The ICSID (International Centre for Settlement of Investment Disputes, "Centre") Arbitration is a popular alternative dispute settlement system for disputes that arise between the states/the administrative bodies of states and the companies which contain foreign capital.
Considering the conventional systems for arbitration, the most significant point of the ICSID Arbitration is that it does not require an arbitration agreement between the parties of the dispute. As it is known, in order to initiate the arbitral procedure, the parties need to express their will in this regard and conclude an arbitration agreement/clause; however, ICSID constitutes an exception to this canon.
Having been established pursuant to the "Convention on the Settlement of Investment Disputes Between States and Nationals of Other States" ("Convention") of year 1965, ICSID is affiliated with the World Bank, but with having an autonomous structure. Its headquarters is located in Washington D.C., just like the World Bank. The Centre covers its expenses with its own financial means and the contribution margins which are determined by the shares of capital of the member states of the World Bank. From this aspect, ICSID has its autonomous mechanism that is independent from local legal systems, which supports the view that a dispute settlement procedure conducted by ICSID Arbitration would be independent.
As of today, spring 2016, ICSID has 147 members, though there are members that are yet to ratify the Convention. The Republic of Turkey has ratified the Convention with the law dated 27.05.1988 and numbered 3460. Within this direction, an award given by the ICSID Arbitration may be executed in Turkey after the recognition and enforcement procedures have been duly implemented. Pursuant to the Article 54 of the Convention, The Signatory States are obliged to execute the ICSID award in their own state , whether they be a Party of the original dispute or not.
In order to apply for the ICSID Arbitration, an investment contract is required. Considering other international contracts, the difference of the investment contracts is that one of the Parties of the Contract is a State, or a public body. With this respect, for the applicability of the ICSID Arbitration, it is essential to determine the scope of the term "investment".
The word "investment" is left undefined in the Washington Convention intentionally in order to include the both conventional methods of investment such as capital grants and the modern methods of investment such as transfers of technology and the service contracts.
Besides, the presence of foreign capital is a necessity for applying to ICSID Arbitration. The companies that are considering application should therefore make the necessary changes in their shareholder structure accordingly. The bilateral investment agreements of the State which is a Party to the dispute should also be taken into account. Considering these, the support of a competent attorney that is proficient with the legal and taxational structure of this system is also advised.
For the companies that contain foreign capital/foreign investors and that are in conflict with States or State-owned administrative bodies, the ICSID Arbitration comes into view as a valuable dispute resolution alternative in comparison to the conventional litigation, thanks to the reasonably short duration of time in which the award is given and the internationally acclaimed fair and impartial exercise of the institution. When the increase in the number of disputes of the companies with foreign capital with the Republic of Turkey, and the portfolio of foreign investors in Turkey is taken into account, it is apparent that ICSID Arbitration is a preferable choice for the companies with foreign investors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.