The Washington Convention on the Settlement of Investment Disputes was signed on March 18, 1965 and entered into force on October 14, 1966. Initially, 46 countries were members of the International Bank for Reconstruction and Development, a UN special agency. The Convention provides legal mechanisms for the settlement of transnational investment disputes and establishes a special center for these purposes. It is one of the most significant sources of investment law.
History of the Washington Convention
Globalization of world trade in the XX century. accelerated the development of international investment relations. The reason for the ratification of the 1965 Washington Convention was the insufficiency of existing international mechanisms for the protection of foreign investment. Therefore, the purpose of the Washington Convention was the creation of international arbitration, which would specialize in considering investment disputes. Before the advent of the Washington Convention in 1965, history knew only 2 ways to protect the rights of foreign investors.
The first way is to file a lawsuit in the court of the state hosting the investment. This method was ineffective, since in most cases the courts refused to protect the interests of foreign investors. The second way is to influence the host state with the help of diplomatic tricks. Firstly, in this case, the investor had to seek help from his state, and secondly, this method worked only in case of serious violations of rights (for example, nationalization of assets).
Meaning of the Washington Convention
Since investment disputes between the state and a foreign citizen or legal entity are private law, they were initially considered in the court of the country in which the investor placed his capital. This did not provide adequate protection for the rights of investors. For the first time, such disputes were withdrawn from the national jurisdiction of the host state precisely in the Washington Convention of 1965. The consequence of its adoption was that international arbitration became the main means of resolving transnational investment disputes. After the appearance of the first international arbitration, the development of investment relations continued in the following directions:
- unification of the arbitration procedure when considering international disputes in the courts of various states;
- emergence of a legal basis for the enforcement of foreign arbitration awards in another state;
- creation of international arbitration centers by decisioninvestment disputes.
Content of convention
The main provisions of the 1965 Washington Convention can be divided into 2 groups. Chapter I contains the rules on the International Center for the Settlement of Investment Disputes (MGUIS). In Chapter II, its competence is outlined - disputes that the Center can consider. The next group of norms is the provisions that establish the procedure for conducting procedures for resolving investment disputes. Chapter III describes the procedure for conciliation, and Chapter IV describes arbitration. In total, the Convention contains 10 chapters. In addition to the above, the document contains the following chapters:
- rejection of mediators or arbitrators;
- expenses;
- place of dispute;
- disputes between states;
- amendments;
- final clauses.
International Arbitration
The 1965 Washington Convention is the founding document of the International Center for the Settlement of Investment Disputes (ICSID). It belongs to the group of organizations of the World Bank, which, in turn, is a specialized agency of the United Nations. ICSID resolves transnational disputes between states and citizens or organizations. The Convention provides for two forms of activity of the Dispute Resolution Center: arbitration proceedings and conciliation procedure.
For a dispute to be referred to ICSID, it must meet the following conditions:
- directly related to investment;
- dispute parties -State Party to the Convention and a citizen or organization of another State Party to the Convention;
- the parties must enter into a written agreement for conciliation or arbitration.
A party that has agreed to submit a dispute to ICSID cannot unilaterally revoke that decision.
Conciliation
For the implementation of the reconciliation procedure, a commission is formed from one or an odd number of people, called mediators. If the disputing parties do not agree on the number of mediators, there will be three of them. The Commission resolves the dispute by cooperating with the parties. It clarifies the circumstances of the dispute and offers the parties conditions for its resolution. Based on the results of the conciliation procedure, the commission draws up a report, which lists all the disputed issues and indicates that the parties have reached an agreement. If this does not happen, the commission indicates that the parties have not reached an agreement.
Dispute arbitration
According to the provisions of the Washington Convention, arbitration is also formed from one or an odd number of people. If the parties do not agree on the number of arbitrators, there will be three. Most of the arbitrators cannot be citizens of the state that is involved in the dispute. The decision is made in accordance with such rules of law as agreed by the parties in the agreement. If they have not done so, then the dispute is considered under the law of the state party to the dispute, and the applicable rules of international law. The case is decided by majority vote andsigned by all arbitrators. After that, the ICSID Secretary General sends copies of the decision to the disputing parties. It is considered to have entered into force from the moment the parties received it.
ICSID Decisions
According to the 1965 Washington Convention, an arbitration award made in accordance with its rules is binding on the parties. The state must recognize the ICSID decision and fulfill the financial obligations it provides. An arbitration order is equivalent in force to a decision of a national court. It is not subject to appeal in national courts.
The Convention establishes the grounds for the annulment of an arbitration decision. These include:
- clear abuse of authority;
- corruption of arbitrator;
- violation of an essential rule of procedure;
- wrong arbitrage formation;
- lack of motivation for the decision.
The annulment of the decision is carried out by a committee of three people who are on the lists of arbitrators. They are subject to the following requirements:
- must not be members of the arbitral tribunal that rendered the award;
- must be of a different nationality than the members of such arbitration;
- cannot be citizens of the state involved in the dispute;
- cannot be listed as arbitrators by their state;
- should not be persons who were mediators in the same dispute.
Additional procedure
Some controversywhich do not meet the requirements of the Washington Convention of May 18, 1965, may also be submitted for consideration by ICSID. In 1979, the Center developed the Rules of the Additional Procedure. In accordance with them, the arbitration may consider the following types of disputes:
- those that are not investment;
- those arising from investment activities and the disputing state or investor state is not party to the Washington Convention.
Decisions made under the Rules of Supplementary Procedure are enforceable under the rules of the New York Convention 1958. They do not have the same unconditional force as awards made under the rules of the Washington Convention. The national court may refuse to enforce such a decision if it is contrary to procedural rules or public policy.
Through an additional procedure, states not parties to the 1965 Convention can submit disputes to ICSID for resolution. For example, Russia has not ratified the 1965 Convention, although it signed it in 1992. Bilateral investment protection agreements, in which the Russian Federation participates, provide for the possibility of considering a dispute in ICSID under the rules of an additional procedure.
Common controversy
In the practice of international arbitration, there are many investment disputes caused by nationalization - the forced seizure of foreign property. Cases of indirect nationalization spread: freezing of accounts, restrictionmoney transfers abroad, etc. Investors go to arbitration to receive compensation for the seizure of their property.
International practice has developed the following criteria to decide whether the nationalization of the property of a foreign investor has occurred in a particular case:
- degree of interference with property rights (how much it affected the economic activity of the investor);
- justification for enforcement measures (e.g. protecting public order is a valid reason for seizing property);
- To what extent the measure violated the reasonable expectations of the investor (depends on whether the state guaranteed a certain degree of protection to the investor when he placed his investments).
International investment protection
It is generally accepted that at the moment the international system for the protection of foreign investments consists of three elements:
- bilateral agreements between states;
- Seoul Convention Establishing the International Investment Guarantee Agency, 1985;
- 1965 Washington Convention on Investment Dispute Resolution.
This system is the basis for the development of international investment in certain sectors of the economy. For example, the Energy Charter Treaty, in which the Russian Federation participates, contains the same mechanisms for protecting the rights of investors and service providers as the Washington Convention. This agreement is aimed at protecting investments in the energy sector of the economy.
Protection of investments inRussia
The basis of investment regulation is intergovernmental bilateral agreements to encourage investment. By concluding such an agreement, the Russian Federation ensures the protection of the rights of its investors and guarantees the application of the same regime for foreign investments on its territory. As of 2016, Russia has concluded 80 bilateral agreements.
Contracts are concluded on the basis of the Standard Agreement, approved by Decree of the Government of the Russian Federation of June 9, 2001 N 456. It provides for the following ways to resolve investment disputes:
- negotiations;
- appeal to national court;
- arbitration under UNCITRAL Rules;
- consideration at ICSID according to the norms of the Washington Convention;
- consideration at ICSID under the rules of the Additional Procedure.
In order to attract foreign investment to the Russian Federation, it is necessary to provide depositors with more guarantees of legal protection. It would be desirable for Russia to ratify the 1965 Washington Convention and provide more opportunities for dealing with investor disputes under ICSID rules.
