ICSID and Investment Arbitration: What Investors and States Should Know

21.04.2026

Tatia Turazashvili

International arbitration emerged as a practical response to the reality that, with the growth of international trade, disputes between states and private parties (investors) became increasingly frequent. Over time, dispute resolution with the involvement of a neutral third party became one of the most effective alternatives, as it enabled the parties to achieve a result outside the courts through comparatively flexible and specialized procedures. [1]

With the growth of international investment, the risk likewise increases that a dispute may arise between an investor and a state, particularly in connection with large-scale infrastructure projects. In such circumstances, it is crucial that the dispute resolution mechanism and procedural “roadmap” be set out in advance: where the dispute will be heard, under which rules, in which language, within what time frames, and how the decision will be enforced. It is precisely from this logic that the importance of ICSID derives; however, in practice, its use always begins with one fundamental issue: the parties’ consent to jurisdiction.

In this context, the World Bank took an important step: in 1961, the Bank’s management officially announced that a draft agreement was being prepared to regulate the settlement of international investment disputes through arbitration and conciliation. Work on the text of the Convention continued for approximately three years, and in 1964 it was submitted to the World Bank’s member states for approval. As a result, the ICSID Convention was signed in March 1965 and officially entered into force on September 14, 1966. [2]

The ICSID Centre was established after the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States entered into force[3]. Today, ICSID administers approximately 65% of investor-state investment disputes worldwide.^[4]

The ICSID Convention gained particularly broad recognition in the 1990s. That period coincided with the collapse of the Soviet Union and communist regimes in Eastern Europe, and with those countries’ transition to market economies, which led to an increase in foreign investment and, consequently, to a rise in the number of investment disputes.^[5] Today, more than 900 bilateral and multilateral investment treaties contain a provision under which, in the event of a dispute between an investor and a state, the dispute is to be resolved in accordance with the ICSID Rules.^[6] As of April 2026, 166 states had signed the Convention, while 158 states had ratified it.^[7]

The Convention establishes three principal mechanisms for dispute resolution: conciliation, arbitration, and various additional/ancillary procedures. [8]

At the same time, the said agreement does not define the rights of foreign investors, the criteria applicable to them, or the guarantees relating to the protection of their capital. The role of the Convention in the context of foreign investment protection lies in the fact that it establishes uniform and standardized rules for resolving disputes between an investor and a state. The rights of investors and guarantees for the protection of capital are, as a rule, defined by bilateral and multilateral investment treaties, which also determine the jurisdiction/competence of the Centre (ICSID) in the event a dispute arises.^[9]

The existence of international mechanisms for resolving disputes between a foreign investor and a state is regarded as one of the most significant achievements of modern investment law. For an investment dispute to be heard under the conciliation or arbitration procedures established by the Convention, the investor must, at a certain stage, express consent to the jurisdiction of the ICSID Centre (that is, submit to the Centre’s jurisdiction). [10]

Consent given to the jurisdiction of the ICSID Centre is irrevocable, and it may not later be unilaterally cancelled or withdrawn. This principle is reflected in the preamble to the Convention and constitutes one of the key foundations of its operation. In practical terms, this means that a waiver of jurisdiction is possible only with the consent of both parties. The termination or setting aside of the Centre’s jurisdiction occurs only in exceptional, extraordinary circumstances. [11]

Theoretically, it is possible to agree to ICSID jurisdiction even after a dispute has arisen; however, as a rule, parties prefer pre-dispute consent, meaning that the issue of jurisdiction is regulated in advance by contract or by a corresponding clause. [12]

For international investors, it is of additional importance that ICSID arbitral awards are subject to mandatory enforcement, thereby ensuring a high level of protection for the investor.

Although the concept of investment is of essential importance for ICSID arbitration, it is not defined in the ICSID Convention. Consequently, if it is established in a given case that the matter concerns a foreign investment, the investor may seek compensation through arbitration for restrictions/interference that have harmed that investment. [13]

Article 25(1) of the Convention provides that the jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment between a Contracting State and a national of another Contracting State, provided that the parties have consented in writing to submit the dispute to the Centre. [14]

Thus, the Convention links the “activation” of the Centre’s jurisdiction to the existence of an investment, while not itself defining the substance of investment. During the drafting of ICSID, extensive discussion took place around the concept of investment; however, in the end, the Convention left the term open. [15]

As a result, the task of defining investment is largely left to the participating parties: they formulate this concept in bilateral and multilateral investment treaties, and subsequently the arbitral tribunal is guided precisely by those agreements and their provisions. [16]

Over time, arbitral tribunals operating within the framework of the ICSID Convention have developed standards that are regarded as typical hallmarks of the concept of “investment.” In this context, reference is often made to the Salini test, [17] which identifies four principal elements associated with investment:

a substantial (specific) contribution;
a certain duration (the temporal dimension of the operation/project);
the existence of risk; and
a contribution to the development of the host state.

The Salini test has not received uniform treatment: it has been applied in a number of ICSID cases and, in some instances, in non-ICSID disputes as well. At the same time, other tribunals have rejected its applicability in certain cases and have considered that this approach cannot be transformed into a universal rule. [18]

The Salini test may also become problematic if, as certain tribunals have noted, these “typical hallmarks” are in practice transformed into rigid and mandatory preconditions, such that a transaction is implicitly deemed to fall outside the scope of the ICSID Convention if each criterion is not satisfied. For example, in Biwater Gauff v. Tanzania, the tribunal indicated that such an “established and rigid test” approach might improperly and arbitrarily exclude certain types of transactions from the Convention’s field of application. [19]

Accordingly, it is correct to say that investment has no single, universal definition. The content of “investment” is, to a significant extent, defined by the parties themselves: they may determine in advance which criteria they consider essential in an international investment treaty (bilateral or multilateral agreement) or in a specific investment contract concluded by the investor with the state/government.

One of the important directions of Georgia’s economic policy is the attraction of foreign capital and its use to promote the country’s economic development. In practice, toward the end of the first decade of the 2000s, the inflow of major international investments into Georgia intensified significantly, supported by an investment strategy based on interest and incentives. Clearly, the interest and willingness of foreign investors to invest in a particular country depend on multiple factors. [20]

The main idea of the ICSID system is simple: in investor-state disputes, the outcome often depends not only on “the merits of the case,” but also on how and where the dispute is heard. Because the concept of “investment” is not directly defined in the Convention and the case law (including the Salini approach) continues to evolve dynamically, the best strategy is a properly drafted clause in advance, a clear jurisdictional basis, and a well-structured procedural framework. In this way, both the investor and the state reduce uncertainty, increase predictability, and, in some cases, even avoid a protracted dispute altogether.

[1] Greenberg S., Kee C., Weeramantry J. R., International Commercial Arbitration, an Asia–Pacific Perspective, Cambridge University Press, 2011, p 6.

[2] Sabahi B., Rubins N., Wallace D., Investor-State-Arbitration, 2nd Edition, Oxford University Press, 2019, pp. 51-52.

[3] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Washington, 18 March, 1965. <https://icsid.worldbank.org/sites/default/files/ICSID_Convention_EN.pdf>

[4] Sabahi B., Rubins N., Wallace D., Investor-State-Arbitration, 2nd Edition, Oxford University Press, 2019, p. 52.

[5] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Washington, 18 March, 1965. <https://icsid.worldbank.org/sites/default/files/ICSID_Convention_EN.pdf>

[6] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Washington, 18 March, 1965. <https://icsid.worldbank.org/sites/default/files/ICSID_Convention_EN.pdf>

[7] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Washington, 18 March, 1965. <https://icsid.worldbank.org/sites/default/files/ICSID_Convention_EN.pdf>

[8] Tietje C., International Investment Protection and Arbitration, Theoretical and Practical Perspectives, Berliner Wissenschafts-Verlag, 2008, p 23.

[9] Onwuamaegbu U., International Dispute Settlement Mechanisms-Choosing Between Institutionally Supported and Ad Hoc; and Between Institutions, in Arbitration Under International Investment Agreements, A guide to the Key issues, Edited By Katia Yannaca-Small, Oxford University Press, 2010, pp.65-68

[10] Banifatemi Y., Edson E., Jurisdiction of the Centre in The ICSID Convention, Regulations and Rules A Practical Commentary, edited by Julien Fouret, Remy Gerbay, Gloria M. Alvarez, Edward Elgar Publishing, 2019, p 102.

[11] Banifatemi Y., Edson E., Jurisdiction of the Centre in The ICSID Convention, Regulations and Rules A Practical Commentary, edited by Julien Fouret, Remy Gerbay, Gloria M. Alvarez, Edward Elgar Publishing, 2019, p 147.

[12] Waibel M., Investment Arbitration: Jurisdiction and Admissibility, in International Investment Law, edited by edited by Prof. Dr. Marc Bungenberg (LL. M.), Prof. Dr. Jörn Griebel (D.E.S.), Prof. Dr. Stephan Hobe (LL. M.), Prof. MMag. Dr. August Reinisch (LL. M.); Yun-I Kim (ass. ed.), Hart Publishing, 2015, pp. 1224-1225.

[13] Ghouri A. A., Resolving Incompatibilities of Bilateral Investment Treaties of the EU Member States with the EC Treaty: Individual and Collective Options, European Law Journal, Vol. 16, No. 6, November 2010, p. 497

[14] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Washington, 18 March, 1965, Article 25

[15] Dolzer R., Kriebaum U., Schreuer, C., Principles of International Investment Law, Third Edition, Oxford, Oxford University Press, 2022, p 65.

[16] Dolzer R., Kriebaum U., Schreuer, C., Principles of International Investment Law, Third Edition, Oxford, Oxford University Press, 2022, p 65.

[17] Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4

[18] Dolzer R., Kriebaum U., Schreuer, C., Principles of International Investment Law, Third Edition, Oxford, Oxford University Press, 2022, pp. 91-95

[19] Dolzer R., Kriebaum U., Schreuer, C., Principles of International Investment Law, Third Edition, Oxford, Oxford University Press, 2022, pp. 95

[20] Parliament Memorandum 500 Georgia, L.P., report on participation in a venture investment fund, Dated 2023