Matthew Yngson is the Representative Councillor of the Caribbean ASEAN Council , and Executive Director and Envoy for Diplomatic Affairs of the Eastern Caribbean-Southeast Asia Chamber. He is also the Secretary General of the 35th Sultan of Sulu and North Borneo and a Diplomatic Representative of the non- U.N. state of Liberland. Datu Yngson is an alumnus of H.R.H. The Duke of Edinburgh’s Commonwealth Study Conferences.

The standing of global institutions has fallen dramatically in the eyes of the public in the years since the 2008 financial crash.

Populist leaders have decried the influence of organisations like central banks and international regulators, accusing them of being out of touch with the needs of their electorates.

While much of this rhetoric is mere bombast, it has raised the stakes for global institutions, whose every move is now scrutinised.

This is true of the arbitration system, with bodies like the International Centre for Settlement of Investment Disputes (ICSID) having received criticism from the legal community for a perceived failure to uphold international law and enforce the provisions of bilateral investment treaties.

The ramifications of misfiring institutions like the ICSID are grave, with international businesses unable to feel secure in their foreign investments and citizens in emerging markets being denied the corresponding economic opportunities.

A compelling recent example of the Centre’s waywardness is the case of RSM vs St. Lucia.

RSM, an American consultancy, initially filed a request for arbitration in April 2012 against the St. Lucian government over the alleged termination of an oil exploration license off the coast of the Caribbean island.

This state action was likewise seen more widely to be in breach of the investment treaty between St. Lucia and the US. In April 2015, an ICSID tribunal suspended proceedings due to RSM’s failure to comply with a security for costs order made in 2014. The tribunal then dismissed the case ‘ with prejudice ’ in July 2016 – an unprecedented step for an ICSID arbitration.

In April 2019, the annulment committee assigned to the case decided to partially annul the tribunal’s award to St. Lucia. Making its displeasure with the ICSID clear, the committee declared that ‘ the tribunal had manifestly exceeded its powers by dismissing the claims ‘with prejudice’’. Thanks to the committee’s partial annulment, RSM now has the opportunity to recommence its arbitration against the St. Lucian government.

Concerningly, however, the ICSID did not learn from its mistakes in RSM vs St. Lucia and has seemingly continued to both go against the grain of procedural norms and take the side of the state against the investor.

In July 2014, Iraq’s Communication and Media Commission (CMC) ordered the confiscation of Kuwaiti telecoms company Agility’s $350 million shareholdings in Korek Telecom on highly contested grounds.

When the expropriation was eventually confirmed in 2019, Agility promptly challenged Iraq at the ICSID.

However, to the surprise of many international legal practitioners, the ICSID tribunal sided with Iraq, despite red flag evidence of government corruption.

The tribunal’s explanation for its decision was that the timing of the Commission’s order pre-dated the entry into force of the 2015 Iraq-Kuwait bilateral investment treaty.

While superficially judicious, this decision caused grave consternation amongst international investors, as its logic puts them at the mercy of officials in nations that are slow to identify and redress corrupt activity.

Indeed, while the ICSID tribunal accepted that allegations of corruption were relevant to Agility’s claim that the CMC did not implement its order in a way that allowed the return of the company’s investments, the tribunal did not consider the impact of prior corruption on this failed implementation.

These two procedural oddities at the ICSID in recent years have raised concerns that the current arbitration mechanisms in place offer no real protection to those operating under investment treaties, with the protection instead being provided to state officials.

Yet if investment treaties do not afford investors protection from one of the signature parties then it is doubtful whether investors will continue to be encouraged by their presence.

Indeed, the ICSID’s arbitration mechanism was previously viewed as one of the last lines of defence for international businesses but there is now a growing belief that governments will easily get away with arbitrary expropriations or infringements of international law.

In terms of the ramifications of this reality, there are myriad cases of expropriations by governments, especially in emerging markets, that demonstrate the economic ill-effects of state-sanctioned commercial interference.

Venezuela is perhaps the most famous example, with the Chavez regime expropriating private investments in sectors ranging from natural resources to supermarkets between 2005 and 2013.

Economic confidence and foreign investment in Venezuela promptly collapsed, leading to increases in poverty and an inflation rate which peaked at 2,959% in 2020.

The ICSID, despite coming down on the side of several firms in their attempts to win compensation from Venezuela, did decline to exercise jurisdiction over the 2010 expropriations of $1.4 billion worth of investments by two US-owned glass companies.

This was perhaps an early sign that the Centre was losing sight of its primary duties as a guarantor of investment treaties and a safeguard against poor governance in emerging markets.

While it has a strong record of prosecuting investors engaged in poor governance and corruption, the reputation of the ICSID’s arbitration mechanism among investors will only recover if it can be equally diligent in holding states to account.

Fair arbitration inspires investor confidence in emerging markets and their subsequent investments are the lifeblood of sustainable development, improving the lives of billions of people.

The rehabilitation of the ICSID is therefore of paramount importance.

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