Articles

Introduction

Established in 1966, the International Centre for Settlement of Investment Disputes (ICSID) promotes international investment by providing an effective, de-politicized system for the resolution and enforcement of disputes between States and foreign investors. As of 12 April 2019, ICSID counted 163 signatories to its founding Convention, of which 154 were Contracting States.¹

As ICSID’s membership has expanded, so too has demand for its services. In 2018, ICSID administered a record 279 cases, representing approximately 40% of the Centre’s total caseload since 1966.² The growth in ICSID cases is correlated with the expansion of foreign direct investment in recent decades, which has increased the need for a trusted and impartial system for resolving cross-border investment disputes. It is also connected to new bilateral and multilateral investment treaties, investment contracts, and domestic laws that provide for ICSID dispute settlement.³ ICSID has been integrated into these instruments that provide the basis for State consent to arbitration under the ICSID Convention and Additional Facility Rules.⁴ Finally, it is attributable to the unparalleled reputation of ICSID for its expertise, administrative services, global facilities, competitive cost structure, and bespoke rules of procedure.

This article concerns the process currently underway to further modernize ICSID rules and regulations. The term ‘ICSID rules’ is used here to refer to the specialized rules for ICSID dispute settlement. These are:

• Administrative and Financial Regulations, which concern the procedures of ICSID’s governing body, the Administrative Council; the functions of the ICSID Secretariat; and the finances of ICSID and the cases it administers;

• Institution Rules, which address the initiation of arbitration and conciliation under the ICSID Convention. They apply to the period between filing a request for arbitration or conciliation to the dispatch of the notice of registration;

• Arbitration and Conciliation Rules under the ICSID Convention, which establish the process to be followed in arbitrations or conciliations between investors and Member States to the ICSID Convention (‘ICSID Member States’);

• Arbitration, Conciliation and Fact-Finding under the ICSID Additional Facility (‘Additional Facility Rules’), which currently apply to arbitrations and conciliations between investors and States, at least one of which is not a member of ICSID or a national of a Member State. The Additional Facility also includes rules for fact-finding, which offer States and foreign nationals the opportunity to constitute a committee to make objective findings of fact that could resolve a legal dispute between the parties.

Amendments to the ICSID rules

ICSID Member States have the authority to amend ICSID’s administrative and financial regulations and the rules of procedure that apply to ICSID cases—and have exercised this right at three points in the past.⁵

The most recent changes were introduced in 2006 and included:

• Strengthened disclosure requirements for arbitrators;⁶
• A new provision that provides for the possibility of holding open hearings;⁷
• Expanded transparency provisions to publish awards as soon as possible;⁸
• The opportunity for non-disputing parties to file submissions (amicus curiae briefs);⁹
• The possibility for a respondent to obtain an early dismissal of a case due to its manifest lack of legal merit.¹⁰

These amendments have been widely emulated in the rules of other arbitral institutions, in newly negotiated investment treaties, and in parts of the Mauritius Convention and the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration.

In late 2016, ICSID began preparing for its fourth update to the rules. From the start, the process has been grounded in extensive consultation with ICSID Member States, the legal profession and the wider public. An initial round of input in 2017 generated ideas on the types of rule changes that should be considered. ICSID also asked Member States to nominate one or more representatives to the rule amendment project: officials with knowledge and responsibility for the portfolio who could contribute substantively and authoritatively on behalf of their government.

The comments received from States, the legal profession and the public fed into a working paper published in August 2018 (Working Paper #1: Proposals for Amendment of the ICSID Rules), which presented the proposed amended rules in full, together with an explanation of the changes and the rationale behind them in ICSID’s three official languages (English, French and Spanish).¹¹ ICSID subsequently held over 50 consultations with Member States and the public, and received over a hundred written submissions on the proposals.¹² Based on this input, ICSID published an updated working paper in March 2019 (Working Paper #2: Proposals for Amendment of the ICSID Rules).

The suggested amendments in the working papers encompass the full set of ICSID rules and regulations described above. They do not, however, include changes to the ICSID Convention which would require unanimous approval from ICSID’s 154 Member States. In contrast, changes to the ICSID Regulations and Rules require two-thirds approval of the membership, and the Additional Facility Rules need a simple majority. Nonetheless, the process of considering changes to the ICSID rules has been helpful in drawing attention to areas of the ICSID Convention where changes may also be deemed desirable. Should ICSID Member States express an interest in pursuing changes to the Convention, this can be done at a subsequent stage.

Highlights of the proposed amendments

What changes are proposed to the ICSID rules? The proposals are too numerous to fully describe, but the highlights include the following provisions.¹³

Modernized drafting and sequencing of provisions

Provisions have been re-drafted using plain language and gender-neutral terms (e.g. references to the Chairman have been changed to Chair). The sequencing of provisions has also been reordered so that they better reflect the chronology of an ICSID case. Overall, the revised rules will be more user-friendly.

Time and cost reduction measures

A substantial focus of the amendments is to reduce the time and cost of proceedings, recognizing that success in this will depend upon the joint efforts of counsel, tribunal members and the institution.

First, general rules are introduced to address the time and cost of proceedings. For example, a new provision obliges the tribunal and the parties to conduct the proceeding in an expeditious and cost-effective manner, and clarifies the parties’ and tribunal’s discretion to modify time limits. Also, by default, all filing would be electronic. Moving from hard-copy to electronic filing would not only expedite the process, but would also significantly reduce the environmental footprint of ICSID proceedings.

Second, tribunals are encouraged to be active case managers where possible. For example, the tribunal may convene a case management conference at any time to identify uncontested facts, narrow the issues in dispute, or address any other procedural or substantive matter.

Third, specific timelines for various steps are reduced, requiring counsel to advance the case in an expeditious way. For example, an objection that a claim manifestly lacks legal merit could be filed before constitution of the tribunal, and must be filed within 30 days after constitution; preliminary objections would need to be filed as soon as possible, and no later than the date to file the counter-memorial; and a request for bifurcation would need to be made within 30 days after the filing of the memorial on the merits (if it relates to a preliminary objection).

Fourth, new timelines are proposed for issuing decisions, orders and awards. Most procedural orders and decisions, such as a decision on provisional measures, must be issued within 30 days after the last submission. Awards must be rendered within 60 days after the last submission on an application for manifest lack of legal merit, 180 days after the last submission on a preliminary objection if it has been bifurcated, and 240 days after the last submission on all other matters.

Fifth, an optional expedited arbitration process is proposed, which the parties could opt into at any time. Under the expedited rules, the parties could opt for a sole arbitrator or three-person tribunal; however, if they do not jointly advise of their agreement within 30 days after registration, they would be deemed to have selected a sole arbitrator. Once the tribunal is constituted, a streamlined procedural calendar requires that the first session would be held within 30 days, and memorials and counter-memorials would each be filed in 60 days and limited to 200 pages, while replies and rejoinders may each be filed in 40 days and are limited to 100 pages. The hearing would be held within 60 days after the last written submission. The entire process is designed to conclude within a maximum of a year-and-a-half, which is around two years shorter than the average duration of an arbitration case under the current rules. The parties may also agree to opt out of the expedited rules at any point.

Increased transparency through publication of awards, decision and orders

Under the proposed rules, all orders and decisions in ICSID Convention cases and all orders, decisions and awards under the Additional Facility Rules would be published, with redactions agreed to by the parties. The effect of these changes will be to provide the public and facility users with greater access to procedural and substantive decisions. Over time, this increased access will contribute to the development of a more cohesive jurisprudence, answering a concern voiced by various commentators.

As always, if parties have treaty-specific provisions on transparency, these provisions will form the applicable regime. Similarly, if the Mauritius Convention¹⁴ applies as between the parties, it will govern transparency in the proceedings. The proposed ICSID rules, therefore, provide a baseline level of transparency, but States may set a higher, or different, level of transparency if they wish.

Disclosure of third-party funding

ICSID received diverse comments on third-party funding, ranging from recommendations to prohibit it entirely, to allowing it without any constraint or disclosure. Given the divergent views, ICSID has not taken a position on third-party funding per se. But the Centre has recognized that potential conflicts of interest can arise between arbitrators and third-party funders, and these are best avoided through disclosure of the existence of such funding arrangements by both parties. A new proposed rule would therefore oblige the parties to disclose whether they have third-party funding, and if so, the name of the funder. This information would be provided to potential arbitrators prior to appointment to avoid inadvertent conflicts of interest.

New rule on security for costs

Security for costs addresses the risk that a party does not comply with a potential costs award against it. It does so by requiring a party to provide a security to cover the estimated costs that the other party will incur in the proceeding. Security for costs may be requested by a claimant or respondent and would be available in original arbitration proceedings as well as in annulment proceedings. The new, stand-alone, rule would allow a tribunal (or annulment committee) to order a party asserting a claim or counter claim to provide security for costs. The rule states that in exercising its discretion to order security for costs, the tribunal must consider the relevant party’s ability and willingness to comply with an adverse decision on costs, any effect of providing security for costs on the party’s ability to pursue a claim, the party’s conduct, and any other relevant circumstances.

Disqualification of arbitrators

Disqualification of arbitrators is a topic that has been extensively debated and the proposed rules address a number of the issues that have been raised. One relates to the timing of a challenge. Under the proposals, a challenge would need to be filed within 21 days after the challenging party first knew or should have known of the facts that led to the challenge; if the challenging party knew of the facts before constitution, it must file the proposal to disqualify within 21 days after constitution. If the challenged member is disqualified, a decision taken by the tribunal during the pendency of the challenge may be reconsidered by the new tribunal upon a party’s request. Finally, an enhanced declaration of independence and impartiality is proposed for arbitrators, which elaborates on the types of disclosure required.¹⁵

Rules for mediation, conciliation and fact-finding

ICSID’s rules for conciliation under both the Convention and Additional Facility have been amended significantly, aiming to introduce greater flexibility into the process. The Additional Facility’s rules for fact-finding are also completely revised to be more user-friendly and cost-effective. Finally, ICSID has proposed an entirely new set of rules for mediation. The new mediation rules align with the trend amongst States of including mediation in investment treaties, either as a pre-condition to arbitration, as a stand-alone mechanism, or for use in parallel with other dispute settlement mechanisms. The mediation rules have also been designed to complement the Singapore Mediation Convention, which will open for signature in 2019.¹⁶ This Convention facilitates the enforcement of international settlement agreements arising from mediation, including in the sphere of investor-State mediation. Notably, the mediation and fact-finding rules are standalone—in other words separate from the ICSID Convention and Additional Facility Rules. This underscores their status as rules that can be used alone, or in conjunction with an arbitration case, and that use of these rules is fully by consent of the parties and not hindered by jurisdictional issues such as whether a party is a national of a Member State.

Expanded Access to the Additional Facility

The proposed rules extend the availability of Additional Facility Rules to all cases where ICSID Convention arbitration or conciliation is not available. The proposed Additional Facility rules also provide regional economic integration organizations (REIOs), such as the European Union, with access to dispute settlement under the Additional Facility Rules, reflecting the fact that increasingly States are negotiating investment agreements as regional entities.

Next steps

Following further consultation on the proposals laid out in ‘Working Paper #2’, ICSID is planning to present a package of amendments for a vote by ICSID Member States at the fall annual meeting of the Administrative Council in 2019 or 2020. Once adopted, the amended rules will apply to all cases based on consent given after the new rules are brought into force. As with past amendments, this round of changes will place ICSID at the forefront of investment arbitration procedure. Together with the numerous steps that States are taking to modernize the substantive obligations in their investment treaties and free trade agreements, the ICSID rule amendments reflect a steady evolution of international investment law.

---

---