What makes an investor-state arbitration under the ICSID Convention or under the ICSID Additional Facility Rules attractive for funding? In short, it is typically a mix of five key considerations typically makes a claim attractive: jurisdiction, merits, damages, counsel, and enforcement.
Of those, the damages and economic analysis of any investment arbitration claim is paramount. In performing that analysis, we necessarily examine whether or not the alleged damages in a particular case are realistic and supported by contemporaneous evidence, including evidence of a company’s investment in a project.
What is more, however, we consider that amount of damages claimed against damages awarded historically across all investor-state arbitrations, as well as against the track records of counsel, experts and arbitrators (to the extent such information is available). We then use that data when considering how much capital is required for an ICSID arbitration (in terms of counsel fees, expert fees and arbitration costs), and how long that ICSID arbitration proceeding is likely to take from registration to award.
Here, in this year in review survey we test the 2018 awards rendered by ICSID tribunals against these three data points: damages awarded vs. damages claimed; legal and arbitration costs; and duration.
In 2018, ICSID tribunals rendered 18 final awards. In six of those arbitrations, tribunals either dismissed the case on jurisdictional grounds, or dismissed all claims on the merits. In seven cases, ICSID tribunals rendered awards in favor of investors, including the then-largest ICSID award rendered (at the time), in Union Fenosa Gas, S.A. v. Arab Republic of Egypt (approx. US$2 billion). In the remaining five ICSID arbitrations, award details are not yet publicly available.
Damages claimed vs. damages awarded
Looking at the 7 ICSID awards rendered in 2018 resulting in damages awarded to claimants, tribunals awarded claimants 37 percent of the damages claimed, on average, as set out in the chart below.1
This figure is consistent with that set out in prior studies of investor-state awards, which typically have reported tribunals awarding between 34 percent to 39 percent of damages claimed.
Turning to 2019, however, there have been 20 ICSID awards rendered in investment arbitrations so far (as of 30 September 2019). In terms of the 2019 ICSID awards, nine resulted in no damages in favor of an investor, and eleven with damages in an investor’s favor (although three of those eleven are not publicly available). The eight publicly available awards range in awarded damages from approx. $19.1 million to $8.3 billion, including two of the largest ICSID awards ever rendered (ConocoPhillips Petrozuata B.V. et al. v. Bolivarian Republic of Venezuela – approx. $8.3 billion; Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan – approx. $5.7 billion). Taking together the eight favorable ICSID awards issued in 2019 that are in the public domain, tribunals awarded 48% of the damages claimed, on average, in those arbitrations.
Legal and arbitration Costs
It is no surprise that costs incurred by claimants and respondents in ICSID arbitrations are substantial, averaging US$6.1 million for claimants, US$5.2 million for respondents, and US$922k for arbitration costs (tribunal fees and expenses, ICSID administrative fees).2 Having examined the costs reported in 2018 ICSID awards, claimant legal and other costs were US$7.05 million on average, and US$4.83 million was spent, on average, by respondents on legal and other costs, with US$986k on average for arbitration costs.
Equally important is the duration of an ICSID arbitration, details of which are now reported by ICSID itself on a regular basis. Historically, the average duration of ICSID proceedings from registration to award has been 3.86 years.3 Comparing this figure to the duration of the arbitrations resulting in awards in 2018, the average duration is slightly higher, coming in at 3.96 years. Apart from the oral and written procedures inherent in any ICSID arbitration, a significant portion of that 3.96 years is the amount of time it takes for the award to issue (from the close of a final hearing to award). Prior to 2018, the average time between the close of a final hearing and issuance of an award in all concluded ICSID arbitrations was 13.3 months.4 A review of the 2018 ICSID awards reveals a slightly longer period of time, 15.5 months from final hearing to award.
This is the first of two “year in review” surveys I will offer examining investor-state arbitration awards rendered in 2018. This first survey examined the 18 awards rendered by ICSID tribunals, and the second survey covers the 17 awards rendered in 2018 by non-ICSID tribunals. Extracts from both surveys were first presented on 18 October 2019 in London at BIICL’s Thirty Third ITF Public Conference: Valuation of Damages in International Investment Law.
1 The empirical analysis of 2018 ICSID arbitration awards discussed herein was conducted in consultation with Garrett Rush, Kiran Sequeira, and Matt Shopp, of Versant Partners.
2 Jeffery Commission & Rahim Moloo, Procedural Issues in International Investment Arbitration (Oxford University Press, 2018), at 187-188.
3 Id. at 194.
4 Id. at 193.