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Executive Summary

Although every investment arbitration is unique in its particulars, a claimant investor and a respondent state can generally expect a predictable sequence of stages before and during the arbitration. These stages are the satisfaction of pre-arbitration requirements, the filing of the arbitration, the “constitution” of the tribunal, the first procedural conference, the exchange of documents and written submissions, the occurrence of final hearing(s) on jurisdiction, the merits, and/or damages, and the tribunal’s issuance of an award.

1.0 Introduction

This chapter first discusses the initial stages of an investment arbitration, including: (1) any necessary pre-arbitration steps; (2) the filing of initial claims and defences/ responses; and (3) the constitution of the tribunal. The chapter then provides an overview of the procedural milestones of the arbitration following the constitution of the arbitral tribunal.

2.0 Pre-Arbitration Proceedings and Notice Periods

Investment treaties often require certain procedural steps before commencing arbitration. They can require good faith negotiations between the parties, mediation, conciliation, exhaustion of local remedies, and/or even the avoidance of local remedies as part of a “fork in-the-road” requirement.¹ As part of this process, treaties often include specific “cooling off” periods whereby a claimant must wait for a fixed period of time (often three months to a year) from when the claimant notifies the respondent state of the existence of a dispute to when the claimant commences the arbitration. These requirements are intended to encourage amicable resolution of disputes, avoid unnecessary proceedings and expenses, and generally make the dispute resolution process more efficient.

Nevertheless, these pre-arbitration provisions have led to frequent disputes, particularly regarding their mandatory nature and their scope. Respondents may raise arguments regarding the validity and enforceability of negotiation requirements, the scope of the pre-arbitration provisions, and whether such provisions are mandatory or optional.²

In most cases, failure to comply strictly with the type of pre-arbitration procedures discussed above has not been fatal to the claimant’s arbitral claim.

Pre-arbitral procedures are also discussed in Chapter 11, including requirements to consult or negotiate before initiating arbitration, waiting periods and exhaustion requirements.

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3.0 Filing of Initial Claims and Defences

The first step in any arbitration (following any necessary pre-arbitration procedures discussed above) is for the claimant to submit a “request for arbitration” (a “Request”) or its equivalent. If an arbitration institution is involved, the institution will acknowledge receipt of the Request and transmit electronic and hard copies of the Request to the respondent state government. If an arbitration institution receives the Request, it will likely examine the Request to determine whether the formal requirements for a filing have been met. The International Centre for Settlement of Investment Disputes (ICSID), for example, will determine whether the dispute is prima facie within its competence, and the Secretary-General of ICSID will then register the dispute and send a notice of registration to both parties and invite the parties to constitute the tribunal.

Depending on the applicable set of arbitration rules, the respondent state will file its answer or response (which will include a preliminary statement of its defences) either before or after the constitution of the arbitral tribunal. In ICSID arbitrations, for example, the constitution of the tribunal will occur before the respondent state files its first responsive papers. However, under the rules of most arbitral institutions — and, concomitantly, under most sets of arbitration rules (including the UNCITRAL Arbitration Rules) — the respondent will generally serve its answer or response within a set time period after the filing of the Request or its equivalent.

4.0 Constitution of the Tribunal

Selection of a suitable party-appointed arbitrator and chairperson are almost certainly the most important decisions that counsel and parties will make in any investment arbitration. When making the decision as to who to select, a party should consider a wide range of factors, including: (1) independence and impartiality; (2) arbitration and/or judicial experience; (3) subject matter expertise (including an assessment of the prospective nominee’s writing and speaking on particular industry issues that may arise in the arbitration, as well as the international arbitration process more generally); (4) any relationships to the parties, their counsel, and the co-arbitrators (including actual and potential conflicts of interest); (5) the arbitrators’ efficacy in administering arbitrations; (6) reputation and prominence; and (7) availability. These issues are discussed in greater detail in Chapter 15.

As with the choice of counsel (discussed in Chapter 14), a party and its counsel should take great care developing a pool of qualified arbitrators and considering the most important criteria and their appropriate weight with respect to the selection of both the party-appointed arbitrator (if any) and the chair of the tribunal.

The procedure for the constitution of the tribunal will be dictated, in the first instance, by the applicable arbitration clause. However, if the applicable arbitration clause does not specify the number of arbitrators or the method for their appointment, the relevant arbitration rules, if any, will determine the number and any applicable qualifications.

Under the ICSID Arbitration Rules, for example, the claimant may in the Request for Arbitration propose that the tribunal be composed of three arbitrators and be constituted according to the following method:

• Claimant shall nominate its party-appointed arbitrator within 30 days of the Registration Date;
• Respondent shall nominate its party-appointed arbitrator 30 days later (i.e., 60 days after the Registration Date); and
• The President of the tribunal shall be appointed by agreement between the parties 30 days after the appointment of respondent’s arbitrator (i.e., 90 days after the Registration date), failing which, the President shall be appointed by ICSID’s Secretary General.³

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With respect to the claimant’s nomination of its party-appointed arbitrator, the respondent state can agree, disagree, or (more likely) remain silent. Should the respondent state in an ICSID arbitration remain silent, or should no agreement regarding the number of arbitrators and the method of their appointment be reached within 60 days of the Registration Date, the claimant(s) may trigger the default procedure to constitute a three-member tribunal under the ICSID Convention and the ICSID Arbitration Rules.⁴ Default selection procedures, such as those found in the ICSID Rules, are incorporated into many arbitration rules, and are intended to prevent a party from obstructing the arbitral process by refusing to participate.

An arbitrator who is not independent and impartial, or otherwise is subject to material conflicts of interest, may be challenged by the other side. An arbitrator or arbitrators may be challenged either before or after the tribunal is constituted. The procedure for challenging an ICSID arbitrator, for instance, is set out in Articles 57 and 58 of the ICSID Convention. The ICSID Convention sets a high threshold for disqualification by requiring “manifest lack of the qualities” required of an arbitrator. Decisions on challenges are typically made by the remaining co-arbitrators. Important issues relating to challenges of arbitrators are discussed in Chapter 15.

5.0 First Procedural Meeting

Once the tribunal is constituted, it will hold a procedural meeting within a certain period of time as required by the respective institution or within a time that the parties agree (sometimes with the assistance of the tribunal). At this procedural conference, the roadmap of procedural milestones and their timing will be agreed by the parties, decided by the tribunal, or most often, a combination of both. This roadmap will include:

1. Whether there will be any bifurcation or even trifurcation of the arbitration (discussed in Chapter 20);

2. Whether a party will request interim or injunctive relief (Chapter 19);

3. Follow-up or resolve issues regarding the arbitration clause and the applicable arbitration rules (for example, the language of the arbitration, any terms requiring confidentiality of the arbitration, governing law issues, and whether any specific evidentiary rules apply);

4. The terms and timing of document production (Chapter 21);

5. The number, sequence, and timing of pleadings and written submissions, including memorials, witness statements and expert reports;

6. Pre-hearing procedures;

7. Terms and schedule for jurisdictional (if any) and merits hearings; and

8. Post-hearing briefing (if any).

6.0 Subsequent Procedural Steps

Although there is no universally fixed set of procedural milestones for every arbitration — much less an established time period for each milestone — the description below sets forth a typical (albeit simplified) set of milestones for an arbitration following the constitution of the tribunal, as well as an estimated timeframe for each of those milestones:

1. The deadline for the submission of the claimant’s opening memorial is usually within three to four months of the tribunal’s first procedural hearing. Claimant’s opening memorial will include a full statement of the relevant facts and law, and will be accompanied by supporting evidence including witness statements and expert reports (including a report on the valuation of damages, assuming no bifurcation), documentary evidence/exhibits and legal authorities.

2. Three to four months after the claimant has filed its opening memorial, the respondent will file its counter-memorial. The respondent’s counter-memorial will contain admissions or denials of the facts stated in the claimant’s memorial, any

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additional facts, observations concerning the legal arguments in the memorial, and any counterclaims, plus accompanying evidence, including witness statements, expert reports, and the supporting documents/exhibits and legal authorities.

In response to the claimant’s opening memorial, the respondent may decide to raise only objections to the tribunal’s jurisdiction and to reserve its opportunity to respond to the claimant’s claims on the merits for a later date. As discussed in more detail in Chapter 20, in such a case, the tribunal has two options: (i) bifurcate the proceedings and hold a separate jurisdictional phase while suspending the merits of the case; or (ii) review the jurisdictional objections in conjunction with the substantive claims. Although option (i) will likely extend the arbitration proceedings by at least six months (during which time the parties will exchange memorials on jurisdiction, a jurisdictional hearing will be held, and the tribunal will issue an award on jurisdiction before the dispute on the merits could be heard), option (ii) would more likely only prolong the arbitration by a few months (as opposed to jurisdiction not being raised).

In addition, those options also involve a potentially significant cost issue. If the tribunal bifurcates the proceedings, and finds under option (i) that it does not have jurisdiction, the cost of the arbitration will be reduced, because there will not be a need for any proceedings on the substantive claims and defences. On the other hand, if the tribunal chooses option (ii) and does not bifurcate the arbitration, the costs of the arbitration will likely be substantially increased if the tribunal finds that it does not have jurisdiction after having heard both the substantive and jurisdictional claims and defences. Bifurcation may, therefore, be more advantageous only when genuine jurisdictional issues have been raised. For more discussion regarding bifurcation, please see Chapter 20.

3. There will be a period for document exchange between or among the parties. This document exchange period will often come after the claimant has filed its opening memorial and the respondent has filed its counter-memorial, but the occurrence of this milestone will depend on the parties’ positions and the procedural posture of the case. This period will usually last between three and nine months. The document exchange period should provide sufficient time for each party to (a) prepare and serve document requests on the other side, (b) collect documents in response to the other side’s document requests, (c) “meet and confer” with opposing counsel on the appropriate scope of the parties’ document requests, (d) present any disputes regarding documents to the tribunal, (e) receive a ruling from the tribunal on any document disputes, and (f) collect and make any supplemental production of documents based on the tribunal’s rulings on document requests. Document production is discussed in more detail in Chapter 21.

4. Within three months from the filing of respondent’s counter-memorial or following the close of the document exchange period, the claimant will submit its reply memorial. The reply memorial will include admissions or denials of the facts stated in respondent’s counter-memorial, any additional facts, observations concerning the legal arguments in respondent’s counter-memorial, a response to the respondent’s counterclaims (if any), as well as accompanying evidence in support of the reply memorial, including rebuttal witness statements and expert reports, supporting documents/exhibits and legal authorities.

5. Within three months from the filing of claimant’s reply memorial, the respondent will file its rejoinder memorial. The rejoinder memorial will contain admissions or denials of the facts stated in claimant’s reply memorial, any additional facts, observations concerning the statement of law in claimant’s reply memorial, as well as accompanying evidence including rebuttal witness statements and expert reports, supporting documents/exhibits and legal authorities.

6. Following the filing of the rejoinder (the last pleading), preparation for the hearing will begin, and a pre-hearing conference with the tribunal will be held to arrange and agree on numerous procedural and logistical issues ahead of the hearing.

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7. Subject to the availability of the parties, the tribunal, and counsel for all parties, the final oral hearing will be held within three months from the filing of the rejoinder. The hearing, depending on whether the case has been bifurcated or not, and the complexity of the case, often ranges between one to three weeks.

8. Parties usually file post-hearing submissions within three months of the close of the hearing. This post-hearing briefing is an opportunity to summarise the evidence in the record and present further and/or final arguments with particular emphasis on the evidence given by the witnesses and experts at the hearing.

9. Following the final hearing, the tribunal will deliberate and render an award, on average about one year from the last day of the final hearing.⁵

Although each investment arbitration has unique facts and milestones, the vast majority of international investment arbitrations unfold in predictable stages and pursuant to certain generally established milestones that are described in this Chapter.

Notes

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