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House of Representatives

ICSID Implementation Bill 1990

ICSID Implementation Act 1990

Explanatory Memorandum

(Circulated by Authority of the Attorney-General, the Honourable Michael Duffy, MP)

OUTLINE

This Bill, when enacted, will enable Australia to ratify the Convention on the Settlement of Investment Disputes between States and Nationals of Other States.

The Convention establishes the International Centre for settlement of Investment Disputes ("the ICSID") and provides facilities for arbitration or conciliation of investment disputes between States and nationals of other States under the auspices of the Centre. By providing this dispute-resolution machinery the ICSID aims to improve the international investment climate and stimulate a larger flow of private international investment.

The Bill will implement Chapters II-VII of the Convention by amendment to the International Arbitration Act 1974 by inserting a new Part IV and a new Schedule (containing the English text of the Convention) into that Act. It will also amend the International Organizations {Privileges and Immunities) Act 1963 to enable effect to be given to the privileges and immunities provisions of the Convention.

FINANCIAL IMPACT STATEMENT

The International Bank for Reconstruction and Development provides the Centre with accommodation and basic services in Washington DC, free of charge. Under the Convention, parties making use of the ICSID's facilities are required to bear the expenses incurred by the Centre in connection with conciliation and arbitration proceedings. Only in the event that the expenditure of the Centre cannot be met out of charges for the use of its facilities, or out of other receipts, will Contracting States be required to contribute towards any excess. It is accordingly anticipated that any impact on Commonwealth expenditure will be minimal.

Notes on Clauses

PART 1 - PRELIMINARY

Clause 1 - Short title

1. When enacted, the Bill may be cited as the ICSID Implementation Act 1990.

Clause 2 - Commencement

2. Part 1 will commence on the day on which the Bill receives the Royal Assent. All other provisions will commence upon Proclamation on a day not earlier than the day on which the Convention on the Settlement of Investment Disputes between States and Nationals of Other States ("the Investment convention") enters into force for Australia (subclause (2)) (see para 61 below) and not later than 6 months after that day (subclause (3)).

PART 2 - AMENDMENT OF THE INTERNATIORAL ARBITRATION ACT 1974

Clause 3 - Principal Act

3. This clause identifies the Principal Act in Part 2 as the International Arbitration Act 1974.

Clause 4 - (New Part)

4. Clause 4 inserts a new Part, "PART IV - APPLICATION OF THE CONVENTION ON THE SETTLEMENT OF INVESTMENT DISPUTES BETWEEN STATES AND NATIONALS OF OTHER STATES", after Part III of the Principal Act. The new Part, which contains 8 new sections, implements and complements the provisions of the Investment Convention.

Proposed Division l - Preliminary

Proposed s.31 - Interpretation

5. This provision identifies the Investment Convention, defines certain terms and provides that, subject to any contrary intention, a word used in Part IV is to have the same meaning as it has in the Convention.

Proposed Division 2 - Investment Convention

Proposed s.32 - Application of Investment Convention to Australia

6. This new section gives Chapters II to VII (inclusive) of the Investment Convention the force of law in Australia.

Proposed s.33 - Award is binding

7. An award made under the Investment Convention is binding on the parties to the investment dispute to which the award relates. Such an award is not subject to any appeal or to any remedy apart from those provided for in the Investment Convention. This ensures that the objectives of the Investment Convention will not be able to be frustrated through ancillary litigation.

Proposed s.34 - Investment Convention awards to prevail over other laws

8. As with proposed s.33, the rationale behind proposed s.34 is that once parties to an investment dispute consent to arbitration under the Investment Convention, such arbitration is to the exclusion of any other remedy. This is reflected in Article 26 of the Convention. New section 34 therefore provides that Parts II and III of the International Arbitration Act 1974 (which deal with other means of enforcing arbitral awards) do not apply to an investment dispute or an award under the Investment Convention.

Proposed s.35 - Recognition of awards

9. This provision designates the Supreme Courts of the States and Territories to be the courts which may enforce awards made under the Investment Convention in conformity with Article 54 of the Convention.

Proposed Division 3 - Miscellaneous

Proposed s.36 - Evidence relating to Investment Convention

10. This provision allows the Secretary to the Department of the Commonwealth primarily responsible for matters relating to foreign affairs or the Secretary's delegate, to sign a certificate which can be used as prima facie evidence that a particular country is a party to the Investment Convention.

Proposed s.37 - Representation in proceedings

11. This provision ensures that a party to conciliation or arbitration proceedings under the Investment Convention is able to be represented and assisted by a duly qualified legal practitioner or any other person. In addition any such legal practitioner who appears for a party under this provision will not thereby be taken to have breached any law regulating admission to or practice by the legal profession in Australia within the State or Territory in which the conciliation or arbitration proceedings are conducted. This provision therefore permits representation by foreign lawyers in such proceedings under the Investment Convention.

12. Section 29 of the Principal Act achieves a similar result in relation to the Model Law on International Commercial Arbitrati9n developed by the United Nations Commission on International Trade Law.

Proposed s.38 - Judiciary Act

13. Under s.38 of the Judiciary Act 1903 the High Court has exclusive jurisdiction in a number of matters including matters arising directly under a Treaty. Since the State and Territory Supreme Courts are to have jurisdiction to enforce ICSID awards (see proposed s.35), it is desirable for those Courts to share the High Court's jurisdiction in respect of all matters concerning the Investment Convention. Proposed s.38 achieves this result.

14. Section 13 of the Principal Act achieves a similar result in relation to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Clause 5 - New Schedule

15. Clause 5 provides that the English text of the Investment Convention is to appear as Schedule 3 to the Principal Act.

PART 3 - AMENDMENTS OF THE INTERNATIONAL ORGANIZATIONS (PRIVILEGES AND IMMUNITIES) ACT 1963

Clause 6 - Principal Act

16. This clause identifies the Principal Act in Part 3 as the International Organizations (Privileges and Immunities) Act 1963.

Clause 7 - Interpretation

17. This clause inserts a definition of "Investment Convention" into section 3 of the Principal Act.

Clause 8 - New Section

18. This clause inserts a new section 9A into the Principal Act.

19. The Investment Convention requires that certain privileges and immunities be conferred on the International Centre for the Settlement of Investment Disputes ("the Centre"), on certain of the Centre's officials and employees and on other persons associated with the work of the Centre, or who otherwise have functions to perform under the Investment Convention. Proposed section 9A will amend the Principal Act to enable regulations to be made under that Act granting privileges and immunities to persons to whom they could not be granted under the existing provisions of the Act.

Schedule - Schedule to be Inserted in the International Arbitration Act 1974

20. The Schedule contains the Investment Convention. Clause 5 provides that the Convention is to be inserted into the International Arbitration Act 1974 as Schedule 3.

CHAPTER I - INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

Section l Establishment and Organization

21. Article 1 provides for the establishment of the Centre. The purpose of the Centre is to provide facilities for conciliation and arbitration of investment disputes between States and investors who or which are nationals of other States Party to the Convention. Article 2 provides, that subject to a contrary resolution of the Administrative Council, the Centre is to be located at the principal office of the International Bank for Reconstruction and Development (ft the World Bank"), which is in Washington DC. Article 3 provides that the Centre shall consist of an Administrative Council and a Secretariat, and shall maintain a Panel of Conciliators and a Panel of Arbitrators.

Section 2 - The Administrative Council

22. Each state that is a party to the Convention appoints a representative to the Administrative Council. Article 5 provides that the President of the World Bank shall be ex-officio Chairman of the council. Under Article 6, the powers and functions of the Council include adopting rules of procedure for conciliation and arbitration proceedings. Action on these matters requires a majority of two-thirds of the members of the Council. Article a provides that the Chairman and members of the Council shall serve without remuneration.

Section 3 - The Secretariat

23. Article 9 provides that the Secretariat shall consist of a Secretary-General, one or more Deputy Secretaries-General and staff, Article 10, which requires that the Secretary-General and any Deputy Secretary-General be elected by the Council by a majority of two-thirds of its members, limits their terms of office to a period not exceeding six years and permits their re-election. The Secretary-General is responsible for the administration of the Centre, including the appointment of staff, and also performs the function of registrar with the power to authenticate arbitral awards rendered and to certify copies thereof.

Section 4 - The Panels

24. The Centre maintains a Panel of Conciliators and a Panel of Arbitrators. Each Contracting State may designate to each Panel four persons who may but need not be its nationals. The Chairman of the Council may designate ten persons to each Panel but each of the persons so designated must have a different nationality. Persons designated to serve on Panels must be persons of high moral character and recognised competence in the fields of law, commerce, industry or finance. Competence in the field of law shall be of particular importance in the case of persons serving on the Panel of Arbitrators. In designating persons to work on the Panels, the Chairman is required to pay due regard to the importance of assuring representation on Panels of the principal legal systems of the world and of the main forms of economic activity. Panel members serve for renewable periods of 6 years.

Section 5 - Financing the Centre

25. Article 17 provides for a formula for the Contracting States to finance the Centre to the extent (if any) that its expenditure cannot be met out of charges for the use of its facilities or out of other receipts. The World Bank provides accommodation and basic services to the Centre free of charge.

Section 6 - Status, Immunities and Privileges

26. The Centre is invested with full international legal personality. The Centre is to enjoy certain privileges and immunities in the territories of each Contracting State. The Centre's property and assets are to be immune from legal process unless the Centre elects to waive this immunity. The Chairman, the members of the Council, persons acting as conciliators or arbitrators or members of a Committee appointed pursuant to Article 52 (3) (to determine an application to annul an award) and the officers and employees of the Secretariat are to enjoy the following privileges and immunities:

(a)
immunity from legal process with respect to acts performed by them in the exercise of their functions except when the Centre waives this immunity; and
(b)
where they are not local nationals, 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 by Contracting States to the representatives, officials and employees of comparable rank of other Contracting States.

27. These privileges and immunities are also to apply to persons appearing in proceedings under the Convention as parties, agents, counsel, advocates, witnesses or experts, though (b) above applies only in connection with their travel to and from, and their stay at, the place where the proceedings are held.

28. Article 23 provides for the inviolability of the archives of the Centre. In relation to official communications, each Contracting State must accord to the Centre treatment not less favourable than that accorded to other international organisations.

29. Article 24 deals with tax exemptions. In the case of the Centre, its assets, property and income and its operations and transactions authorised by the Convention are to be exempt from all taxation and customs duties. In addition, the Centre is also to be exempt from liability for the collection or payment of any taxes or customs duties. Except in the case of local nationals, exemption from taxation also applies in respect of expense allowances paid by the Centre to the Chairman or members of the Council, and salaries, expense allowances or other emoluments paid by it to officials or employees of the Secretariat.

30. In respect of fees or expense allowances received by persons acting as conciliators, arbitrators or members of a Committee appointed pursuant to Article 52(3), no tax is to be levied if the sole jurisdictional basis for such tax is the location of the centre or the place where such proceedings are conducted or the place where such fees or allowances are paid.

CHAPTER II - JURISDICTION OF THE CENTRE

31. The jurisdiction of the Centre extends to any legal dispute arising directly out of an investment between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the centre by that State) and a national of another Contracting State. The parties to the dispute must consent in writing to submit to the jurisdiction of the Centre; such consent, once given, may not be withdrawn unilaterally. The article defines 'national of another Contracting State' to cover both natural and juridical persons. A juridical person which had the nationality of the State party to the dispute would be eligible to be a party to proceedings under the auspices of the Centre if that State had agreed to treat it as a national of another Contracting State because of foreign control.

32. The 'Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of other States' (International Bank for Reconstruction and Development, March 18, 1965) (M the Report") states that the term 'legal dispute' is designed to exclude mere conflicts of interests and to cover disputes which concern the existence or scope of a legal right or obligation, or the nature or extent of the reparation to be made for breach of a legal obligation.

33. The term 'investment' is undefined in the Convention. The Report states that a definition was considered unnecessary since both parties must always consent to the jurisdiction of the Centre over the dispute. Also, Article 25(4) provides a mechanism through which Contracting States may give advance notice of classes of disputes which they would or would not consider submitting to the Centre. However, it appears from a publication of the Centre, 'News from ICSID' (International Centre for Settlement of Investment Disputes, (Vol. l, No. l, Winter 1984), that the term 'investment' covers not only direct investments in capital but also matters like profit-sharing, service and management contracts, contracts for the sale and erection of industrial plants, international leasing arrangements and agreements for the transfer of know-how and of technology.

34. Article 25 also states that a statement by a Contracting State that it would consider submitting a certain class of dispute to the Centre would serve for purposes of information only and would not constitute the consent required to give the Centre jurisdiction.

35. The consent of the parties to arbitration under the Convention is, unless otherwise stated, deemed consent to such arbitration to the exclusion of any other remedy (Article 26).

36. Article 27 prohibits a Contracting State from giving diplomatic protection or bringing an international claim in respect of a dispute which one of its nationals and another Contracting State have consented to submit, or have submitted, to arbitration under the Convention unless the State party to the dispute fails to abide by and comply with the award rendered in the dispute.

CHAPTER III - CONCILIATION

Section 1 - Request for Conciliation

37. Article 28 provides for the institution of conciliation proceedings by means of a written request to the Secretary-General. The article also prescribes the information that is required to be included in the request. The Secretary-General must register the request unless he or she finds on the basis of the information contained in the request that the dispute is manifestly outside the jurisdiction of the Centre.

Section 2 - Constitution of the Conciliation Commission

38. The Conciliation Commission is constituted after registration of the request pursuant to Article 28. The Commission is to consist of a sole conciliator or any uneven number of conciliators as the parties shall agree. In the absence of agreement, the Commission shall consist of three conciliators, one appointed by each party and the third appointed by agreement of the parties. Where the Commission has not been constituted within 90 days after despatch by the Secretary-General of the notice of registration of request for conciliation under Article 28(3), the Chairman must at the request of either party appoint the conciliator or conciliators not yet appointed from the Panel of Conciliators. Except in the case of appointments by the Chairman, conciliators may be appointed from outside the Panel of Conciliators. Where conciliators are so appointed, Article 31 stipulates that such conciliators must possess appropriate qualities.

Section 3 - Conciliation Proceedings

39. The Commission is the judge of its own competence. It may deal with an objection by a party to the dispute that such a dispute is not within the competence of the Commission as a preliminary question or the commission may join it to the merits of the dispute. Unless the parties to the conciliation proceedings otherwise agree, Article 33 provides that the Conciliation Rules adopted by the Council will apply to those proceedings. Under Article 34, it is the duty of the Commission to clarify issues in dispute between the parties and to endeavour to bring about agreement between them upon mutually acceptable terms. The parties to the dispute are required to cooperate with the Commission to enable the Commission to carry out its functions and must give serious consideration to the Commission's recommendations as to terms of settlement between them. The Commission is required to draw up a report on the outcome of the conciliation proceedings.

40. Except where the parties to the dispute otherwise agree, neither party to a conciliation proceeding is entitled in any other proceeding 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 report or any recommendations made by the Commission (Article 35).

CHAPTER IV - ARBITRATION

Section 1 - Request for Arbitration

41. Article 36 provides for the institution of arbitration proceedings by means of a written request to the Secretary-General. The article also prescribes the information that is required to be included in the request. The Secretary-General must register the request unless he or she finds on the basis of the information contained in the request that the dispute is manifestly outside the jurisdiction of the Centre.

Section 2 - Constitution of the Tribunal

42. Under Article 37, the Arbitral Tribunal ("the Tribunal") is constituted after registration of the request pursuant to Article 36. The Tribunal is to consist of a sole arbitrator or any uneven number of arbitrators appointed as the parties shall agree. In the absence of agreement, the Tribunal shall consist of three arbitrators, one appointed by each party and the third appointed by agreement of the parties. Article 38 provides that where the Tribunal has not been constituted within 90 days after despatch by the Secretary-General of the notice of registration of request for arbitration under Article 36 (3), the Chairman must at the request of either party appoint the arbitrator or arbitrators not yet appointed from the Panel of Arbitrators. Arbitrators appointed by the Chairman pursuant to this article must not be nationals of the Contracting State party to the dispute or of the Contracting State whose national is a party to the dispute. Article 39 stipulates that the majority of the members of an Arbitral Tribunal shall not be nationals either of the State party to the dispute or of the State whose national is a party to the dispute. This stipulation does not apply where each and every arbitrator on the Tribunal has been appointed by agreement of the parties.

43. Except in the case of appointments by the Chairman pursuant to Article 38, arbitrators may be appointed from outside the Panel of Arbitrators. Where arbitrators are so appointed, Article 40 stipulates that such arbitrators must possess the appropriate qualities.

Section 3 - Powers and Functions of the Tribunal

44. Under Article 41, the Tribunal is the judge of its own competence. It may deal with an objection by a party to the dispute that such a dispute is not within the competence of the Tribunal as a preliminary question or the Tribunal may join it to the merits of the dispute. Article 42 provides that the Tribunal must decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of agreement, the Tribunal must apply the law of the State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.

45. Unless the parties to the dispute otherwise agree, the Tribunal may, at any stage of the proceedings, call upon the parties to produce documents or other evidence and visit the scene connected with the dispute and conduct such inquiries there as it may deem appropriate (Article 43). Unless the parties to the arbitration proceedings otherwise agree, the Arbitration Rules adopted by the Council apply (Article 44).

46. Under Article 45, failure of a party to appear or to present the party's case shall not be deemed an admission of the other party's assertions. However, the other party may request the Tribunal to deal with the questions submitted to it and to render an award. Before the Tribunal renders an award, it must notify and grant a period of grace to the party failing to appear or to present its case, unless the Tribunal is satisfied that that party does not intend to do so.

47. Unless the parties to a dispute otherwise agree, Article 47 permits the Tribunal to recommend any provisional measures which should be taken to preserve the respective rights of either party.

Section 4 - The Award

48. Article 48 deals with an award of the Tribunal. It provides, inter alia, that the Tribunal must decide all questions in a dispute by a majority vote of its members and that its awards must be in writing, deal with every question submitted and state the reasons upon which they are based. The provision also prohibits publication of an award without the consent of the parties.

49. Article 49 requires the Secretary-General to promptly despatch certified copies of the award to the parties.

Section S - Interpretation, Revision and Annulment of the Award

50. The Investment Convention provides four types of remedies against an award. The first, under Article 49(2), permits a party to ask a Tribunal which had omitted to decide any question submitted to it to supplement its award. Secondly, Article 50 permits a party to the dispute to request an interpretation of the meaning and scope of the award. Thirdly, either party may request revision of the award on the basis of discovery of new facts which would decisively affect the award (Article 51). Finally, either party may request annulment of the award on one or more grounds specified in Article 52.

51. The procedure for seeking supplementation of an award is by request to the Tribunal, and for seeking any of the other remedies is by application in writing addressed to the Secretary-General.

Section 6 - Recognition and Enforcement of the Award

52. Subject to the remedies provided for in Section 5 of this Chapter, an award is final and binding on the parties (Article 53). Each Contracting State must recognise an award as binding and enforce the pecuniary obligations imposed by the award as if it were a final judgment of a court in that State (Article 54) subject to any exceptions permitted by its law relating to sovereign immunity (Article 55).

CHAPTER V - REPLACEMENT AND DISQUALIFICATION OF CONCILIATORS AND ARBITRATORS

53. Articles 56-58, which comprise this Chapter, deal with vacancies in a Conciliation Commission or Arbitral Tribunal and the disqualification of conciliators and arbitrators.

54. If a conciliator or an arbitrator should die, become incapacitated or resign, the provisions of Section 2 of Chapter III or Section 2 of Chapter IV apply in filling the resulting vacancy (Article 56).

55. A conciliator or an arbitrator may be disqualified on grounds of manifesting a lack of the qualities required by Article 14(1). In addition, an arbitrator may be disqualified on the ground that he or she was ineligible for appointment to the Tribunal under Section 2 of Chapter IV (Article 57).

56. The decision to disqualify a conciliator or arbitrator is taken by other members of the Commission or Tribunal. The Chairman makes the decision to disqualify in prescribed circumstances.

CHAPTER VI - COST OF PROCEEDINGS

57. This Chapter deals with the charges payable by the parties for use of facilities of the Centre. In the case of conciliation proceedings, the fees and expenses of members of the Commission including charges for the use of facilities of the Centre are borne equally by the parties. In the case of arbitration proceedings, the decision on responsibility for the cost of proceedings, including the parties' legal costs, shall form part of the award.

CHAPTER VII - PLACE OF PROCEEDINGS

58. In general conciliation and arbitration proceedings take place at the seat of the Centre which is in Washington DC. However, if the parties so agree, proceedings may be held at the seat of the Permanent Court of Arbitration at the Hague or of any other appropriate institution with which the Centre may enter into arrangements for that purpose or any other place approved by the Commission or the Tribunal after consultation with the Secretary-General.

CHAPTER VIII - DISPUTES BETWEEN CONTRACTING STATES

59. Jurisdiction over disputes between Contracting States concerning the interpretation or application of the Convention which are not resolved by negotiations is vested in the International Court of Justice by virtue of Article 64. The provision does not confer jurisdiction on the Court to review a decision of a Conciliation Commission or an Arbitral Tribunal as to its competence with respect to any dispute before it. Nor does it empower a State to institute proceedings before the Court in respect of a dispute which one of its nationals and another Contracting State have consented to submit or have submitted to arbitration, since such proceedings would contravene the provisions of Article 27 unless the other Contracting State had failed to abide by and comply with the award rendered in that dispute.

CHAPTER IX - AMENDMENT

60. This Chapter provides the mechanism for amendment of the Convention.

CHAPTER X - FINAL PROVISIONS

61. Article 68 provides that the convention is subject to ratification, acceptance or approval by the signatory States in accordance with their respective constitutional procedures and provides for entry into force of the Convention upon deposit of the twentieth instrument of ratification, acceptance or approval. The Convention entered into force on 14 October 1966 but will not enter into force for Australia until 30 days after deposit of Australia's instrument of ratification.


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