The International Centre for the Settlement of Investment Disputes ("ICSID") has recently published its Annual Report for FY 2015, which compliments its most recent Caseload Statistics Report concerning cases registered or administered by ICSID.
The Annual Report and Caseload Statistics Report provide an interesting overview of the sectors and States involved in ICSID arbitrations, as well as providing an indication of the popularity of the ICSID Convention and Additional Facility Rules as a dispute resolution mechanism for investment claims. Whilst they do not enable analysis of all investor-state claims (as claims may also be brought under different arbitral regimes or, less frequently, state courts), the ICSID Reports cover provide a sizeable proportion of such claims (ICSID has handled 65% of all known cases). The Reports thus provide significant indicators of the nature, parties and outcomes in investor-state disputes.
Cases in FY 2015
The previous year has been ICSID's busiest to date. It marked the first time that ICSID registered more than 50 cases in a year, with 52 cases registered, an increase of 30% from FY 2014. It also marked the greatest number of cases administered over a year, with 243 cases addressed.
2015 also saw the greatest number of cases concluded in a single year at ICSID, with 53 cases finally resolved: 38 arbitrations, one conciliation case and 14 post-award proceedings (ten annulment applications, one revision proceeding, one interpretation proceeding, one rectification proceeding and one resubmittal of a dispute).
Of the 38 arbitration cases, 56% were decided by a tribunal and 44% were settled or discontinued. Of the cases decided by a tribunal, 18% declined jurisdiction, 36% rejected all of the investors' claims and 46% upheld the investors' claims in part.
This compares with an historical average of 64% of cases decided by a tribunal and 36% discontinued or settled. Of those decided cases, tribunals decided to decline jurisdiction in 25% of cases, to reject all of the investors' claims or to find they are without legal merit in 30% of cases, and to uphold the investors' claims in whole or in part in 45% of cases. As noted above, ICSID's figures include only investor-state disputes resolved under the ICSID system. Nonetheless, they do suggest that ICSID tribunals decide in favour of investors in a far lower percentage of cases than detractors of the investor-state dispute resolution system suggest. On the basis of ICSID's historical figures, tribunals have found in favour of an investor in whole or in part, in 28.8% of total cases brought.
Geographic distribution of new cases by State Party involved
FY 2015 continued the trend of an increasing number of cases being registered against Western European States, accounting for 21% of new cases. This represents a significant increase compared to the historical average, which amounts to just 5%. As with FY 2014, the majority of these cases were registered against Spain.
Eastern Europe and Central Asia continue to account for the greatest number of newly registered ICSID cases, amounting to 33% of cases in FY 2015, an increase from 25% in FY 2014. This is an increase on, but still broadly consistent with, the historical average of 25%. Cases continue to be spread across a diverse range of States, with claims against Albania, Bulgaria, Croatia, Estonia, Hungary, Kazakhstan, Kosovo, Romania, Serbia, Slovak Republic, Turkey and Ukraine registered in FY 2015.
The percentage of cases registered against States from Sub-Saharan Africa has decreased slightly, 20% in FY 2014 to 19% in FY 2015. This remains broadly consistent with an historical average of 16% of cases. As with Eastern Europe and Central Asia, these cases continue to be spread across a diverse range of States, with claims registered in FY 2015 against Burundi, Cape Verde, Cameroon, Guinea, Kenya, Mauritania, Mozambique, Senegal and Uganda.
Cases registered against State Parties form the Middle East and North Africa accounted for 7% of newly registered cases, less than half the level reported in FY 2014 (15%).
Continuing the precedent established in recent years, the number of cases registered against South American States is very low compared to historical levels, accounting for 4% of cases in FY 2015, a decrease from 7% in FY 2014 and well below the historical average of 25%. This may be due in part to a period of comparative financial and political stability in South America, as well as the more conciliatory approach taken by some States to investment arbitration.
Reflecting an increase in ICSID cases brought under the Energy Charter Treaty, 31% of new cases registered in FY 2015 involved the electric power and other energy sectors, consistent with FY 2014, but a significant increase from the historical average of 15%.
The oil, gas and mining sectors continued to be a strong source of new claims, accounting for 27% of new cases in FY 2015, a decrease from 35% in FY 2014, but consistent with an historical average of 26%.
More generally, the Annual Report highlights the broad range of sectors involved in new claims, including construction (8%), finance (6%), tourism (2%), water, sanitation and flood protection (2%) agriculture, fishing and forestry (2%) and services and trade (2%).
Basis for establishing consent to jurisdiction
Bilateral investment treaties continue to provide the majority of bases for establishing consent to ICSID jurisdiction under the ICSID Convention and the Additional Facility Rules, accounting for 51% of cases registered in FY2015, an increase from 49% in FY 2014, but below the historical average of 61%.
Notably, the Energy Charter Treaty continues to provide a substantial basis for establishing jurisdiction in new cases, amounting to 22% of new cases. This is consistent with FY 2014, but significantly above the historical average of 7.5%. In the remaining 7% of cases, consent to jurisdiction was established on the basis of regional free trade agreements, such as NAFTA, CAFTA and DR CAFTA.
In two cases, instruments referring to ICSID arbitration were invoked via the most-favoured-nation provisions in the Unified Agreement for the Investment of Arab Capital in the Arab States and the General Agreement on Trade in Services. Twelve cases relied upon two bases for jurisdiction and one case relied upon three bases for jurisdiction.
Consent to jurisdiction was based on an Investment Contract between the Investor and the Host State in 8% of cases, less than half the level seen in FY 2014 and the historical average (both around 18%). The Investment Law of the Host State established consent to jurisdiction in 12% of cases, consistent with FY 2014 (11%) and slightly above the historical average of 9.5%. Whilst these percentages are unsurprisingly lower than those discussed above, it is significant that States are prepared to agree to dispute resolution under the ICSID system in individually-negotiated contracts with investors and within their own domestic laws, and not just in the context of state-to-state agreements promoting investment.
Arbitrators and conciliators appointed
In FY 2015, 83 individuals from 34 countries were appointed to serve as arbitrators, conciliators, or ad hoc Committee members in ICSID cases. Around 20% of the new appointees were nationals of developing countries (down slightly from 22% in FY 2014). Western Europe and North America continue to account for the vast majority of appointments, with the five most popular countries being France (21), the United States of America (11), the United Kingdom (11), Germany (8) and Canada (8). 16% of appointees in FY 2015 are women, an increase from 11% in FY2014.
As outlined in its response to the European Commission's public consultation on investor state dispute settlement, ICSID encourages Member States to consider gender, age and regional diversity in ICSID panel nominations, to ensure a broad pool of capable candidates. However, it is clear that much remains to be done raise the number of appointments of nationals of developing countries and of women beyond the current levels of 20% and 16%, respectively, including raising awareness of investors and States when considering appointments. Initiatives such as GQUAL! – A Global Campaign for Gender Parity in International Tribunals and Monitoring Bodies, are a welcome development in this respect.
2015 was the 50th anniversary of the ICSID Convention, and was ICSID's busiest to date. This continues a trend which has seen a significant increase in the number of cases registered in the past decade. As at June 2015, ICSID had registered a total of 525 cases under the ICSID Convention and Additional Facility Rules, with 326 of those cases registered in the years 2006 to 2015.
The statistics show an increasing trend of investment arbitration claims being brought against Western European States, a feature that has likely contributed to the growing hostility in Europe and beyond to the current system of investor state dispute settlement. Despite the criticisms of the current system, however, it is clear that ICSID remains popular as ever with investors as a means to resolve investment claims.
Further, the ICSID system has been embraced in the investment chapters of recently concluded trade agreements such as the CETA and the EU-Singapore FTA and, whilst the agreed investment chapter of the TPP is yet to be released, ICSID arbitration featured in the draft leaked earlier this year and is anticipated in the final version. Indeed, whilst the most recent proposal for investor-state dispute resolution released by the European Commission in relation to the TTIP plans for an international investment court, it still envisages a potential role for the ICSID Rules in the revised, seemingly WTO-inspired system.
For further information, please contact Hannah Ambrose, Professional Support Consultant, Harry Ormsby, Associate or your usual Herbert Smith Freehills contact.