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The History of ICSID$

Antonio R. Parra

Print publication date: 2012

Print ISBN-13: 9780199660568

Published to Oxford Scholarship Online: September 2012

DOI: 10.1093/acprof:oso/9780199660568.001.0001

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(p.348) APPENDIX II Preliminary Draft of a Convention on the Settlement of Investment Disputes between States and Nationals of Other States October 15, 1963

(p.348) APPENDIX II Preliminary Draft of a Convention on the Settlement of Investment Disputes between States and Nationals of Other States October 15, 1963

Source:
The History of ICSID
Publisher:
Oxford University Press

Preamble

The Contracting States

  1. 1. CONSIDERING the need for international cooperation for economic development, and the role of international investment therein;

  2. 2. BEARING IN MIND the possibility that from time to time disputes may arise in connection with such investment between Contracting States and the nationals of other Contracting States, and the desirability that such disputes be settled in a spirit of mutual confidence, with due respect for the principle of equal rights of States in the exercise of their sovereignty in accordance with international law;

  3. 3. RECOGNIZING that while such disputes would usually be subject to national legal processes (without prejudice to the right of any State to espouse a claim of one of its nationals in accordance with international law), international methods of settlement may be appropriate in certain cases;

  4. 4. ATTACHING PARTICULAR IMPORTANCE to the establishment of facilities for international conciliation or arbitration to which Contracting States and the nationals of other Contracting States may submit such disputes if they so desire;

  5. 5. RECOGNIZING an undertaking to submit such disputes to conciliation or to arbitration through such facilities as a legal obligation to be carried out in good faith, which requires in particular that due consideration be given to any recommendation of conciliators, and that any arbitral award be complied with; and

  6. 6. DECLARING that no Contracting State shall by the mere fact of its ratification or acceptance of this Convention be required to have recourse to conciliation or arbitration in any particular case, in the absence of a specific undertaking to that effect,

  7. HAVE AGREED as follows:

    Comment

    1. The Preamble contains a general statement of the aims and purposes of the Convention, and is, in addition, intended to be declaratory of the fundamental norms upon which the specific rules of the Convention are based. Paragraph 1 places the Convention in the context of the need for promoting economic development while paragraph 2 assures respect for the proper exercise of national sovereignty. The purpose for which conciliation and arbitration machinery is set up is limited in paragraph 2 to (p.349) the settlement of investment disputes between Contracting States and the nationals of other Contracting States.

    2. Paragraph 3 makes it clear that the procedures set forth in the Convention are in no way intended generally to supersede national legal processes or the existing rights of States under international law, but suggests that other methods of settlement of the disputes covered may be appropriate in certain cases. Paragraphs 4 and 6 emphasize that recourse to the Center is purely optional.

    3. Finally, paragraph 5 recognizes as binding the obligations deriving from an undertaking to submit investment disputes to conciliation and arbitration under the auspices of the Center and represents an adaptation of a generally accepted principle of international arbitration to the effect that “recourse to arbitration implies an engagement to submit in good faith to the award” (Article 37 of the Hague Convention of 1907).

Article I International Conciliation and Arbitration Center

Establishment and Organization

Section 1.

There is hereby established the International Conciliation and Arbitration Center (hereinafter called the Center). The Center shall have full juridical personality.

Section 2.

  1. (1) The seat of the Center shall be at the headquarters of the International Bank for Reconstruction and Development (hereinafter called the Bank).

  2. (2) The Center may make arrangements with the Bank for the use of the Bank’s offices and administrative services and facilities.

  3. (3) The Center may make similar arrangements with the Permanent Court of Arbitration and with such other public international institutions as the Administrative Council of the Center may from time to time designate by a two-thirds majority of the votes of all members.

Section 3.

The Center shall have an Administrative Council, a Secretariat, a Panel of Conciliators and a Panel of Arbitrators (hereinafter sometimes referred to as Panels).

Comment

1. It is envisaged that the Center would be sponsored by the Bank, which might, in addition, provide it with purely administrative or “housekeeping” facilities and staff. By thus linking it to the Bank the Center would be invested with the image of the Bank and its prestige and reputation for impartiality. On the other hand, the Bank would have no role to play, and could not exercise any influence whatever on the proceedings under the auspices of the Center. These proceedings would be the sole responsibility of conciliators and arbitrators appointed by the parties to a particular dispute or by an authority of their choice.

2. Section 2(1) states that the seat of the Center shall be at the headquarters of the Bank. Section 6(vi) of this article, however, empowers the Administrative Council to move the seat of the Center to some other location should circumstances so demand in the future.

3. As it would, in its initial stages, be impossible to predict the volume of business that would be brought to the Center, its machinery must be characterized by flexibility and economy. This is sought to be achieved in part through provision for use of the Bank’s facilities. In this connection reference is also made to Sections 4(2), 5 and 7(2) of this article.

(p.350) 4. To the extent practicable, there would be cooperation with the Permanent Court of Arbitration. Under Article 47 of the Hague Convention of 1907 and decisions of the Administrative Council of the Court, the Bureau of that Court is authorized to make its offices and staff available for conciliation and arbitration proceedings between a State and a party other than a State, provided the State concerned is a party to the Convention. (Not all members of the Bank are parties to that Convention.) The arrangements contemplated by Section 2(3) are of a simple administrative nature, e.g. for the use of the Court’s staff, facilities, offices and services such as translation, the keeping of records, as well as channelling of communications in cases where parties found it convenient to meet at The Hague rather than in Washington or elsewhere. (See also Section 9(2) of this article). The section also opens the possibility for similar arrangements with other public international institutions which might in the future establish machinery for the settlement of investment disputes.

5. The structure of the Center is conceived on the simplest lines and consists of a) an Administrative Council (except as provided in Section 4, the members of the Bank’s Board of Governors would double in function), b) a small Secretariat (personnel of the Bank’s staff doubling in function) headed by a Secretary-General, and c) the Panels.

The Administrative Council

Section 4.

  1. (1) The Administrative Council shall be composed of one representative and one alternate representative of each Contracting State. No alternate may vote except in the absence of his principal.

  2. (2) In the absence of a contrary designation, each governor and alternate governor of the Bank appointed by a Contracting State shall be ex officio the representative and alternate representative of that State.

Section 5.

The President of the Bank shall be ex officio Chairman of the Administrative Council (hereinafter called the Chairman) but shall have no vote except a deciding vote in case of an equal division. During the President’s absence or inability to act and during any vacancy in the office of President of the Bank, the person who shall be the chief of the operating staff of the Bank shall act as Chairman.

Section 6.

In addition to the powers granted to it by other provisions of this Convention, the Administrative Council shall have the following powers:

  1. (i) To adopt such administrative rules and regulations, including financial regulations, as may be necessary or useful for the operation of the Center.

  2. (ii) To approve the terms of service of the Secretary-General and of any Deputy Secretary-General.

  3. (iii) To approve the annual budget of the Center.

  4. (iv) To approve an annual report of the operation of the Center.

  5. (v) To adopt Conciliation Rules and Arbitration Rules not inconsistent with any provision of this Convention by a two-thirds majority of the votes of all members.

  6. (vi) To move the seat of the Center from the headquarters of the Bank by a two-thirds majority of the votes of all members.

    (p.351) Comment

    6. The Convention would be open to all States whether or not members of the Bank, each State being represented on the Administrative Council. While Section 4(2) assumes that Contracting States members of the Bank would usually wish to designate their Governors and Alternate Governors to represent them on the Administrative Council, it provides that a member State which might feel it more appropriate to designate another person or persons in that capacity may do so.

    7. The Administrative Council, as its name implies, will have purely administrative functions and the only rules which it may adopt with binding effect are those of an administrative nature envisaged in paragraph (i) of Section 6. The Conciliation and Arbitration Rules to be adopted pursuant to paragraph (v) of that section would become binding on the parties to a dispute only with their consent (see Section 4 of Article III and Section 5 of Article IV).

Section 7.

  1. (1) The Administrative Council shall hold an annual meeting and such other meetings as may be provided for by the Administrative Council or called by the Chairman. The Administrative Council may by regulation establish a procedure whereby the Chairman may obtain a vote of the Administrative Council on a specific question without calling a meeting of the Administrative Council.

  2. (2) The annual meeting of the Administrative Council shall be held in conjunction with the annual meeting of the Board of Governors of the Bank.

  3. (3) A quorum for any meeting of the Administrative Council shall be a majority of the members.

  4. (4) Each member of the Administrative Council shall cast one vote and, except as otherwise provided, all matters before the Council shall be decided by a majority of the votes cast.

  5. (5) Members of the Administrative Council and the Chairman shall serve as such without compensation from the Center.

    Comment

    8. The question of voting rights has been considered in the context of the functions of the Administrative Council. If the Council were to have dealt with important substantive or policy matters, it is possible that on certain issues there would have been a division between the capital-exporting and capital-importing countries. Thus, if the Council were to have elected the Panels, or if the Secretary-General—who is appointed by the Council—were to have been a quasi-judicial rather than an administrative official, the question of voting power might well have been of considerable significance. On that hypothesis, if each member of the council had one vote and if all members of the Bank became parties to the Convention, the capital-importing countries would have had control over those matters. On the other hand, if the weighted voting system of the Bank were applied in the Council, the capital-exporting countries would have gained control. To avoid both consequences, a system might have been devised requiring matters to be decided by the vote of a majority of the members representing a majority of the voting power determined in accordance with the Bank formula.

    9. Whatever the merits of that double test, it does not appear to be appropriate in the present context, since the Contracting States (and the Chairman) would designate the members of the Panels, and the Secretary-General would have no judicial or quasi-judicial powers. Nor does it appear that there are any matters within the competence of the Council that could lead to major divisions between the capital-exporting and the capital-importing countries as groups. The text, therefore, proposes in Section 7(4) a simple one-member-one-vote formula.

    (p.352)

The Secretariat

Section 8.

The Secretariat shall consist of a Secretary-General, one or more Deputy Secretaries-General and staff.

Section 9.

  1. (1) The Secretary-General and Deputy Secretaries-General shall be appointed by the Administrative Council upon the nomination of the Chairman.

  2. (2) The office of Secretary-General or Deputy Secretary-General shall be incompatible with the exercise of any political function, and with any employment or occupation other than employment by the Bank or by the Permanent Court of Arbitration, except as the Administrative Council, with the concurrence of the Chairman, may otherwise decide.

Section 10.

  1. (1) The Secretary-General shall be the principal officer of the Center and shall be responsible for its administration, including the appointment of staff, in accordance with the provisions of this Convention and the rules and regulations adopted thereunder by the Administrative Council.

  2. (2) During any absence or inability to act of the Secretary-General, and during any vacancy of the office of Secretary-General, the Deputy Secretary-General shall act as Secretary-General. If there shall be more than one Deputy Secretary-General, the Secretary-General shall determine in what order they shall act as Secretary-General.

    Comment

    10. As indicated in Section 10(1) the Secretary-General would be the principal administrative officer of the Center. While he would have no influence whatever on the outcome of proceedings under the auspices of the Center he could, however, in practice perform a valuable task in promoting use of the Center’s facilities and by giving informal assistance and advice to parties in connection with such proceedings. In addition it is contemplated that he would be asked by the Chairman to consult with parties in order to assist the Chairman in choosing conciliators (Art. III, Sec. 3) and arbitrators (Art. IV, Sec. 3). He would fix, within such limits as were set by the Administrative Council, charges payable by the parties for the use of the facilities of the Center (Art. VI, Sec. 2), and might also be consulted regarding the fees and expenses of conciliators and arbitrators (Art. VI, Sec. 3), as well as the location of any proceedings to take place outside Washington or The Hague (Art. VII, Sec. 2). The proper performance of these various functions would seem to require that the office of Secretary-General be one of complete independence—independence of Contracting States as well as of the Administrative Council—hence the general rule in Section 9(2) that that office “shall be incompatible with the exercise of any political function, and with any [other] employment or occupation.…”

    11. If it could be expected with reasonable certainty that activities under the Convention would be such as to provide a full-time occupation for a Secretary-General and one Deputy, it would be desirable to provide that they, or at least the Secretary-General himself, should not hold any other office or engage in any other occupation or activity. Since no such certainty exists, the text permits a degree of flexibility which would allow the Administrative Council and the Chairman, as nominating authority, to make exceptions to the rule and, in addition, specifically excludes from incompatibility concurrent employment by the Bank or by the Permanent Court of Arbitration.

    12. As the Secretary-General in addition to his other functions would have to perform certain purely formal functions such as dealing with routine correspondence, dispatching notices, or making a finding that a certain period of time prescribed under the Convention had expired, it seemed desirable to provide for at least one Deputy who could assume those functions when necessary.

    (p.353)

The Panels

Section 11.

  1. (1) The Panel of Conciliators shall consist of qualified persons, designated as hereafter provided, who are willing to serve as members of the Panel.

  2. (2) Each Contracting State shall designate not more than [six] persons to serve on the Panel, who may, but need not, be its own nationals.

  3. (3) The Chairman shall have the right to designate up to [twelve] persons to serve on the Panel.

Section 12.

  1. (1) The Panel of Arbitrators shall consist of qualified persons, designated as hereafter provided, who are willing to serve as members of the Panel.

  2. (2) Each Contracting State shall designate not more than [six] persons to serve on the Panel, who may, but need not, be its own nationals.

  3. (3) The Chairman shall have the right to designate up to [twelve] persons to serve on the Panel.

Section 13.

  1. (1) Panel members shall serve for four years.

  2. (2) In case of death or resignation of a member of either Panel, the Contracting State or the Chairman, as the case may be, which or who had designated the member, shall have the right to designate another person to serve for the balance of that member’s term.

Section 14.

  1. (1) Designation to serve on one Panel shall not preclude designation to serve on the other.

  2. (2) If a person is designated to serve on a Panel by more than one Contracting State, or by one or more Contracting States and the Chairman, he shall be deemed to have been designated by the authority which first designated him.

  3. (3) All designations shall be notified to the Secretary-General and shall take effect from the date on which the notification is received.

Section 15.

  1. (1) The Contracting States shall pay due regard to the importance of designating persons of high moral character and recognized competence in the fields of law, commerce, industry or finance. To that end, they shall seek such advice as they may deem appropriate from their highest courts of justice, schools of law, bar associations and such commercial, industrial and financial organizations as shall be considered representative of the professions they embrace.

  2. (2) The Chairman shall, in designating members to the Panels, pay due regard to the importance of assuring representation on the Panels of the principal legal systems of the world and of the main forms of economic activity.

    Comment

    13. In view of the optional and flexible character of the Convention as a whole, and of access to the Center in particular, the Panels have limited significance. Parties to proceedings under the auspices of the Center are entirely free to agree to use conciliators and arbitrators who have not been designated to the Panels. On the other hand, as will be seen from Articles III and IV of the text, unless the parties (p.354) otherwise agree, conciliators and arbitrators are to be selected by them, or by the Chairman when called upon to do so, from the respective Panels.

    14. The composition of the Panels could be determined in a variety of ways. One method would be to have the Contracting States elect a certain number of Panel members from among candidates nominated by each Contracting State. While this method would have certain advantages, particularly in encouraging States to nominate candidates of high quality, it has the disadvantage of necessitating a somewhat complicated voting procedure in order to assure a balanced composition of the Panels as between candidates nominated by the capital-exporting and capital-importing countries respectively. In this connection reference is made to the comment to Section 7 of this article.

    15. The method adopted in the present text largely follows the system of the Hague Conventions of 1899 and 1907, in leaving the composition of the Panels primarily to the Contracting States. The Panels are to consist not only of legal experts, but also of experts in other fields. They would be composed of a certain number of experts designated by each Contracting State while it is provided in addition, that the Chairman would have the right to designate a specified number of panel members in addition to those designated by the Contracting States. It might be desirable for the Chairman to exercise his right of designation after the States had made their designations, and with a view to achieving balanced representation on the Panels not only of different legal systems but also of different forms of economic activity.

    16. With regard to cases of multiple designation referred to in Section 14(2), the Administrative Rules of the Center would, in implementation of that provision, indicate how prior designation is to be determined.

Financing the Center

Section 16.

To the extent that expenditure of the Center cannot be met out of charges for the use of its facilities, or out of other receipts, it shall be borne by the Contracting States which are members of the Bank in proportion to their respective subscriptions to the capital stock of the Bank, and by Contracting States which are not members of the Bank in accordance with rules adopted by the Administrative Council.

Comment

17. As some Contracting States might not be members of the Bank, it is provided that the Administrative Rules of the Center would specify the contribution of non-member States. The words “or out of other receipts” have been included in order to take account of the possibility that the Bank might finance the cost of the Center. Reference is also made to the comment to Article VI.

Privileges and Immunities

Section 17.

The Center shall be immune from all legal process.

Section 18

  1. (1) The Chairman, the members of the Administrative Council, and the officers and employees of the Secretariat

    1. (i) shall be immune from legal process with respect to acts performed by them in their official capacity;

    2. (ii) not being local nationals shall be accorded the same immunities from immigration restrictions, alien registration requirements and national service obligations, the same facilities as regards exchange restrictions and the same treatment in respect of travelling facilities as are accorded (p.355) by Contracting States to the representatives, officials and employees of comparable rank of other Contracting States.

  2. (2) Paragraph (1) (ii) of this Section shall also apply to persons acting as conciliators or arbitrators in proceedings pursuant to this Convention, and to persons appearing as parties, representatives of parties, agents, counsel, experts or witnesses in such proceedings, but only in connection with their travel to and from the seat of the Center or other location where the proceedings are held and their stay at such location for the purpose of such proceedings.

Section 19.

  1. (1) The archives of the Center shall be inviolable.

  2. (2) The official communications of the Center shall be accorded by each Contracting State the same treatment as is accorded to the official communications of other Contracting States.

Section 20.

  1. (1) The Center, its assets, property and income, and its operations and transactions authorized by this Convention shall be immune from all taxation and customs duties. The Center shall also be immune from liability for the collection or payment of any taxes or customs duties.

  2. (2) No tax shall be levied on or in respect of salaries or emoluments paid by the Center to the Chairman, members of the Administrative Council or officials or employees of the Secretariat who are not local citizens, local subjects or other local nationals.

  3. (3) No tax shall be levied on or in respect of honoraria, fees or other income received by persons acting as conciliators or arbitrators in proceedings pursuant to this Convention for their services in such proceedings, if the sole jurisdictional basis for such tax shall be the location of the Center or the place where such proceedings are conducted or the place where such income is paid.

    Comment

    18. These provisions are in general patterned after the privileges and immunities of the Bank, except that the Center has been given full immunity from legal process, whereas the Bank in view of the nature of its dealings with capital markets, enjoys only limited immunity in that respect. Section 18(2) is desirable to ensure the proper functioning of proceedings under the auspices of the Center. It will be noted that Section 20(3) does not confer a tax exemption, but merely seeks to avoid taxation based solely on the location of the Center, the place where proceedings are held, or the place of payment. Similar restrictions on taxation of interest paid on the Bank’s bonds are found in Article VII, Section 9(c), of the Bank’s Articles of Agreement.

Article II Jurisdiction of the Center

Section 1.

The jurisdiction of the Center shall be limited to proceedings for conciliation and arbitration with respect to any existing or future investment dispute of a legal character between a Contracting State and a national of another Contracting State (or that State when subrogated in the rights of its national) and shall be based on the consent of the parties thereto.

(p.356) Section 2.

Consent to the jurisdiction of the Center by any party to a dispute may be evidenced by

  1. (i) a prior written undertaking by such party to have recourse pursuant to the terms of this Convention, to conciliation or arbitration;

  2. (ii) ad hoc submission of a dispute by such party to the Center; or

  3. (iii) acceptance by such party of jurisdiction in respect of a dispute submitted to the Center by another party.

Section 3.

  1. (1) Any Conciliation Commission and any Arbitral Tribunal constituted pursuant to this Convention shall be the judge of its own competence.

  2. (2) Any claim of a party to a dispute that the Commission or the Tribunal lacks competence on the ground that

    1. (i) there is no dispute;

    2. (ii) there is no valid consent to jurisdiction;

    3. (iii) the dispute is not within the scope of the consent; or

    4. (iv) a party to the dispute is not a national of a Contracting State,

shall be dealt with by the Commission or Tribunal, as the case may be, as a preliminary question.

  1. (3) In any proceedings in connection with paragraph (2)(iv) of this Section, a written affirmation of nationality signed by or on behalf of the Minister of Foreign Affairs of the State whose nationality is claimed by the party and issued for the purpose of those proceedings shall be conclusive proof of the facts stated therein.

    Comment

    1. The term “jurisdiction” is used in Section 1 and in the title of Article II in its broadest sense to denote the scope of the facilities made available by the Center. The terminology used follows the precedent of the Hague Convention of 1907 which speaks of the “jurisdiction of the Permanent Court” (see for example Article 47 of the Convention) even though that Court, like the proposed Center does not itself exercise judicial or quasi-judicial functions.

    2. Section 1 of this article deals with the scope of the facilities available under the auspices of the Center in relation to (a) the type of proceedings, (b) the category of dispute, (c) the parties to the dispute and (d) the consensual nature of jurisdiction.

    Type of Proceedings

    3. Proceedings under the auspices of the Center are limited to conciliation and arbitration. Section 1 also permits the parties to a dispute, if they so agree, to have recourse to both procedures consecutively.

    Category of Disputes

    4. No detailed definition of the category of disputes in respect of which the facilities of the Center would be available has been included in the Convention. Instead, the general understanding reflected in the Preamble, the use of the term “investment dispute,” and the requirement that the dispute be of a legal character as distinct from political, economic or purely commercial disputes, were thought adequate to limit the scope of the Convention in this regard. Within those limits Contracting States would be free to determine in each particular case what disputes they would submit to the Center. To include a more precise definition would tend to open the door to frequent disagreements as to the applicability of the Convention to a particular undertaking, thus undermining the primary objective of (p.357) this article viz., to give confidence that undertakings to have recourse to conciliation or arbitration will be carried out.

    5. Consideration was given to fixing a lower limit for the value of the subject-matter of a dispute. It was, however, recognized that the parties would in practice be best qualified to decide whether, having regard to pertinent facts and circumstances including the value of the subject-matter, a dispute is one which ought to be submitted to the Center. The subject-matter of a dispute might be of insignificant pecuniary value, but might involve important questions of principle, thus justifying the bringing of a test case. In other instances the pecuniary value might not be readily ascertainable, as where a host government fails to implement a provision in an investment agreement conferring immunity from immigration restrictions on foreign personnel, or might not be ascertainable at all, as where an investor fails to implement an agreement with a host government to train local personnel.

    The Parties to the Dispute

    6. Section 1 indicates that the facilities of the Center would be available only in disputes between a Contracting State on the one hand and a national of another Contracting State on the other, with a view to ensuring reciprocal performance of obligations which arise out of the application of the Convention. The facilities would thus not be available in a dispute involving a non-contracting State or a national of such State. Also excluded from jurisdiction are disputes (a) between private individuals, (b) between Governments (except where a Government had satisfied the claim of its national, e.g. under a scheme of investment insurance, and was thereby subrogated in the rights of that national in a dispute before the Center) and (c) between a Contracting State and one of its own nationals (unless that person possessed concurrently the nationality of another State which was a party to the Convention; see Article X, 2).

    Consensual Nature of Jurisdiction

    7. To the extent that the provisions of Article II constitute a development, rather than a mere codification of existing international law, it is to be expected that States would not wish its provisions to apply automatically to undertakings given in the past, nor to all undertakings to be given in the future. Section 2(i), therefore, limits the application of the Convention to cases where the parties have specifically undertaken to have recourse “pursuant to the terms of this Convention.”

    8. Section 1 in fine declares that the facilities can only be utilized if the parties to the dispute have consented to have recourse to the Center, while Section 2 specifies the manner in which consent may be given, i.e. by a prior undertaking in writing, or by ad hoc acceptance of jurisdiction. No particular form is prescribed for the prior written undertaking, which may be unilateral e.g. by enactment of legislation, bilateral or multilateral.

    9. When entering into any undertaking pursuant to Section 2 a party would, of course, be free to include such limitations on the scope of the particular undertaking as may seem to it appropriate provided that those limitations were not inconsistent with its obligations deriving from the Convention as a whole.

    Determination of Competence

    10. The power of an arbitral tribunal to determine its competence is well established in international law. Section 3(1) confers that power alike on conciliation commissions and arbitral tribunals constituted pursuant to the Convention, thus providing a safeguard against frustration of proceedings through unilateral determination of competence by a party.

    Preliminary Questions

    11. Section 3(2) lists four classes of objection to competence and declares that they shall be dealt with by the commission or tribunal as preliminary questions to be disposed of before entering upon the merits of the case. Thus, objections to conciliation on the grounds enumerated, while they would not prevent constitution of a commission or commencement of conciliation proceedings would be the (p.358) subject of a preliminary non-binding recommendation to the parties. In the case of arbitration proceedings similar objections would, however, be the subject of a preliminary binding ruling by the tribunal.

    Nationality

    12. While preliminary questions based on nationality would be subject to the procedure prescribed for dealing with preliminary questions generally, Section 3(3) contains an additional rule relating to determination of nationality in a given case. This rule is based on the view that, in the circumstances envisaged, a question of a claim of nationality by a party ought in the first instance to be determined by the State whose nationality is claimed, the question being dealt with by the commission or tribunal only where that State failed to do so. Accordingly, it is provided that the written affirmation of nationality by a Minister of Foreign Affairs, or official of corresponding rank responsible for the conduct of that State’s external affairs, issued for the purpose of the particular proceedings, shall be conclusive proof of the facts stated therein. The affirmation would relate to that party’s nationality on the date on which he consented to the jurisdiction of the Center. (In this connection reference is made to the definition of “National of a Contracting State” and of “National of another Contracting State” in Article X.) Where such affirmation is not introduced, other evidence of nationality satisfactory to the commission or tribunal must be produced.

Article III Conciliation

Request for Conciliation

Section 1.

Any dispute within the jurisdiction of the Center may be the subject of a request for conciliation by a Conciliation Commission (hereinafter called the Commission). The request may be made by either party to the dispute, shall be addressed to the Secretary-General in writing, and shall state that the other party has consented to the jurisdiction of the Center.

Constitution of the Commission

Section 2.

  1. (1) The Commission shall consist of a sole conciliator or several conciliators appointed as the parties shall agree.

  2. (2) Where the parties have not so agreed, the Commission shall consist of three conciliators, one appointed by each party and the third appointed by agreement of the parties, all appointees to be selected from the Panel of Conciliators.

Section 3.

  1. (1) If the Commission shall not have been constituted within three months after the request referred to in Section 1, the Chairman shall, at the request of either party, appoint the conciliator or conciliators not appointed pursuant to Section 2. Before making any such appointment, the Chairman shall instruct the Secretary-General to consult with the parties and to report to him any information or views which might assist him in making the appointment.

  2. (2) In making any appointment under this Section the Chairman shall select the appointee from the Panel of Conciliators.

  3. (p.359) Comment

  4. 1. The composition of the Commission, its precise terms of reference and the procedure applicable in proceedings before it are matters for agreement between the parties concerned. It is only in the absence of such agreement that the provisions of this article thereon would become operative.

  5. 2. In recognition of differences between the conciliation and arbitration process, Section 2(2), in contrast to the corresponding provision on appointment of arbitrators (see Section 2(2) of Article IV), does not preclude appointment of a conciliator on the ground that he is a national of a state party to the dispute, or of the State whose national is a party to the dispute.

  6. 3. As to the role of the Chairman as appointing authority under Section 3, reference is made to the comment on Sections 2 and 3 of Article IV.

Powers and Functions of the Commission

Section 4.

Except as the parties and the Commission shall otherwise agree, the Commission shall conduct the conciliation proceedings in accordance with the Conciliation Rules adopted under this Convention and in effect on the date on which the consent to conciliation became effective.

Section 5.

  1. (1) It shall be the duty of the Commission to clarify the points in dispute between the parties and to endeavor to bring about agreement between them upon mutually acceptable terms. To that end, the Commission may at any stage of the proceedings and from time to time recommend terms of settlement to the parties.

  2. (2) If the parties reach agreement, the Commission shall draw up a report noting the submission of the dispute, and recording that the parties have reached agreement. If, at any time, it appears to the Commission that there is no likelihood of agreement between the parties it may declare the proceedings closed, and shall, in that event, draw up a report noting the submission of the dispute and recording the failure of the parties to reach agreement. If one party fails to appear or participate in the proceedings, the Commission shall so state in its report.

  3. (3) Except as the parties shall otherwise agree, the reports referred to in paragraph (2) shall not contain terms of settlement recommended to or accepted by the parties.

    Comment

    4. Section 5(1) describes the duties of the Commission, and is based upon generally accepted concepts of the conciliation function. (See Article 15(1) of the General Act for the Pacific Settlement of International Disputes, 1928; Article XXII of the American Treaty on Pacific Settlement, 1948.) The Commission is specifically empowered to make recommendations to the parties at any stage of the proceedings. In order to avoid any interpretation to the effect that after a recommendation made in the course of proceedings and before their termination, the Commission was functus officio, the words “and from time to time” have been inserted in the second sentence of Section 5(1).

Obligations of the Parties

Section 6.

The parties shall give the Commission their full cooperation in order to enable the Commission to carry out its functions and shall give their most serious consideration to its recommendations. Except as the parties to the dispute shall otherwise agree, the recommendations of the Commission shall not be binding upon them.

(p.360) Section 7.

Neither party to a conciliation proceeding shall be entitled in any later proceeding concerning the same dispute, whether before arbitrators or in a court of law or otherwise, to invoke or rely on any views expressed or statements or admissions or offers of settlement made by the other party in the conciliation proceedings, or the recommendations, if any, made by the Commission therein.

Comment

5. Section 6, in accordance with principle, declares that recommendations of the Commission shall not be binding, while leaving it open to the parties to agree to be bound by them. The requirement that the parties cooperate with the Commission and give serious consideration to its recommendations is a corollary of the fundamental principle of good faith.

6. Section 7 is intended to encourage the parties to seek agreement rather than maintain fixed positions out of the fear that a conciliatory attitude might prejudice their position in a possible later proceeding.

Article IV Arbitration

Request for Arbitration

Section 1.

Any dispute within the jurisdiction of the Center may be the subject of a request for arbitration by an Arbitral Tribunal (hereinafter called the Tribunal). The request may be made by either party to the dispute, shall be addressed to the Secretary-General in writing, and shall state that the other party has consented to the jurisdiction of the Center.

Constitution of the Tribunal

Section 2.

  1. (1) The Tribunal shall consist of a sole arbitrator or several arbitrators appointed as the parties shall agree. Where the parties have not so agreed, the Tribunal shall consist of three arbitrators, one arbitrator appointed by each party and the third appointed by agreement of the parties.

  2. (2) The arbitrators so appointed shall be selected from the Panel of Arbitrators. None of the arbitrators shall be a national of a State party to the dispute or of a State whose national is a party to the dispute, or shall have acted as a conciliator in the same dispute.

Section 3.

If the Tribunal shall not have been constituted within three months after the request referred to in Section 1, the Chairman shall, at the request of either party, appoint the arbitrator or arbitrators not appointed pursuant to Section 2. The provisions of paragraph 2 of Section 2 of this Article shall apply to the appointment of arbitrators by the Chairman. Before making any such appointment, the Chairman shall instruct the Secretary-General to consult with the parties and to report to him any information or views which might assist him in making the appointment.

Comment

1. The composition of the Tribunal, its terms of reference, and the procedure applicable in proceedings before it are, as in the case of conciliation, matters for agreement between the parties concerned, and (p.361) the provisions of this article thereon would become operative only in the absence of such agreement (Sections 2 and 5). Section 2(1) adopts what is perhaps the most usual method for the constitution of an arbitral tribunal viz., each party appoints an arbitrator, and a third is appointed by agreement of the parties. However, Section 2(2) introduces a significant innovation by specifying that none of the arbitrators shall be nationals of the State party to the dispute, or of the State whose national is a party to the dispute, thus seeking to minimize as far as possible the danger, inherent in conventional systems, of appointment of partisan arbitrators.1 This new principle applies also to appointments of arbitrators made by the Chairman under Section 3 of this article.

2. It is a necessary concomitant of the binding character of an undertaking to have recourse to arbitration that adequate provision should be made to prevent frustration of that undertaking by an unwilling party. That is the purpose of the appointment procedure laid down in Section 3. As in the case of conciliation (see Section 3 of Article III), the Chairman is appointing authority unless the parties have otherwise agreed. It may be noted that the Chairman would exercise his power of appointment even if he were of the same nationality as one of the parties. The basic consideration underlying these provisions is that the appointing authority is a person who, because of his office, may be conclusively presumed to be capable of acting impartially in the selection of conciliators or arbitrators under all circumstances. It may be noted that under the Bank’s Loan Regulations2 an unrestricted power of appointment is conferred upon the President of the International Court of Justice and the Secretary-General of the United Nations regardless of their nationality.

Powers and Functions of the Tribunal

Section 4.

  1. (1) In the absence of agreement between the parties concerning the law to be applied, and unless the parties shall have given the Tribunal the power to decide ex aequo et bono, the Tribunal shall decide the dispute submitted to it in accordance with such rules of law, whether national or international, as it shall determine to be applicable.

  2. (2) The Tribunal may not bring in a finding of non liquet on the ground of the silence or obscurity of the law to be applied.

Section 5.

Except as the parties otherwise agree, any arbitration proceeding shall be conducted in accordance with the Arbitration Rules adopted under this Convention and in effect on the date when the consent to arbitration became effective. If any question of procedure arises which is not covered by the applicable arbitration rules, the Arbitral Tribunal shall decide that question.

Section 6.

All questions before the Tribunal shall be decided by majority vote.

Section 7.

  1. (1) An award signed by a majority of the Tribunal shall constitute the award of the Tribunal. The award shall be in writing and shall state the reasons upon which it is based.

  2. (2) The award shall immediately be communicated to the parties.

    (p.362)

Section 8.

  1. (1) Whenever one of the parties does not appear before the Tribunal, or fails to defend its case, the other party may call upon the Tribunal to decide in favor of its claim.

  2. (2) In such case, the Tribunal may render an award if it is satisfied that it has jurisdiction and that the claim appears to be well-founded in fact and in law.

Section 9.

Except as the parties otherwise agree, the Tribunal shall have the power to hear and determine incidental or additional claims or counter-claims arising directly out of the subject-matter of the dispute.

Section 10.

Except as the parties otherwise agree, the Tribunal shall have the power to prescribe, at the request of either party, any provisional measures necessary for the protection of the rights of the parties.

Comment

3. Section 4(1) leaves the determination of the law to be applied in a particular case to the parties, and if they cannot agree thereon, to the Tribunal. The parties may also give the Tribunal the power to decide ex aequo et bono, that is, in accordance with what is just and equitable in the circumstances, rather than by application of rules of law. Section 4(2) states that the Tribunal will not be excused from rendering an award on the ground that the law is not sufficiently clear.

4. The power conferred on the Tribunal by Section 8 to render an award upon the default of one party is a corollary of the binding character of the undertaking to have recourse to arbitration and is possessed by arbitration tribunals provided for in the Bank’s Loan Regulations Nos. 3 and 4, Sections 7.03(h) and 7.04(h), respectively. (See also Article 53 of the Statute of the International Court of Justice.) Before an award can be rendered under this section, however, the Tribunal must be satisfied not only that it has jurisdiction but also that the claim on the merits appears to be well-founded.

5. Unless the parties to a dispute agree to restrict its competence to certain principal claims, the Tribunal will have the power to determine incidental and additional claims as well as counter-claims, provided that they arise directly out of the subject-matter of the dispute. In addition, unless the parties specifically preclude it from doing so, the Tribunal would have the power to prescribe provisional measures designed to preserve the status quo between the parties pending its final decision on the merits.

Interpretation, Revision and Annulment of the Award

Section 11.

  1. (1) Any dispute between the parties as to the meaning and scope of the award may, at the request of either party made within [three] months after the date of the award, be submitted to the Tribunal which rendered the award. Such a request shall stay the enforcement of the award pending the decision of the Tribunal.

  2. (2) If for any reason it is impossible to submit the dispute to the Tribunal which rendered the award, a new Tribunal shall be constituted in accordance with the terms of the agreement, if any, between the parties regarding the constitution of the Tribunal which rendered the award, and otherwise pursuant to the provisions of this Article.

Section 12.

  1. (1) An application for revision of the award may be made by either party on the ground of the discovery of some fact of such a nature as to have a decisive influence on the award, provided that when the award was rendered that fact was unknown to the Tribunal and to the party requesting revision and that such ignorance was not due to the negligence of the party requesting revision.

  2. (p.363) (2) The application for revision must be made within [six] months of the discovery of the new fact and in any case within [ten] years of the rendering of the award.

  3. (3) The application shall, if possible, be submitted to the Tribunal which rendered the award. If this shall not be possible, a new Tribunal shall be constituted in accordance with the terms of the agreement, if any, between the parties regarding the constitution of the Tribunal which rendered the award, and otherwise pursuant to the provisions of this Article. The Tribunal to which the application is made may stay the enforcement of the award pending its decision.

Section 13.

  1. (1) The validity of an award may be challenged by either party on one or more of the following grounds:

    1. (a) that the Tribunal has exceeded its powers;

    2. (b) that there was corruption on the part of a member of the Tribunal; or

    3. (c) that there has been a serious departure from a fundamental rule of procedure, including failure to state the reasons for the award.

  2. (2) An application pursuant to paragraph 1 of this Section shall be made in writing to the Chairman who shall forthwith appoint from the Panel of Arbitrators an ad hoc Committee of three persons which shall be competent to declare the nullity of the award or any part thereof on any of the grounds set forth in the preceding paragraph. None of the members of the Committee shall have been a member of the Tribunal which rendered the award, shall be a national of the State party to the dispute or of the State whose national is a party to the dispute, or shall have acted as a conciliator in the same dispute.

  3. (3) The provisions of Sections 5, 6, 7 and 8 of this Article shall apply mutatis mutandis to proceedings before the Committee.

  4. (4) In cases covered by sub-paragraphs (a) and (c) of paragraph (1), application must be made within sixty days of the rendering of the award, and in cases covered by sub-paragraph (b) of paragraph (1), within six months.

  5. (5) The Committee shall have the power to stay enforcement of the award pending its decision and to recommend any provisional measures necessary for the protection of the rights of the parties.

  6. (6) If the award is declared invalid the dispute shall, at the request of either party, be submitted to a new tribunal constituted by agreement between the parties or, failing such agreement in the manner specified in Sections 2 and 3 of this Article.

Enforcement of the Award

Section 14.

The award shall be final and binding on the parties. Each party shall abide by and comply with the award immediately, unless the Tribunal shall have allowed a time limit for the carrying out of the award or any part thereof, or the enforcement of the award shall have been stayed pursuant to Sections 11, 12 or 13 of this Article.

Section 15.

Each Contracting State shall recognize an award of the Tribunal as binding and enforce it within its territories as if it were a final judgment of the courts of that State.

(p.364) Comment

6. It was recognized in the Preamble as a corollary of the principle that an undertaking must be implemented in good faith, that the award of a Tribunal must be complied with. As a general rule the award of the Tribunal is final, and there is no provision for appeal. Sections 11 and 12, however, provide for interpretation and revision of the award, respectively. In addition, where there has been some violation of the fundamental principles of law governing the Tribunal’s proceedings such as are listed in Section 13, the aggrieved party may apply to the Chairman for a declaration that the award is invalid. Under that section the Chairman is required to refer the matter to a Committee of three persons which shall be competent to declare the nullity of the award. It may be noted that this is not a procedure by way of appeal requiring consideration of the merits of the case, but one that merely calls for an affirmative or negative ruling based upon one or other of the three grounds listed in Section 13 (1).

7. The award is binding on the parties to the dispute who are required to implement it forthwith. However, implementation of the award may be delayed in certain prescribed circumstances, viz.,

1) where the Tribunal has, in rendering the award, expressly allowed a time limit for carrying it out (Section 14);

2) upon stay of enforcement by the Tribunal consequent upon

(a) a request for interpretation of the award (Section 11(1)); or

(b) an application for revision of the award (Section 12(3)); and

3) upon stay of enforcement by the Committee appointed pursuant to Section 13 pending its decision upon the validity of the award (Section 13(5)).

8. Section 15 requires each Contracting State, whether or not it or its national was a party to the proceedings, to recognize awards of tribunals pursuant to the Convention as binding and to enforce them as though they were final judgments of its own courts, irrespective of the treatment under its law of other arbitral awards.

Relationship of Arbitration to other Remedies

Section 16.

Consent to have recourse to arbitration pursuant to this Convention shall, unless otherwise stated, be deemed consent to have recourse to such proceedings in lieu of any other remedy.

Comment

9. Section 16 states a rule of interpretation rather than of substance. The section leaves a party free to stipulate that notwithstanding its undertaking to submit a dispute to arbitration, it reserves the right to have recourse to courts of law. Similarly, Section 16 leaves it open to a State to stipulate that its consent to have recourse to arbitration is subject to the condition that the foreign investor first exhaust his remedies in the State’s national courts or administrative agencies. Section 16 merely provides that in the absence of any such stipulations consent to have recourse to arbitration will be regarded as excluding any other remedy.

10. To illustrate the foregoing by an example: An investment agreement between a State and a foreign investor provides without qualification that “any controversy arising between the parties concerning the interpretation or application of this agreement shall be submitted to arbitration in accordance with the provisions of the Convention [etc.].” A dispute arises with respect to the tax exemption provisions of the investment agreement. If either the foreign investor or the State were to bring this dispute before the Tax Court of the State rather than submit it to the Center, the other party could object, in which event the Tax Court would have to dismiss the claim. If the investor were to bring the dispute before the Center, the State could not object on the ground that the investor had not exhausted his remedies in the Tax Court.

(p.365) 11. As stated in paragraph 9 of the Comment to this section, States are free to qualify their consent to have recourse to arbitration, as by inclusion of a stipulation in an undertaking that local remedies must be exhausted. However, if a State were to include an unqualified arbitration clause in an agreement with a foreign investor, it would seem to run counter to normal rules of interpretation to read into that clause a requirement of the prior exhaustion of local remedies. All that Section 16 does is to assure that effect will be given to the expressed intention of the parties

Section 17.

  1. (1) No Contracting State shall give diplomatic protection or bring an international claim in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit, or shall have submitted to arbitration pursuant to this Convention, except on the ground that the other Contracting State has failed to perform its obligations under this Convention with respect to that dispute.

  2. (2) Nothing in this Section shall be construed as precluding a Contracting State from founding an international claim against another Contracting State upon the facts of a dispute which one of these Contracting States and a national of the other shall have consented to submit or shall have submitted to arbitration pursuant to this Convention, where those facts also give rise to a dispute concerning the interpretation or application of an agreement between the States concerned; without prejudice, however, to the finality and binding character of any arbitral award rendered pursuant to this Convention as between the parties to the arbitral proceedings.

    Comment

    12. Unlike Section 16, which gives merely a rule of interpretation, Section 17 lays down a rule of substantive law. It should be noted that this section constitutes a significant innovation.

    13. The proposed Convention would recognize the right of an investor, within specified limits, to proceed in his own name against a foreign State before an arbitral tribunal constituted pursuant to the Convention instead of seeking the diplomatic protection of his State or having that State bring an international claim. It would seem to be a reasonable concomitant of the recognition of the investor’s right of direct access to an international jurisdiction, to exclude action by his national State in cases in which such direct access has been availed of by, or is available to, the investor, whether as plaintiff or defendant, under the Convention. Since the exclusion of the national State rests on the premise that the other Contracting State party to the dispute will abide by the provisions of the Convention, the rule of exclusion is subject to an exception in the event that that premise falls away. In such a case rights of providing diplomatic protection and of bringing an international claim remain unaffected.

    14. Section 17(2) preserves the right of the national State of the investor to bring an international claim where the same facts give rise not only to a dispute covered by the Convention but also to a breach of some other international agreement between the States concerned. That section does, however, maintain the finality and binding character of an award rendered by a tribunal under the Convention as regards the parties to which it relates. For example, the dispute covered by the Convention may involve a claim for damages for an alleged breach of an investment agreement and the facts alleged may at the same time constitute a breach of a bilateral agreement between the host State and the investor’s national State. Whether the investor, in an action before the Center, is successful or unsuccessful, his national State would be free to have recourse to such procedures as may have been provided in the bilateral agreement. The outcome of the proceedings between the two States under the bilateral agreement would not, however, affect the award rendered by the tribunal constituted under the Convention. Thus, if the investor had been unsuccessful before the Center, even though his national State may prevail in the proceedings under the bilateral agreement, the investor could not benefit thereby.

    (p.366)

Article V Replacement and Disqualification of Conciliators and Arbitrators

Section 1.

After a Conciliation Commission or an Arbitral Tribunal has been constituted and proceedings have begun, its composition shall remain unchanged; provided, however, that if a conciliator or arbitrator should die, become incapacitated, or resign, the resulting vacancy shall be filled by the method used for the original appointment, except that if a conciliator or arbitrator appointed by a party shall have resigned without the consent of the Commission or Tribunal of which he was a member, or consequent upon a decision to disqualify him pursuant to Section 2 (2) of this Article, the resulting vacancy shall be filled by the Chairman.

Section 2.

  1. (1) (a) A party may propose the disqualification of a conciliator or arbitrator appointed pursuant to Article III, Section 2, or Article IV, Section 2, respectively, on account of any fact whether antecedent or subsequent to the constitution of the Commission or Tribunal.(b) A party may propose the disqualification of a conciliator or arbitrator appointed by the Chairman pursuant to Article III, Section 3, or Article IV, Section 3, on account of any fact arising subsequent to the constitution of the Commission or Tribunal. It may propose disqualification of such conciliator or arbitrator on account of any fact which arose prior to the constitution of the Commission or Tribunal only if it can show that the appointment was made without knowledge of that fact or as a result of fraud.

  2. (2) The decision on any proposed disqualification shall be taken by the other members of the Commission or Tribunal as the case may be, provided that where those members are equally divided, or in the case of a proposed disqualification of a single conciliator or arbitrator, the Chairman shall take that decision. If it is decided that the proposal is well-founded, the conciliator or arbitrator to whom the decision relates shall resign, and the resulting vacancy shall be filled in the manner provided for in Section 1 of this Article.

    Comment

    1. Section 1 incorporates what has been called the “principle of immutability” and is intended to preclude the replacement of conciliators and arbitrators by the parties during proceedings with a view to influencing the outcome of those proceedings, as well as their resignation under pressure.

    2. Section 2 relates to disqualification of a conciliator or an arbitrator. Section 2(1)(a) covers the case of a conciliator or an arbitrator appointed by a party to the dispute, and is to the effect that a party may at any time propose their disqualification. Such proposal may be based upon any fact, such as general unfitness, personal prejudice, misconduct or interest in the subject-matter, and regardless of whether that fact arose before or after constitution of the Commission or Tribunal.

    3. While, under Section 2(1)(b), a party may at any time propose the disqualification of a conciliator or arbitrator appointed by the Chairman, as a rule such proposal must be founded upon facts which arose after constitution of the Commission or Tribunal as the Chairman must be deemed to have passed conclusively on the qualifications of his nominee. A proposal to disqualify under this section may be founded on a fact which existed prior to the constitution of the Commission or Tribunal only if it can be shown that the Chairman made the appointment in question without knowledge of that fact, or was induced to do so as a result of fraud.

    (p.367)

Article VI Apportionment of Costs of Proceedings

Section 1.

Except as the parties shall otherwise agree,

  1. (a) each party to a conciliation or arbitration proceeding shall bear its own expenses in connection therewith, and

  2. (b) charges payable for the use of the facilities of the Center, as well as the fees and expenses of members of the Commission or Tribunal as the case may be, shall be borne equally by the parties;

provided, however, that if a Commission or Tribunal determines that a party has instituted proceedings frivolously or in bad faith, it may assess any part or all of such expenses, fees and charges against that party.

Section 2.

The charges payable by the parties for the use of the facilities of the Center shall be fixed by the Secretary-General within the limits approved from time to time by the Administrative Council.

Section 3.

The fees and expenses of conciliators and arbitrators shall, in the absence of agreement between them and the parties, be fixed by the Commission or Tribunal concerned after consultation with the Secretary-General.

Comment

This article contemplates that the parties may be called upon to make certain payments to the Center for the use of its services. It is intended that “charges” should cover the out-of-pocket costs or other clearly identifiable costs incurred by the Center in connection with a proceeding, such as hiring of translators and interpreters, engagement of additional secretarial or clerical staff and the like.

Article VII Place of Proceedings

Section 1.

Conciliation and arbitration proceedings shall be held either at the seat of the Center or, pursuant to any arrangements made under Article I, Section 2(3), at the seat of the Permanent Court of Arbitration or other public international institution, as the parties may agree. If the parties do not so agree the Secretary-General shall, after consultation with the parties and with the Conciliation Commission or the Arbitral Tribunal, as the case may be, determine the place of the proceedings.

Section 2.

Notwithstanding the provisions of Section 1, proceedings may be held elsewhere, if the parties so agree and if the Conciliation Commission or Arbitral Tribunal, as the case may be, so approves after consultation with the Secretary-General.

(p.368) Article VIII Interpretation

Any question or dispute arising between Contracting States concerning the interpretation or application of this Convention which is not settled by negotiation shall be referred to the International Court of Justice, unless the States concerned agree to another mode of settlement.

Comment

The text of this article follows in general the pattern of similar clauses in the constituent instruments of international organizations within the United Nations family. While it leaves the Contracting States free to decide upon the mode of settlement of questions or disputes regarding interpretation of the Convention, it provides for adjudication by the International Court of Justice in the event of their being unable to agree on the mode of settlement.

Article IX Amendment

Section 1.

Any Contracting State may propose amendment of this Convention. The text of such proposed amendment shall be communicated to the Chairman of the Administrative Council not less than [three] months prior to the meeting of the Council at which such amendment is to be considered and shall forthwith be transmitted by him to all Contracting States.

Section 2.

Amendments shall be adopted by a majority of [four-fifths] of the members of the Council. [Twelve] months after its adoption each amendment shall become effective for all Contracting States; provided, however, that such amendment shall not affect the rights and obligations of any Contracting State or of any national of a Contracting State under this Convention with respect to or arising out of proceedings for conciliation or arbitration pursuant to consent to the jurisdiction of the Center given prior to the effective date of the amendment.

Comment

In the absence of a provision for amendment, the Convention could only be changed by a new international agreement. In order to avoid this difficulty the text tentatively suggests inclusion of an amendment procedure. The Administrative Council is designated as the authority competent to decide upon proposals for amendment. Such proposals are required to be transmitted to it through the Chairman well in advance of the meeting of the Council at which such amendment is to be considered so as to enable members to consult with the authorities within Contracting States and take their views into account during a discussion of the issues involved. The support of a substantial majority—four-fifths is tentatively suggested—of the members of the Council would be required for adoption of a proposed amendment, which would come into effect for all the members after a period of say 12 months after such adoption. No provision is made regarding States which oppose the amendment after its adoption. It would, however, always be open to a State to declare its withdrawal from the Convention under Section 5 of Article XI. The period specified for effectiveness of the denunciation could be made to conform to the period required for effectiveness of the amendment adopted, thus permitting a State which wished to denounce the treaty to do so immediately following adoption of the amendment and thereby avoid becoming subject to the Convention as amended. The proviso in Section 2 ensures that amendments will not have retroactive effect.

(p.369)

Article X Definitions

  1. 1. “National of a Contracting State” means a person natural or juridical possessing the nationality of any Contracting State on the date on which that person’s consent to the jurisdiction of the Center pursuant to Section 2 of Article II became effective, and includes (a) any company which under the domestic law of that State is its national, and (b) any company in which the nationals of that State have a controlling interest. “Company” includes any association of natural or juridical persons, whether or not such association is recognized by the domestic law of the Contracting State concerned as having juridical personality.

  2. 2. “National of another Contracting State” means any national of a Contracting State other than the State party to the dispute, notwithstanding that such person may possess concurrently the nationality of a State not party to this Convention or of the State party to the dispute.

[Other definitions may be added if necessary]

Comment

1. The definitions have been broadly drawn. “Nationals” include both natural and juridical persons as well as associations of such persons. It will be noted that the term “national” is not restricted to privately-owned companies, thus permitting a wholly or partially government-owned company to be a party to proceedings brought by or against a foreign State.

2. Under the definition of “National of a Contracting State” a company may be a national of a given State either because it has that nationality under the State’s domestic law, or because it is controlled by nationals of that State.

3. The question of dual nationality is dealt with in this sense, that a person is recognized as a “national of another Contracting State,” if he has the nationality of that State even though he may at the same time be a national of the State party to the dispute or of a State which is not a party to the Convention.

4. Nationality is determined as of the date when consent to have recourse to conciliation or arbitration became effective.

Article XI Final Provisions

[Final provisions have been inserted in the present draft tentatively and to provide some indication of formal legal items with which it will be necessary to deal. In general, they follow the pattern set by multilateral agreements in the past.]

Entry into Force

Section 1.

This Convention shall be open for signature on behalf of States members of the Bank and all other sovereign States.

(p.370) Section 2.

This Convention shall be subject to ratification or acceptance by the signatory States in accordance with their respective constitutional procedures. The instruments of ratification or acceptance shall be deposited with the Bank and shall declare that the State concerned has taken all steps necessary to enable it to carry out all of its obligations under this Convention.

Section 3.

This Convention shall enter into force when it has been ratified or accepted by [… …] States.

Comment

1. By Section 2 ratification or acceptance (either of which must be preceded by signature) is to be accompanied by a declaration that the “State concerned has taken all steps necessary to enable it to carry out all of its obligations under this Convention,” a requirement also found in the Articles of Agreement of the Bank and its affiliates. When a State ratifies, therefore, other States would be entitled to rely on the implicit assurance of that State that adequate facilities exist—whether created by legislative or other means—to give full effect within its territories to the provisions of the Convention. Thus, for instance, it would be assumed that the obligations of private parties deriving from undertakings to have recourse to arbitration pursuant to the Convention would be fully enforceable against them under the local law, and that the award of an arbitral tribunal could be enforced as if it were a final judgment of a local court of competent jurisdiction.

Territorial Application

Section 4.

By its signature of this Convention, each State accepts it both on its own behalf and in respect of all territories for whose international relations such State is responsible except those which are excluded by such State by written notice to the Bank.

Comment

2. By this section a signatory State agrees to the application of the Convention in respect of all territories for whose international relations such State is responsible, e.g. dependent or protected States. It would, however, be open to a State to exclude such application, if it so desires, by written notice to the Bank at the time of signature or at any time thereafter. This section is in substance identical with Section 3 of Article XI of the Articles of Agreement of the International Development Association.

Denunciation

Section 5.

  1. (1) Any Contracting State may denounce this Convention by written notice to the Bank.

  2. (2) The denunciation shall take effect [twelve] months after receipt by the Bank of such notice; provided that the obligations of the State concerned arising out of undertakings given prior to the date of such notice shall remain in full force and effect.

    Comment

    3. In keeping with a practice followed in several multilateral agreements, the right of a State under general international law to denounce the Convention is recognized in Section 5. However, Section 5(2) provides for lapse of a period of time—tentatively fixed at 12 months—before such denunciation could become effective. The general obligations of the denouncing State under the Convention would remain intact during that period, while its obligations arising out of undertakings given prior to the date of such notice are declared to remain in full force and effect regardless of the denunciation. In this connection reference is also made to the comment to Article IX (Amendment).

    (p.371)

Inauguration of the Center

Section 6.

Promptly upon the entry into force of this Convention, the President of the Bank shall convene the inaugural meeting of the Administrative Council.

Registration

Section 7.

The Bank is authorized to register this Convention with the Secretariat of the United Nations in accordance with Article 102 of the Charter of the United Nations and the Regulations thereunder adopted by the General Assembly.

Comment

4. This section which authorizes registration of the Convention by the Bank, as depository, with the United Nations, is in substance identical with Section 5 of Article XI of the Articles of Agreement of the International Development Association.

DONE at…. …. …., in a single copy which shall remain deposited in the archives of the International Bank for Reconstruction and Development, which has indicated by its signature below its agreement to act as depository of this Convention, to register this Convention with the Secretariat of the United Nations and to notify all signatory States of the date on which this Convention shall have entered into force.

Comment

5. The concluding formula adopted is in substance identical with that contained in the Articles of Agreement of the International Development Association.

Notes:

(1) One writer has said: “It is a grave mistake to construct a tribunal out of two national members and one neutral member. Few men are capable of holding the balance between two contending national commissioners. If the governments do not object to the possibility of decision by compromise rather than by adjudication, they should provide for two national commissioners with an umpire in case of disagreement. Otherwise they should provide either for one, or better still three, neutral commissioners.” A. H. Feller, The Mexican Claims Commissions, 1923–1934 (New York, 1935) at p. 317.

(2) See Loan Regulations No. 3 and No. 4, dated February 15, 1961 (amended February 9, 1967), respectively Sections 7.03(c) and 7.04(c)