ICSID, the acronym for the International Centre of the Settlement of Investment Disputes, is “an autonomous international institution established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Convention) with over one hundred and forty member States.” It provides a forum and has rules for arbitrating disputes between foreign investors and countries. It covers disputes similar to the one we saw between Walter Bau and Thailand recently.
Indeed, the bi-lateral investment treaty (BIT) between Germany and Thailand that Walter Bau employed to commence arbitration proceedings against Thailand provides that if “both” countries become parties to the Convention, investment disputes will be arbitrated under ICSID rules rather than the rules set out in Article 10 (3) of that treaty. This provision might as well have said: “if Thailand (finally) becomes a party to the Convention”, since Germany is already a party to the Convention.
At least 147 countries have ratified ICSID. China is one of them. Virtually every developed country (except Canada?) and the vast majority of less developed countries have ratified the Convention. A few countries, such as Namibia and the Russian Federation, have not. Thailand signed the Convention on 6 December 1985, but has not yet ratified the Convention? Why?
To be fair, some commentators claim that ICSID and BITs containing investment protection provisions unfairly override the ability of countries, particularly less developed countries, to exercise their regulatory powers. To be honest, I have never seen ICSID or a BIT prevent a country from legitimately exercising its regulatory powers.
The irony here is that Thailand is already a party to at least 30 treaties that contain some form of arbitral requirement for investment disputes. They don’t seem to have deterred Thailand from exercising its regulatory powers. They have created a hodge-podge of inconsistent obligations on the treatment of foreign investors.
Further, even though the Thai government has been reluctant to agree to arbitration of investor disputes, in some matters it is already obliged to arbitrate investment disputes. (The lesson for investors here is simple: look beyond your contract to possible treaty obligations.) And because arbitration under a BIT is generally subject to ad hoc rules, that arbitration “is subject to the rules of the arbitration law of the country where the tribunal has its seat.” The Walter Bau matter arose out of Swiss arbitral proceedings.
As Christoph Schreuer observed in The Dynamic Evolution of the ICSID System:
Compared to ad hoc arbitration, the ICSID Convention offers considerable advantages: it offers a system for dispute resolution that contains not only standard clauses for arbitration and rules of procedure but also institutional support for the conduct of proceedings.
Because of these advantages and, quite frankly, the prestige and integrity of ICSID, arbitral proceedings under ICSID also provides a level of perceived legitimacy that ad hoc arbitration lacks. When a recognized and well-respected international body such as ICSID administers arbitral proceedings, it’s easier for a government to explain why the award must be paid and fend off misinformed domestic complaints about honoring an unfavorable award.
Those advantages did not exist in the Walter Bau matter. And, because of what occurred in the Walter Bau matter, I suspect it is even less likely now Thailand will ratify the Convention and join ICSID. There is further irony here since, if Thailand had adopted ICSID, I suspect that it would have been much easier to pay the award in the first place and thereby avoided the domestic controversy we saw when Walter Bau tried to enforce the award.
Thai Law & Policy 