Mind the GAP: Tailoring the Form and Substance of Political Risk Insurance in Order to Bridge the ?Enforcement Gap' in Investment Arbitration

• Author: Ravi D. Soopramanien
• Position: Ravi Soopramanien is an attorney-at-law. He previously served as a Legal Officer at the African Development Bank's Energy, Environment and Climate Change (ONEC) Department, where he advised the Bank's government clients on political risk products. The author gratefully acknowledges Profs. Alan O. Sykes, Jonathan Greenberg, Dan Reicher, and ...
• Pages: 585-611

Mind the GAP: Tailoring the Form and

Substance of Political Risk Insurance in Order

to Bridge the ‘Enforcement Gap’

in Investment Arbitration

R

AVI

D. S

OOPRAMANIEN

*

I. Introduction

Bilateral Investment Treaties (“BITs”) emerged from the shadows of the

Bretton Woods negotiations. Theirs is a story linked in particular to the

World Bank Group and its attempts to depoliticize investment. Prior

attempts to conclude a multilateral agreement on investment have failed in

the years following Bretton Woods.

1

The earliest iterations of some of the

core substantive investor protection provisions found in modern-day BITs,

notably the obligation to treat foreign investments fairly and equitably, can

be traced back to the 1948 Havana Charter.

2

The Charter, however, ran

counter to the Calvo Doctrine, espoused by an influential subset of

developing countries at the time. This Doctrine provided that

“international law should not grant more protection to foreigners than

national treatment under domestic law.”

3

In the absence of tribunals,

investment disputes in those days were resolved by gunboat diplomacy or,

increasingly, through the good offices of Eugene Black, the World Bank

* Ravi Soopramanien is an attorney-at-law. He previously served as a Legal Officer at the

African Development Bank’s Energy, Environment and Climate Change (ONEC) Department,

where he advised the Bank’s government clients on political risk products. The author

gratefully acknowledges Profs. Alan O. Sykes, Jonathan Greenberg, Dan Reicher, and Jeffrey D.

Brown of Stanford Law School for their comments on the research papers that laid the

groundwork for the present article.

1. See, for instance, the discussion of the failed International Trade Organization (ITO)

Charter in

C

HARLES

L

IPSON

, S

TANDING

G

UARD

: P

ROTECTING

F

OREIGN

C

APITAL IN THE

N

INETEENTH AND

T

WENTIETH

C

ENTURIES

86-87 (University of California Press, Berkeley

1985).

2. See U.N. Conference on Trade and Employment, Havana Charter for an International Trade

Organization: Final Act and Related Documents, Art. 93(2), U.N. Doc. E/CONF.2/78 (Mar. 24,

1948), later stalled attempts include the Draft Convention on Investments Abroad and the

OECD Draft Convention on the Protection of Foreign Property. See Herman Abs and Hartley

Shawcross, The Proposed Convention to Protect Private Foreign Investment: A Round Table, 9

J. P

UB

.

L

. 115, 117 (Spring 1960), and OECD Draft Convention on the Protection of Foreign Property art.

7(b), 7

I.L.M.

117 (1968).

3. Stephan W. Schill, W(h)ither Fragmentation? On the Literature and Sociology of International

Investment Law, 22

E

UR

. J. I

NT

’

L

L

. 873, 901 (2011).

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586 THE INTERNATIONAL LAWYER [VOL. 50, NO. 3

President from 1949 to 1962.

4

Black was called upon to arbitrate

investment-related disputes relating to the sequestration of British property

in the United Arab Republic, the rights of English and French shareholders

in the Suez Canal Company, the payments due to French bond holders of

1912 Tokyo City bonds, and the contested trans-boundary water rights

leading to the Indus Water Treaty.

5

Black’s role as the world’s foremost investment arbitrator positioned the

World Bank to push for the adoption of the Convention on the Settlement

of Investment Disputes Between States and Nationals of Other States

(“ICSID Convention”).

6

The fact that the ICSID was artfully presented to

the World Bank’s Member Countries in 1965 as an attempt to streamline the

World Bank’s role in investment disputes

7

should not detract from its focus

on political risk.

8

Unlike the failed investment-related conventions that

preceded it, the ICSID Convention did not codify any substantive investor

protections. Rather, it sought to provide a neutral forum for the

adjudication of investor-state disputes.

9

The World Bank expected that

recourse by states and investors to the forum would, in time, lower political

risk and promote foreign direct investment (“FDI”), particularly for large-

scale projects vulnerable to expropriation.

10

ICSID was designed to apply to investor-state disputes on a case-by-case

basis. Ratification did not oblige Member Countries to use the ICSID.

Rather, such obligation would only arise where a Member Country explicitly

consented, in its capacity as host state, to ICSID arbitration.

11

Such consent

would typically be contained in contracts individually negotiated between

the host state and an investor (hereafter, a “Contract Investor”). These

contracts, generally lengthy,

12

would contain a dispute settlement clause

addressing the host state’s consent to ICSID arbitration, carefully list the

host state’s counterparty obligations, and explicitly highlight those actions

4. See Eugene Robert Black,

T

HE

W

ORLD

B

ANK

, http://www.worldbank.org/en/about/

archives/history/past-presidents/eugene-robert-black (last visited June 25, 2017).

5. Tobias M.C. Asser, The World Bank, 7

J. I

NT

’

L

L. & E

CON

.

207, 209 (1972).

6. Convention on the Settlement of Investment Disputes between States and Nationals of

Other States [ICSID], Mar. 18, 1965, 17 U.S.T. 1270.

7. Aaron Broches, Settlement of Disputes between Governments and Private Parties, in

H

ISTORY

OF THE

ICSID C

ONVENTION

1,

1-3 (2009).

8. As distinguished from commercial risks covering, inter alia, construction and operational

risks, excessive maintenance costs, and insufficient sales to satisfy debt repayment obligations.

9. See the remarks of former ICSID Secretary-General Robert Danino, ICSID - A Forum for the

Resolution of International Legal Disputes Through Arbitration and Conciliation, 1 – 2 (Nov. 16,

2005), available at http://siteresources.worldbank.org/INTLAWJUSTICE/214576-113960430

6966/20817156/ParisICSID.pdf.

10. John T. Schmidt, Arbitration under the Auspices of the International Centre for the Settlement

of Investment Disputes (ICSID): Implications of the Decision on Jurisdiction in Alcoa Minerals of

Jamaica, Inc. v. Government of Jamaica, 17

H

ARVARD

I

NT

’

L

L. J.

90, 90 (1976).

11. See, on this point, the analysis of ICSID Art. 25(1) in the dissenting opinion of Laurence

Boisseon de Chazournes in Garanti Koza LLP v. Turkmenistan, ICSID Case No. ARB/11/20,

available at http://www.italaw.com/cases/2176#sthash.vfFSoNjp.dpuf.

12. A typical water concession contract will run some 110 pages in length, excluding annexes.

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AN ANNUAL PUBLICATION OF THE ABA/SECTION OF INTERNATIONAL LAW

PUBLISHED IN COOPERATION WITH

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