Nicolas Herzog and Niccolò Gozzi

Wednesday, 29 February 2012

What is the International Convention on the Settlement of Investment Disputes?

Foreign investors often (rightly or wrongly) fear, to the impediment of foreign investment activities, that in the case of disputes the local courts of host states, out of political or parochial considerations, might decide to their disadvantage. Other risks to foreign investments might arise from cultural factors (the significance of personal relationships, the perception of written or oral agreements, etc). In the early 1960s, to promote and further foreign investments, then much-needed particularly in the countries of the developing world, the World Bank began drafting an arbitration convention that would ‘provide a forum for conflict resolution in a framework which carefully balances the interests and requirements of all the parties involved, and attempts in particular to “depoliticize” the settlement of investment disputes’ (Ibrahim Shihata, secretary-general of ICSID 1983-2000). Even though arbitration clauses in agreements with foreign governments and the resolution of such disputes by arbitration panels were not unknown (and were increasing in number), international commercial arbitration at the time was in some regards not well-suited to such conflicts, because of, for example, controversies regarding the applicable law, the enforcement of awards, sovereign immunity and other issues.

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