In today's world, national markets have been superseded by the global trade and this evolution necessitates cooperation between states. In such a system in which foreign investment is one of the most important elements of international trade, protection of foreign investment and investors is a must.
In this context, international settlement centers have been established in order to deal with international trade disputes. Arbitration is recognized as one of the most efficient ways so as to resolve international trade disputes other than litigation as well. Thus, there has sprung up many arbitration institutions in the world.
International Centre for the Settlement of Investment Disputes ("ICSID") has been established in order to resolve conflicts between foreign investors and host states through arbitration, by Convention on the Settlement of Investment Disputes between States and Nationals of Other States ("Convention") which was entered into force on October 14, 1966. Turkey had also signed the Convention on June 24, 1987 and has become a party officially on April 2, 1989.
In order for a conflict to be resolved via arbitration under ICSID, some criteria regarding jurisdiction is required to be fulfilled. The jurisdiction criteria is regulated under Article 25 of the Convention.
First element of the jurisdiction criteria is a written consent of the parties relating to the jurisdiction of the ICSID. Second element is, which is called jurisdiction ratione materia, legal dispute arising out of a foreign investment. Third element is, which is called jurisdiction ratione personae, parties that one of them is contracting state of the Convention while other is the national of another contracting state of the Convention.
-Condition of Consent
As in all arbitration proceedings, it is fundamental that parties shall agree on ICSID jurisdiction within the scope of arbitration under the Convention. Due to that, the consent is compulsory so that parties could commence an arbitration under the Convention.
Pursuant to the Article 25 of the Convention, written consent of parties is required. However, precondition for consent is being a contracting party of the Convention. Actually, ascertainment of the parties of foreign trade dispute is vital for determination of ICSID jurisdiction because according to Convention, only the foreign investors whose country is a contracting state, could commence an arbitration under the Convention.
Namely, ICSID have jurisdiction over the cases between contracting host state and foreign investor on the condition that both of them give written consent that cases regarding legal dispute would be brought before ICSID. In addition to this, general consent for ICSID arbitration is not sufficient, thereby parties shall give consent separately towards each different cases. Moreover, pursuant to Article 25 of Convention, "When the parties have given their consent, no party may withdraw its consent unilaterally.". Yet again, it should be specified that Article 25 of Convention only prohibits unilateral withdrawal of given consent. It means that the parties would be free to modify their consent mutually (Akyüz 346).
As per the Convention, other dispute resolution ways are refused to be engaged by the states through giving consent for ICSID arbitration. Nevertheless states may specify exhaustion of all local legal and administrative remedies as a precondition for an arbitration under the Convention. In such a case, a request for ICSID arbitration would be submitted provided that all domestic remedies are exhausted.
-Form of Consent
Form of consent for ICSID arbitration is open-ended under the Convention because there is no regulation on methods of consent. Therefore, parties may use different ways such as below-mentioned procedures to give consent.
- Contract Between Parties: The condition of consent may be fulfilled via a provision related to the arbitrating future disputes, in a contract between the host state and the foreign investor. In this way, the parties are deemed to give consent to resolve the disputes via arbitration under the Convention.
- National Legislation on Investment of Host State: Another way to give consent is that host state ascertain ICSID arbitration as a mandatory resolution way of investment disputes in relation to foreign investor, through its national legislation including investment codes and similar legislation. In such a condition, an unequivocal consent to arbitrate of foreign investor shall be adequate in order to commence an arbitration under the Convention.
- Multilateral Treaties: The consent for arbitration under the Convention may be set out by a multilateral investment treaty which host state and state of foreign investor are parties of it.
- Bilateral Investment Treaty ("BIT") is Signed Between the Host State and State of Foreign Investor: This is the most common way to fulfill the condition of consent. With this method, contracting states submit their statements regarding intention to resolve disputes via ICSID arbitration. This approach offers foreign investors the right to arbitrate many disputes arising from a wide range of public authorities even if no specific agreement has been concluded ("Consent in Investment Arbitration"). In this context, condition of context would be fulfilled by assent of foreign investor.
ICSID has been established by a convention in order to make investment disputes between the host state and foreign investor resolved independently in the environment of confidence and it operates arbitration proceedings within the scope of institutional arbitration rules and its jurisdiction depends upon condition of consent by parties.
It is possible to perfect consent for ICSID arbitration in many written ways because strict requirements as to consent form are not regulated under the Convention. For instance, limitation of consent or conditioned consent might be probable. By this means, both foreign investors are offered the right to commence an arbitration under ICSID and jurisdictional equilibrium in favor of states is restored. In addition, interpretation of consent would be crucial to determine ICSID jurisdiction.
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.