When the International Centre for Settlement of Investment Disputes (ICSID) was established in 1966, there was no stampede by international businesses to use its facilities.

It would be half a decade before the Washington-based arbitration centre saw its first customer, when the Holiday Inns company sought arbitration over a dispute with the Moroccan government.

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For the next quarter-century, the World Bank-affiliated centre would see only a trickle of foreign investment disputes. Investors may have been loath to drag their host governments into international arbitration unless their business relationships had deteriorated beyond the point of repair.

Moreover, access to ICSID arbitration was far from automatic, with the consent of the host government needed before a case could be launched by an investor. But things were changing by the mid-1990s.

Factors for growth

Former ICSID secretary-general Roberto Danino observes that ICSID’s caseload has grown exponentially over the past decade, and he points to two factors behind this increase.

One has been the dramatic growth in foreign investment flows, which Mr Danino says has generated more legal disputes between investors and governments. Just as important for ICSID’s fortunes, however, was the decision by governments to sign large numbers of international investment protection treaties in the 1980s and 1990s.

Today, there are more than 2400 such treaties in existence, with many countries having signed dozens of these agreements with their major trading partners. Most of these provide for advance consent by governments to arbitration, and a majority of the treaties refer such disputes to the ICSID facility. Mr Danino credits these treaties with having contributed to the surge of investor interest in the centre.

In a speech last December, Mr Danino cited some remarkable figures that capture the shift in ICSID’s fortunes: “Merely a decade ago, ICSID had a caseload of five pending cases for an aggregate amount of $15m in claims. Today, we have 113 pending cases for an aggregate amount exceeding $30bn in claims.”

Central role

Such rapid expansion does not come without growing pains, however, and the centre has felt its share as it has been thrust into a pivotal role on the global stage: to broker peace between quarrelling governments and foreign investors.

One basic challenge confronting ICSID has been the need to maintain efficiency as it copes with a ballooning caseload. Some lawyers grumble that ICSID can take many months to register requests for arbitration – a preliminary step before an arbitration can get under way – and years to resolve a dispute.

However, Mr Danino stresses that the centre has hired new lawyers to help deal with this rising workload. He also counters that the parties can contribute to delays, particularly as they import litigation techniques from national legal systems and use them to drag out every stage of the arbitration proceedings.

Arif Ali, an international arbitration lawyer with law firm Fulbright and Jaworski, says that the wheels of justice still turn relatively quickly at the ICSID, particularly given the stakes involved. ICSID arbitrations are brought by some of the most prominent multinationals in the world – companies such as BP, Repsol, Siemens, Telefonica and Vivendi – and the disputes with sovereign governments can involve sensitive questions of national policy.

“When the whole spate of ICSID cases skyrocketed,” Mr Ali says, “the Secretariat of ICSID did a heck of a job in putting in place an administrative infrastructure to deal with not just a few cases but tens of cases, which are hugely significant cases that may involve a country’s future.”

Prestigious venue

While Mr Ali hears some complaints about delays at ICSID, he sees few signs that law firms are advising their clients to take their cases elsewhere (when they have such an option). For many lawyers, there is a ‘prestige’ to arbitrating against or representing governments at ICSID.

“In Washington DC, Paris and London, everybody wants to get in on the game,” he says. “The noted [ICSID] practitioners are hot commodities.”

After all, ICSID offers advantages over other international arbitration venues, like that of the International Chamber of Commerce. As part of the World Bank Group, ICSID benefits from the widely held view that the bank’s muscle might help persuade recalcitrant governments to respect ICSID awards. When governments join ICSID they pledge that their courts will enforce its awards as if they had been issued by the highest court in their own legal system.

Michael Ostrove, a lawyer with the Paris office of the law firm Debevoise and Plimpton, agrees that enforceability is a benefit of the ICSID system. He adds, however, that with so many cases now under way – and governments waking up to the potential financial consequences of these cases – “the era of automatic enforceability may be over”.

In Argentina, where the government has faced a flood of ICSID claims in the aftermath of that country’s financial crisis, politicians have warned that they may challenge ICSID awards in Argentina’s courts. This calls into question the constitutionality of allowing ICSID tribunals to arbitrate over sensitive policy questions.

As the stakes continue to rise in international arbitration, there are also demands for greater openness of the process.

ICSID is already more transparent than other arbitration venues; the centre maintains a public list of all cases being arbitrated. Still, the arbitration hearings are typically closed to the public and the media, unless both parties agree to open the doors.

In 2004, the ICSID secretariat staff proposed rule changes that would have handed the centre’s secretary-general the power to open arbitration hearings to the public. The proposal would have taken away the veto that the parties to arbitration proceedings currently wield when it comes to publicity. However, after a series of public consultations the proposal was diluted; parties to ICSID arbitration proceedings may still object to any move by the presiding tribunal to open the doors to the media or the public.

Confidentiality woes

While confidentiality still has its supporters, it can create headaches for those standing on the sidelines who are trying to understand the legal and policy implications of the hundreds of international investment treaties that have been signed in recent years. With vast numbers of disputes now in arbitration, governments in the developed and developing worlds are also awakening to the fact that their signature on these international investment treaties can have serious policy – and financial – consequences.

Philippe Sands QC, a professor of law at the University of London and a barrister at Matrix Chambers, has been involved in more than a dozen ICSID cases, acting for both investors and governments. He says: “The ICSID dispute settlement system has evolved in directions significantly beyond what its founders may have expected. That is not in itself a bad thing, so long as an appropriate balance is maintained in protecting the legitimate interests of investors and states. If the arbitral decisions lose balance, there will be backlash against the ICSID system and that would be regrettable.”

Mr Danino insists that ICSID can strike a fair balance between the interests of investors and governments. Although governments have been hit by a wave of investment treaty lawsuits in recent years, he says that the outcome of these lawsuits has not been one-sided. If you look at the decisions rendered so far, he says, about 50% of the time, investors win, and 50% of the time, governments win.