The Relation between Bilateral Investment Treaties and the ICSID Convention in Investment Arbitration

As the number of international instruments dealing with investment, both bilateral multilateral, has rocketed during the last decades, the most significant development has been the emergence of bilateral investment treaties (BITs). It is widely recognized that BITs have substantially contributed to giving certainty to the legal framework of many newly independent States in the field of foreign investment. The main characteristic of modern BITs is the widespread provision for direct invocation of claims by investors against the host State in arbitration. Ever since the first BIT arbitration has been registered in 1987, the growth has been exponential, with more than 200 registered cases so far. Foreign investment flows have been fostered by this new legal framework, by providing for international arbitration as the means of settling investment disputes in all BITs as well as a number of multilateral conventions. With this continuous trend, BITs have become prominent with regard to the application of the ICSID Convention. The ICSID jurisdiction extends to `any legal dispute arising directly out of an investment, between a Contracting State and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre'. Article 25(1) of the ICSID Convention defines the outer limits within which parties can put the Convention's mechanisms into operation. BITs come into play by providing a legal basis for consent to arbitration. This is in situations of absence of contractual relationships between the private investor and the host State, and an arbitration clause binding the two parties. After the entry into force of the ICSID Convention in 1966, BITs have increasingly included a reference to ICSID arbitration, while early BITs generally provided only for ad hoc arbitration. Provisions on ICSID arbitration were included either exclusively or alongside other alternative forms of arbitration. Such references allowed foreign investors to resort in investment arbitration without aid or intervention of his national State. The expansion of the ICSID system brought about by BITs created new challenges calling for solutions that respect the private parties' legitimate expectations and the States' prerogatives. Reconciling the legitimate expectations of both the private investor and the host State should be the objective the ICSID awards should strive to achieve.