolution. Upon further research this may be down to the increase in the scope of the
applicability of ICSID as mentioned in the commentary of Antonio Parra a legal advisor to the
ICSID Institution in ‘ICSID and New Trends in International Dispute Settlement’.40 The ICSID
Convention is cemented on and draws its power from the consent between the parties to surrender
to international arbitration with the provisions of the Washington and New York Conventions as
the cornerstone of its authority. Over the years we know based on ICSID Caseload statistics that
it was the western member states that signed on to ICSID whom were the main users of the
convention but now we see parties have begun to recognize the significance of its implementation
by relying on the international arbitral dispute resolution terms within their agreements to resolve
disputes, taking a leaf out of the western book. Parra argues that similar terms can be seen imputed
into bilateral investment treaties and other such contracts and it is the proliferation of these terms
which may all contribute to the growth of international arbitration cases ICSID has seen in recent
years. With more cases a year, the amount of reverse paradigm arbitrations brought before ICSID
is statistically set to increase.
Entrenched in the historical origins of the Convention are themes that would suggest it was
bias free in terms of its applicability to host states and foreign investors alike. Looking at the make-
up of the actual convention there are many features that bolster this statement. The article ‘FDI
36 M. Waibel, ‘The State as Claimant in Contract-Based Arbitration’ in ‘The Backlash Against Investment Arbitration:
Perceptions and Reality’, Kluwer Law International (2010)
37 Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited (ICSID Case No
ARB/98/8 decision on 22nd June 2001)
38 Government of Gabon v Société Serete S.A. (ICSID Case No ARB/76/1 decision on 5th of October 1976)
39 Government of the Province of East Kalimantan v PT Kaltim Prima Coal and others (ICSID Case No ARB/07/3)
40 M.K. Young, A. Parra et al, ‘ICSID and New Trends in International Dispute Settlement’ Remarks Presented at the
87th Meeting of the American Society of International Law, Washington (1993)

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Related Dispute Settlement and the role of ICSID: Striking Balance Between Developed and
Developing Economies’ by Nakib Nasrullah41 points out the various procedures that were devised
cleverly by ICSID to balance the interest of the parties. These include the equal voting rights of
the participating state representative, renunciation of the right of diplomatic protection, investor’s
right to direct access to the arbitral forum, consent based jurisdiction, application of the law,
formation of the arbitral tribunal and the enforcement of arbitral award. Even with the existence
of these balancing mechanisms many commentators have offered that the technical composition
of the process of commencing ICSID dispute resolution tip the scales of balance against any
developing host nations and can be construed be pro-investor in nature as is evidenced by statement
by L. Sundra42 who commented that there is an evidential ‘institutional bias’ that fosters a ‘sense
that the system is rigged’.43
One of the biggest critiques of the ICSID arbitration is the lack of recourse to an appeals
process. Judicial review of the institution’s awards is not feasible due to the ‘high threshold’ for
proving impropriety in the conduct of the tribunal44 and despite agreeing to increased transparency
in its procedural reform in 2006 the institution refused to move forward with plans for an appellate
body.45 The final and binding nature of ICSID awards46 is necessary for conclusive settlement of
disputes but places a potentially unfair burden on the losing party. Also concerns of arbitral
mistakes not having recourse for correction leads to growing concerns. International Arbitration
has also been critiqued as not yielding uniform results across the board with similar fact cases
producing disparate results depending on the tribunals the cases were heard in.47 If there is no
uniform approach in arbitration and same-fact-cases are producing divergent results it would lead
to the logical conclusion that it is the procedural nature of international arbitration and the
independent election of arbitrators by parties on a case-by-case basis that is to blame for this
disparate occurrence. ICSID arbitration has additionally been critiqued as being pro-investor
biased because the drafters of the convention included provisions that necessitate the consent of
investors before the initiation of arbitration. Of course this does not pose an issue when the investor
stands to benefit from the arbitration i.e. in the event of expropriation by the host state, however
foreign investors will be more reluctant to participate in disputes regarding development
obligations or human rights concerns for example.
Developing Economies’ International Law Annual (2013) p.93
42 S. L. Cuba, “Resolving International Investment Disputes in Globalized World” (2007) 13 N.Z., Business Law
Quarterly 128
Developing Economies’ International Law Annual (2013) p.93
44 Article 52(1) of The Washington Convention on the Settlement of Investment Disputes Between States and
Nationals of Other States (ICSID) 1965
45 S. D. Franck, ‘The ICSID Effect? Considering Potential Variations in Arbitral Awards’ 2011 Virginia Journal of
International Law
46 Article 53 of The Washington Convention on the Settlement of Investment Disputes Between States and Nationals
47 K. F. Gomez, ‘Latin America and ICSID: David versus Goliath?’ Law & Business Review of the Americas 17,
2011, 185-230

13
Conclusion
Whilst arbitration and other forms of dispute resolution mechanism are very powerful tools,
they are by no means a panacea.48 Very often undertaking dispute resolution proceedings will not
culminate in a resolution of the dispute at hand. The conduct of the parties is the most important
ingredient towards fruitful alternative dispute resolution. Noncompliance or reluctance by one
party or another to co-operate in the dispute resolution will make the task of reaching an amicable
decision more difficult and costly. It is the accepted norm, or tradition for parties in a contractual
disagreement to move towards the courts in favor of gaining a settlement by litigation. This
promotes an antagonistic relationship between the parties and the arduous ensuing legal battle will
typically bear a very high cost due to the high-risk, high-profile and high-value conflicts that arise
out of modern petroleum contracts requiring the procurement services of the best and most
specialized teams of lawyers by both parties. Thus international arbitration, particularly in the
scope of cross-border petroleum disputes, has been largely popularized and has become big legal
business.49 In efforts to capitalize on this commercial opportunity the increased demand for forms
of designer justice and ‘private adjudication awards’ has corrupted the mutually beneficial medium
that ICSID was purported to be at its inception.
International arbitration still has many distinct advantages in terms of effecting successful
dispute resolution on a world-wide scale. There are aspects of the formation of the rules that seem
to suggest a semblance of a ‘loaded deck’. Perhaps the disparity between the rate of successful
claims for host nations and foreign investors is completely an unintentional and non-meditated
occurrence. However, there is no denying the existence of certain disadvantages faced by host
nations in embarking upon international arbitration-based dispute resolution. In light of the
inherent risk of the costs of dispute resolution, it is important to remember that there is no love lost
until the walls of the glass house come crashing down. When the relationship between host nations
and their international partners are good there is hardly any conflict, with both parties reaping the
rewards of international trade and commerce. The symbiotic relationship between developing host
nations and foreign investors can be seen as a necessary evil that is tolerated in favor of promoting
crucial economic realization of national resources for states that are unable to take advantage and
exploit their own geological inheritance. The arbitration clauses embedded within the bilateral
investment treaties are a necessity to attract the kind of foreign direct investment that invigorates
social and economic growth for developing nations. In truth, both parties benefit from the
internationalization of petroleum investment contracts for the most part. Without these dispute
resolution mechanisms, crucial trans-national commercial practices would be a lot more difficult
to realize, resulting in a global downturn of commerce and a lose-lose situation for both host
nations and private investors on a global scale.
49 Y. Dezalay and B. G. Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of a
Transnational Legal Order (1st, University of Chicago Press, Chicago 1998) p.6

14
Word Count - 6993
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International Law, Washington (1993)
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Against Investment Arbitration: Perceptions and Reality’, Kluwer Law
International (2010)
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Trends (2nd, Edinburgh University Press, Edinburgh 2010)
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N.Z., Business Law Quarterly (2007)

15
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 Legislation
- The Arbitration Act 1996
- General Assembly Resolution 1803 (XVII) 14 December 1962
- The Washington Convention on the Settlement of Investment Disputes Between
States and Nationals of Other States (ICSID) 1965
- The Bilateral Investment Treaty Between the UK and Vietnam 2002
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York Convention) 1958
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on International Commercial Arbitration 1985
 Cases and Arbitral Awards
- Burchell v Bullard & Ors [2005] EWCA Civ 358
- Ceskoslovenska Obchodni Banka, A.S. v Slovak Republic (ICSID Case No.
ARB/97/4, Decision on Jurisdiction of 24 May 1999)
- Halifax Life Ltd v The Equitable Life Assurance Society [2007] EWHC 503
- Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Limited and Others [2004] 4
All E.R. 1072
- Salini Costruttori SpA and Italstrade SpA v. Morocco (ICSID Case No ARB/00/4,
Decision on Jurisdiction of 23 July 2001)
- Malaysian Historical Salvors Sdn Bhd v. Malaysia (ICSID Case No. ARB/05/10,
Award on Jurisdiction of 17 May 2007)
- Government of Gabon v Société Serete S.A. (ICSID Case No ARB/76/1 decision
on 5th of October 1976)
- Government of the Province of East Kalimantan v PT Kaltim Prima Coal and others
(ICSID Case No ARB/07/3)

16
- Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited
(ICSID Case No ARB/98/8 decision on 22nd June 2001)
 Other
- The ICSID Caseload Statistics (2013)

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