Proposed changes to the regulations governing the International Centre for Settlement of Investment Disputes aim to streamline the body's dispute resolution processes.
Introduction to ICSID
The International Centre for Settlement of Investment Disputes (ICSID) is a forum for the settlement of international investment disputes between contracting states and foreign investors.
The ICSID rules establish procedures for conciliation, fact-finding, mediation and arbitration for the 160 states that are signatories to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1966 (the ICSID Convention). They are used in relation to disputes arising directly from an investment and to which a contracting state is a party.
ICSID also provides a forum for arbitration and conciliation under the ICSID Additional Facility Rules, to which amendments are also proposed.
In November 2016, ICSID announced it would commence a formal review of its rules and regulations across all dispute resolution procedures.
On 20 January 2022, ICSID put forward to its governing body, the Administrative Council, resolutions on its proposals for the Amended Rules.
ICSID's objective in amending its procedural rules is to streamline its dispute resolution processes. The Amended Rules incorporate suggestions made by stakeholders during consultation periods and in working papers prepared over five years.
It is described as ICSID's most extensive review of its rules, and is expected to deliver significant procedural changes.
Change for the better?
The proposed changes to the ICSID rules include a new set of standalone rules for mediation and fact-finding, to broaden the range of dispute resolution procedures available under ICSID. These add to the range of dispute resolution mechanisms offered by ICSID.
In respect of arbitration, the Amended Rules propose:
- Broader jurisdiction for ICSID;
- More transparency in the conduct and outcome of proceedings; and
- New rules for costs allocation.
ICSID's consultation process also highlighted significant concern amongst stakeholders in respect of conflicts of interest, both in relation to third-party funders and arbitrators. This concern reflects the spate of recent judicial decisions, which have addressed the growing supply and demand for third party funding in arbitration, as well as arbitrator conflicts.
These proposed changes are set out in further detail below.
Conflicts of interest – arbitrators to take careful note
Rules 22 and 23 of the Amended Rules will govern the conflict of arbitrators.
These changes seek to address situations where counsel and arbitrators act interchangeably as counsel and arbitrator and, due to their professional expertise, may be appointed on largely similar proceedings each time.
Rule 22 will permit a party to apply for the disqualification of an arbitrator within 21 days of either the arbitration tribunal being constituted, or when the party should have known the ground for disqualification.
While a decision regarding an arbitrator's disqualification is pending, the arbitration proceedings will be suspended unless the parties agree to continue.
The disqualification process is set out in Rule 23, under which those arbitrators not being challenged, or the arbitration tribunal chair, will decide on the outcome within 30 days of the last written submission or notification to the Secretary-General.
Disclosure of third party funding – a recognition of modern trends
Building on the amendments from working papers 4, 5 and 6, the Amended Rules have settled on an obligation for parties to disclose when they are backed by third-party funders.
Parties will need to file a written notice disclosing the names and address of any non-party from which they are receiving funding, whether directly or indirectly and, in the case of funding from a juridical person, the names of the persons and entities that own and control that juridical funder (see Rule 12).
Transparency – the need for parties to opt out
A recurring complaint in the consultation process concerned a lack of transparency in the publication of arbitration tribunal documents.
As it stands, the ICSID rules provide that both parties must consent to the publication of the outcome award.
However, the Amended Rules introduce a new limitation approach, under which a party will be deemed to consent to the publication of an outcome award, arbitration tribunal order or decision unless the party has objected within 60 days of the document being issued by the arbitration tribunal (see Rules 62 and 63). Parties must ensure that they opt out if they wish the award not to be published.
Costs – and the impact of awarding security for costs
In a step away from ICSID's usual requirement that the parties should bear their own costs, the Amended Rules also make provision for the allocation of costs.
Under Rule 52, the arbitration tribunal must give consideration to:
|(a) The outcome of the proceeding or any part of it;
(b) The conduct of the parties during the proceeding;
(c) The complexity of the issues; and
(d) The reasonableness of the costs claimed.
This is a significant step, which brings the ICSID Rules into line with institution rules for commercial arbitrations.
Further, the Amended Rules introduce a new procedure that will permit the arbitration tribunal to award security for costs.
Under Rule 52, the following factors will be taken into account by the arbitration tribunal:
|(a) The party’s ability to comply with an adverse decision;
(b) The party’s willingness to comply with an adverse decision;
(c) The effect that providing security for costs may have on that party’s ability to pursue its claim or counterclaim; and
(d) The conduct of the parties.
If the Amended Rules are adopted, it appears that ICSID's approach to costs will be much more aligned with the approach taken with proceedings in the English courts (and other arbitration institutions) in the future.
Increased efficiency – saving time, cost and the environment
The Amended Rules introduce a number of new measures that attempt to streamline the ICSID arbitration process.
For example, under Rule 4, all filings must now be completed electronically (with no provision for paper filings) which aims to reduce costs and increase efficiency in proceedings. Timelines have also been introduced throughout the arbitration process to ensure matters move swiftly, such as the introduction of a 240-day long stop time limit on awards being handed down under Rule 58.
Further, the Amended Rules introduce "Special Procedures" for:
|(a) Applications for dismissal of claims for a manifest lack of legal merit (see Rule 41);
(b) Bifurcation of proceeding (see Rule 42);
(c) Preliminary objections (see Rule 43); and
(d) Provisional measures (see Rule 47).
The Amended Rules introduce fixed time limits for such applications to be made and decided upon by the arbitration tribunal, ranging from 30 days to 240 days for a decision, as well as other procedural provisions.
The inclusion of such prescribed procedures adds clarity and structure to the initial steps of ICSID arbitration proceedings and seeks to ensure that matters are progressing as quickly and efficiently as possible.
Non-contracting party participation – radical propositions based on consent
The Amended Rules clarify and confirm that non-disputing parties may participate in arbitrations, by making verbal or written submissions on the interpretation of the treaty.
This may be relevant, for example, where the dispute has potential environmental or societal impact. It will be interesting to see how this develops in practice; as much as these provisions have the potential to add valuable perspective to proceedings, unchecked they may also be employed to distract from the substantive dispute.
More significantly, the Amended Rules go further. With the aim of making ICSID a more accessible forum for arbitration, the ICSID Additional Facility Rules provide a forum for arbitration and conciliation to parties where neither party to the investment is an ICSID Contracting State or a national of a Contracting State, provided that both parties consent.
The proposed amendments make specific reference to Regional Economic Integration Organisations, such as the European Union, to have access to ICSID administered arbitrations and conciliation.
This amendment is a significant change from the current ICSID Additional Facility Rules, which provide that in order to have jurisdiction, the dispute must have arisen in connection with an investment between parties, one of which must be an ICSID Contracting State or national of a Contracting State. This amendment has been made with the clear objective of making ICSID more widely available, based on parties' consent.
Pursuant to Article 6 of the ICSID Convention, the Administrative Council will vote on the resolutions, which must be approved by two-thirds in order for ICSID to formally adopt the Amended Rules for arbitration and conciliation proceedings and new, standalone rules for fact-finding and mediation proceedings.
The Amended Rules will be voted on by 21 March 2022 and, if approved, will come into effect from 1 July 2022.
What do these changes mean for practitioners and parties?
- ICSID will provide formal procedures for fact-finding and mediation, which may be used as means of settlement either before or during arbitral proceedings.
- The ICSID Rules will reflect a more modernised approach to dispute resolution, comparative with recent updates to commercial arbitration institutional rules, and topical issues such as arbitrator conflicts and third party funding.
- If parties do not consent to publication of the Award they must ensure to opt out of Rules 62 and 63.
- ICSID will be more in line with other institutional rules on costs allocation, and on awarding security for costs.
- ICSID will be a more accessible forum for arbitration, including to non-contracting parties and non-state parties such as Regional Economic Integration Organisations.
This article was authored by Zaakira Allana, (director) and Eilish Beeby (trainee) in the dispute resolution team at Fieldfisher.
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