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ICSID Implementation Bill 1990



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House: House of Representatives

Portfolio: Attorney-General

Purpose

To provide Australian investors, Australian governments and foreign investors with a neutral forum

for the arbitration and conciliation of international investment disputes.

Background

During the 1950's the International Bank for Reconstruction and Development (the World Bank) had been approached on several occasions by member governments and investors to assist in the settlement of investment disputes. 1 In response to these requests, it was announced at the 1961 Annual Meeting of the World Bank's Board of Governors, that the World Bank would examine the idea of establishing a forum for settling investment disputes. This was done on the basis of a draft Convention prepared by the General-Council of the World Bank. The proposal was further discussed at regional consultative meetings held between 1963 and 1964. These meetings, chaired by the World Bank's General-Counsel, were attended by legal experts from eighty-six countries. On 18 March 1965, the Executive Directors of the World Bank approved the submission to member governments of the text of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Convention). The Convention entered into force on 14 October 1966. As of 30 March 1990, 99 nations have signed (including Australia on 24 March 1975) and 93 nations have ratified the Convention. The Convention has been ratified by all major Western economic powers and all of Australia's principal trading partners. The Convention has not been ratified by the socialist countries (with the exception of Romania and China) nor by the States of Latin America (with the exception of Paraguay, Costa Rica and Honduras). The principal objectives of the Convention are set out in its preamble. Basically, the Convention seeks to balance the competing interests of foreign investors and host States by providing for the creation of a neutral forum for the resolution of their disputes. ICSID provides facilities for the resolution of disputes in which both parties are guaranteed procedural equality and enables foreign investors to `...pursue their claims in an international forum without the aid or intervention of their national state, (the Convention) aims to facilitate the depoliticization of investment disputes' 2.

The Convention established the International Centre for the Settlement of Investment Disputes (ICSID). ICSIDs stated purpose is to provide facilities for the conciliation and arbitration of investment disputes between contracting States and nationals of other contracting States in accordance with the provisions of the Convention (Article 2). The governing body of ICSID is the Administrative Council. The Administrative Council comprises one representative of each contracting State (Article 4). ICSID maintains a Panel of Arbitrators to which each contracting State may designate four persons who may, but need not, be it's nationals. The Chairman of the Administrative Council may designate a further ten persons, each of a different nationality. ICSID has a Secretariat headed by a Secretary-General elected by the Administrative Council (Articles 9 and 10).

Recourse to ICSID proceedings is available upon the satisfaction of three conditions:

*the parties to a dispute must have agreed to submit their dispute to ICSID;

*the dispute must be between a contracting State (or one of its sub-divisions or agencies, for example N.S.W.) and a national of another contracting State; and

*it must be a legal dispute arising directly out of an investment (Article 25(1)).

ICSID has full international legal personality (Article 18) and persons appointed to act as conciliators or arbitrators have immunity from suit in relation to acts performed by them in the exercise of their functions unless ICSID has waived their immunity (Article 21).

The Convention provides two mechanisms for the settlement of international investment disputes: conciliation and arbitration. Both mechanisms are initiated by a written request to the Secretary-General of ICSID (Articles 28 and 36). The request has to contain information about the issues in dispute, the identity of the parties and their consent to the proceedings. A Conciliation Commission (the Commission) is established after a request has been lodged for conciliation. The Commission can consist of a sole conciliator or any uneven number of conciliators appointed as the parties agree (Article 29). Where the parties are unable to agree upon the number of conciliators and the method of their appointment, the Commission will comprise three conciliators, one appointed by each party and the third appointed by agreement of the parties (Article 29(2)(b)). Under Article 34 it is the duty of the Commission to clarify the issues in dispute between the parties and to endeavour to bring about agreement between them upon mutually acceptable terms. The parties to conciliation proceedings are obliged under Article 32 to co-operate in good faith with the Commission and to give serious consideration to its recommendations. Conciliation proceedings will be terminated if the parties have reached agreement, it appears to the Commission that there is no likelihood of agreement between the parties, or a party fails to appear or participate in proceedings (Article 34(2)).

The provisions relating to the establishment and constitution of the Arbitral Tribunal (the Tribunal) basically correspond to those applicable to the Commission (note: one exception is Article 39, which requires that a majority of arbitrators not have the same nationality as the parties to the dispute. However, this requirement can be waived if every member of the Tribunal is appointed by agreement of the parties). Article 42 provides that the Tribunal is to decide the dispute in accordance with such rules of law as agreed by the parties. Where parties can not agree as to the choice of law which should apply to the proceedings, the Tribunal is to apply the law of the contracting State party to the dispute (including its rules on the conflict of laws) and any rules of international law which may be applicable to the dispute. Article 48 deals with the award (decision) of the Tribunal. The Tribunal is to decide questions by a majority of votes. An award is to be in writing and signed by the members who voted for it, is to deal with every question put to the Tribunal, and is to state the reasons on which it is based. ICSID is not to publish an award without the consent of the parties.

Under Article 53 of the Convention an award is stated to be binding on the parties and not subject to any appeal or any other remedy, except those provided for in the Convention itself (e.g. under Article 50 a party may request interpretation of an award, under Article 51 a party may request revision of an award on the ground of discovery of some fact which decisively affects the award, and under Article 52 a party may request annulment of an award on certain grounds, including: that the Tribunal was not properly constituted or there was corruption on the part of a member of the Tribunal). The Convention provides that each contracting State is to recognise an award as binding and shall enforce the pecuniary obligations imposed by it within its territories as if it were a final judgment of a court in that State (Article 54).

Some of the benefits which may accrue to Australia if it ratifies the Convention include that: it will allow Australian investors to have recourse to internationally constituted legal machinery for the resolution of international investment disputes with foreign States and State controlled instrumentalities; it will entitle the Commonwealth Government and its instrumentalities, as well as State and Territory governments to pursue their claims against foreign investors in Australia; and provides the opportunity for Australia to develop as a regional centre for international arbitration in the Asia-Pacific region 3.

Between 1965 to 1981, only nine cases were submitted to ICSID and all related to arbitration proceedings. However, between 1981 and 1984, an additional nine cases were submitted to ICSID. Seven were requests for arbitration and two were requests for conciliation. These figures suggest that use of ICSID as a forum for the settlement of international investment disputes may be increasing 4.

Main Provisions

Amendments to the International Arbitration Act 1974

A new Part IV (proposed sections 31-38), which will be inserted into the Act by clause 4, will give effect in Australia to the provisions of the Convention. Proposed section 32 provides that Chapters II-VII of the Convention (i.e. Articles 25-63) will operate in Australia. An award made under the Convention will be binding on the parties to the dispute and will not be subject to any appeal or any other remedy other than those provided by the Convention (proposed section 33). Other laws relating to the recognition and enforcement of international arbitral awards will not apply to an investment dispute or award made under the Convention (proposed section 34). Awards may be enforced in the Supreme Courts of the States or Territories (proposed section 35).

A party appearing in conciliation or arbitration proceedings may appear in person and may be represented by themselves, a legal practitioner from any legal jurisdiction of their choice, or by any other person they choose (proposed section 37).

The text of the Convention, which appears in Schedule 3 of the Bill, will be inserted into the Act by clause 5.

Amendments to the International Organizations (Privileges and Immunities) Act 1963

Clause 8 will allow regulations to be made granting certain privileges and immunities to ICSID, its functionaries and certain persons appearing in proceedings. For example, the regulations may confer immunity from suit for conciliators and arbitrators and exempt ICSID, its assets, property, income, operations and transactions authorised by the Convention from taxation and customs duties.

References

1. O'Keefe, Arbitration in International Trade, 1975, p. 98.

2. Australian Law News, June 1990, p. 25.

3. Ibid.

4. Redfern Hunter, International Commercial Arbitration, 1986, p. 35.

Bills Digest Service 29 August 1990

Parliamentary Research Service

For further information, if required, contact the Law and Government Group on 06 2772430.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1990

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Published by the Department of the Parliamentary Library, 1990.