Document II-64

Summary of the Terms of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Approved at Washington, March 18, 1965, Entered Into Force, October 14, 1966 5

56

The convention contains, in addition to the preamble, 75 articles grouped into a number of chapters.

Articles 1 to 3 establish the International Center for Settlement of Investment Disputes (the Center) at the headquarters of the International Bank for Reconstruction and Development (the World Bank) for the purpose of providing facilities for conciliation and arbitration of investment disputes between contracting states and nationals of other contracting states. The organs of the Center are the Administrative Council and a Secretariat. The Center shall also maintain a Panel of Conciliators and a Panel of Arbitrators.

Articles 4 to 8 on the Administrative Council provide that it shall be composed of one representative of each contracting state who shall serve without remuneration from the Center. In the absence of a contrary designation, each Governor of the World Bank appointed by a contracting state shall also serve as that state's representative on the Administrative Council. The President of the World Bank shall be ex officio Chairman of the Administrative Council but shall have no vote. The principal functions of the Administrative Council shall include the adoption of the annual budget of the Center, the election of the Secretary-General, and the adoption of rules of procedure for the in

5 S. Ex. Doc. A, 89th Cong., 2d sess., Feb. 16, 1966, pp. 50-53. This Convention was approved by the Executive Directors of the IBRD for submission to member governments. The United States signed it Aug. 27, 1965, the date on which it was opened for signature at the IBRD. For the text of the Convention, see TIAS 6090; 17 UST 1270.

stitution of arbitration or conciliation proceedings and rules of procedure for the conduct of arbitration and conciliation proceedings." Each member of the Council shall have one vote, and decisions of the Council shall be by a simple majority of the votes cast, except in certain cases, such as the adoption of the annual budget of the Center, in which a two-thirds majority is required.

Article 9 to 11 on the Secretariat provide that the Secretary-General shall be the principal officer of the Center and that he shall be nominated by the Chairman and elected by the Administrative Council by a twothirds majority of its members.

Articles 12 to 16 on the Panel of Arbitrators and the Panel of Conciliators provide that each contracting state shall be entitled to designate four persons to each Panel. The Chairman shall be allowed to designate 10 persons to each Panel. Panel members shall be appointed for renewable periods of 6 years and are required to be persons of high moral character and of recognized competence in the fields of law, commerce, industry, or finance, who are capable of exercising independent judgment.

Article 17 on financing the Center provides that insofar as the expenses of the Center cannot be met out of the use of its facilities or out of other receipts, the excess shall be borne by contracting states which are members of the World Bank in proportion to their respective subscriptions to the capital stock of the World Bank. The report of March 18, 1965, of the Executive Directors of the World Bank states that the World Bank is willing to provide the Center with office space free of charge and to underwrite the basic overhead expenditure of the Center for a period of years.

Articles 18 to 24 on the status, privileges, and immunities of the Center and of persons connected with it are similar to the provisions on privileges and immunities to be found in the articles of agreement of the World Bank and the articles of agree

57 For provisional regulations and rules, adopted by the Administrative Council of the International Center for Settlement of Investment Disputes at its inaugural meeting, Feb. 2, 1967, see International Legal Materials: Current Documents, vol. VI, No. 2, Mar. 1967, pp. 225–283.

ment of the International Monetary Fund.58

Article 25, which is perhaps the most important article of the convention, states that the jurisdiction of the Center shall extend to any legal dispute arising directly out of an investment between a contracting state and a national of another contracting state which the parties have consented to submit to the Center. Consent must be in writing and once given may not be withdrawn unilaterally. "National of another contracting state" is defined as a natural or legal person having the nationality of a contracting state other than that which is a party to the dispute. However, a company which is organized in the contracting state party to the dispute may, if the parties so agree, nevertheless be treated as a national of another contracting state if such company is foreign controlled. Thus, the Center would have jurisdiction to consider a dispute involving a contracting state and a U.S.-owned company organized in that state if both parties were to agree to submit their dispute to the Center. A subdivision or agency of a contracting state could also be a party to proceedings before the Center subject to the approval of that state.

Whenever two parties enter into an agreement to submit a dispute to arbitration, such agreement shall, unless otherwise stated, be deemed to mean that the parties decided to rely on arbitration to the exclusion of any other remedy. This rule of interpretation which is expressed in article 26 means that when an investor and a contracting state have agreed to arbitrate a dispute, the investor need not, absent an agreement to the contrary, take his dispute into the courts of that state before he may resort to arbitration.

Article 27 prohibits a contracting state from giving diplomatic protection or bringing an international claim on behalf of one of its nationals in respect of a dispute which is subject to arbitration under the convention, unless after an award has been rendered the other contracting state fails to comply with it. This prohibition is not applicable to informal diplomatic exchanges which might be undertaken to facilitate a settlement.

Articles 28 to 35 deal with conciliation. To initiate proceedings before a Conciliation Commission, a party addresses a request for conciliation to the Secretary-General, who forwards it to the other party. The parties then appoint the conciliators, who need not be members of the Panel of Conciliators. If a Conciliation Commission is not constituted within a certain period of time after the request for conciliation, the Chairman, at the request of either party, shall name from the Panel of Conciliators the conciliators still to be appointed. A Conciliation Commission shall be the judge of its own competence. It is the function of a Conciliation Commission to clarify the issues in dispute and to recommend terms of settlement. In keeping with the consensual nature of conciliation, the recommendations of a Conciliation Commission are not binding on the parties.

Articles 36 to 55 deal with arbitration. An arbitration proceeding is also initiated by one party sending a request to the Secretary-General who then transmits it to the other. The parties appoint the arbitrators, who need not be members of the Panel of Arbitrators, though a majority of them must be nationals of states other than the contracting state party to the dispute and the contracting state whose national is a party to the dispute, unless each individual member of the arbitral tribunal is appointed by agreement of the parties. There is no similar restriction on the nationality of conciliators because of the different nature of conciliation. If an arbitral tribunal is not constituted within a certain period of time, the Chairman, upon request, shall name from the Panel of Arbitrators the arbitrators still to be appointed. As in the case of a Conciliation Commission, an arbitral tribunal is also the judge of its own competence. Article 45(2) specifically empowers an arbitral tribunal to render an award against a defaulting party. In deciding a dispute, an arbitral tribunal shall apply the law agreed to by the parties, and in the absence of agreement on the applicable law, the tribunal shall apply the law of the state party to the dispute and such rules of international law as may be applicable.

Article 53 declares that an award is binding on the parties and not subject to any forms of appeal or review except those provided in the convention. The convention provides that after an award has been rendered, a party may request: (1) A tribunal to interpret

5 Texts in A Decade of American Foreign Policy: Basic Documents, 1941-1949, pp. 251273 and 273-304, respectively.

its award or to decide a question which it had been requested to, but failed to, decide; (2) a tribunal to revise its award because of a newly discovered fact which decisively affects the award; and (3) the Chairman to appoint an ad hoc committee to consider an application for annulment of the award because of the alleged existence of certain very special circumstances enumerated in article 52, such as the corruption of one of the arbitrators on the tribunal which rendered the award.

If one of the parties to an arbitration does not comply with the award rendered by an arbitral tribunal, such an award would be enforceable in the courts of any contracting state. Article 54 states that the courts of a contracting state are required to enforce the pecuniary obligations imposed by an arbitral award as if it were a final judgment of a domestic court of that state. This rule is qualified in article 54(1) for a contracting state which is a Federal state, such as the United States. In a Federal state, an award need not be enforceable in both the Federal and state courts. A Federal state may enforce an award exclusively in its Federal courts and it may provide that such courts shall treat the pecuniary obligations imposed by an award as if the award were a judgment of one of its constituent states. This provision of article 54(1) means that Congress may by appropriate legislation provide that in the United States an arbitral award shall be enforceable only in the district courts of the United States and that the pecuniary obligations imposed by an award shall be given by such courts the same full faith and credit that they would give to the final judgment of a state court.

59 Public Law 89-532, approved Aug. 11, 1966, and cited as the Convention on the Settlement of Investment Disputes Act of 1966, provided as follows:

"SEC. 3. (a) An award of an arbitral tribunal rendered pursuant to chapter IV of the convention shall create a right arising under a treaty of the United States. The pecuniary obligations imposed by such an award shall be enforced and shall be given the same full faith and credit as if the award were a final judgment of a court of general jurisdiction of one of the several States. The Federal Arbitration Act (9 U.S.C. §§ 1 et seq.) shall not apply to enforcement of awards rendered pursuant to the convention.

"(b) The district courts of the United States (including the courts enumerated in title 28, United States Code, section 460) shall have exclusive jurisdiction over actions and proceedings under paragraph (a) of this section, regardless of the amount in controversy." (80 Stat. 344.)

Article 55 states that the enforcement provisions of the convention are not to be interpreted as modifying the rules on sovereign immunity in force in any contracting state. In other words, our rules with respect to sovereign immunity would not be changed by the convention.

Articles 56 to 61 contain certain technical provisions on replacement and disqualification of conciliators and arbitrators and on the costs of conciliation and arbitration proceedings.

Articles 62 to 63 provide that arbitration and conciliation proceedings may be held away from the Center, either at the Permanent Court of Arbitration at The Hague or at other places.

Article 64 confers on the International Court of Justice jurisdiction over any dispute between contracting states concerning the application or interpretation of the convention, unless the parties agree to settle their dispute in some other way. As noted in the report of the Executive Directors of the World Bank, this provision does not empower a contracting state to institute before the Court proceedings involving an investment dispute which is the subject of arbitration under the convention, nor does it give the Court jurisdiction to review the decision of a Conciliation Commission or arbitral tribunal with respect to its competence.

Articles 65 to 66 provide that the convention can be amended only by an amendment which has been approved by all contracting states.

Articles 67 to 75 contain the final provisions. The convention is open for signature to members of the Bank and to any other state which is a party to the Statute of the International Court of Justice" and which is invited to sign by a two-thirds vote of the Administrative Council. The convention shall enter into force 30 days after the deposit of the 20th instrument of ratification or acceptance. A contracting state may denounce the convention on 6 months' notice, though such denunciation shall not affect the rights or obligations created by any consent to the jurisdiction of the Center given by that state or one of its nationals prior to such denunciation.

60 Text in A Decade of American Foreign Policy: Basic Documents, 1941-1949, pp. 140

152.

61 Department of State Bulletin, June 13, 1966, pp. 955-956.

TS 876; 49 Stat. 3000; 137 UNTS 11. See infra.

The United States had previously proposed a $100,000 limit of liability, including legal fees, per passenger of international air carriers at a special ICAO meeting in Montreal, Feb. 1, 1966 (Department of State Bulletin, Apr. 11, 1966, pp. 538-588). The Feb. 1-15, 1966 special ICAO meeting called on the ICAO Council to convene a diplomatic conference to revise the existing maximum liability per passenger. The existing limit was set at $16.600 by the 1955 Hague Protocol (478 UNTS 371) to which the United States did not subscribe, applying instead the $8 300 limit set by the 1929 Warsaw Convention. The Special ICAO Meeting also requested consideration of four recommendations on raising liability limits, all less than the amount proposed by the United States. (See U.S. Participation in the UN, 1966, pp. 213-214.)

Fifth. The international carriers who have notified the Civil Aeronautics Board of their acceptance of the interim arrangements are: Aeronaves, Air Canada, Air France, Air India, Aer Lingus, Alitalia, BEA, BOAC, Canadian Pacific, CMA, El Al, Icelandic, Iberia, Japan Air Lines, KLM, Lufthansa, Olympic, Philippine Air lines, Qantas, Sabena, SAS, Swissair, Varig, and VIASA; American, Braniff, Continental, Eastern, Northeast, Northwest, Pan American, Panagra, TWA, and Western. The following U.S. airlines mainly engaged in domestic carriage which have accepted the increased limits of liability but not the feature of absolute liability are: Delta, National, and United. It is expected that other carriers will join the plan.

Sixth. Those guilty of sabotage and persons claiming on their behalf will not be entitled to recover any damages.

64 On May 12, 1966, the Senate Foreign Relations Committee approved a resolution by Senator Albert Gore of Tennessee, that the United States denounce the Warsaw Convention unless all air carriers operating within or to the United States agreed to the interim arrangement (The New York Times, May 13, 1966).