What is ICSID?
Established in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), the International Centre for Settlement of Investment Disputes (“ICSID“) is the world’s leading institution for international investment dispute settlements. The ICSID Convention is a multilateral treaty formulated by the Executive Directors of the World Bank to further the World Bank’s objective of promoting international investment.
ICSID is designed to consider the special characteristics of international investment disputes and the parties involved, and provides the institutional facility and procedural rules for independent conciliation commissions and arbitral tribunals constituted in each case.
According to 2019 ICSID Annual Report, in the 2019 fiscal year:
- 52 new cases registered, 47 of them were arbitrations instituted under the ICSID Convention whereas 4 of them were the arbitrations invoking the Additional Facility Rules and 1 of them was the conciliation under the ICSID Convention;
- 59 proceedings concluded; and
- 306 cases administered.
In overall, ICSID has administered 728 cases under the ICSID Convention and Additional Facility Rules since the first case was registered in 1972. According to the latest statistics, 25% of newly registered cases involved States in Eastern Europe and Central Asia, followed by 21% in South America, 17% in the Middle East and North Africa, 11% in Sub Saharan Africa, 10% in Western Europe, 8% in the Central America and Caribbean region, 6% in South and East Asia and the Pacific region, and 2% in North America. Only one case registered from Turkey in 2019.
The economic sectors involved in ICSID proceedings are diverse, however, the oil, gas and mining, and electric power and energy sectors have accounted for the largest share of cases whereas the agriculture, fishing and forestry, and water, sanitation and flood protection have accounted for the smallest share of cases.
In October 2016, ICSID started the process to amend its rules by conducting an initial survey of stakeholders on the topics subject to amendment. This is the fourth and most comprehensive review of the rules to date. After almost two years, the ICSID published its set of proposed changes to modernize and streamline its rules for resolving disputes between foreign investors and states. The proposed amendments concern arbitration and conciliation under the ICSID Convention and ICSID Additional Facility Rules, as well as new stand-alone rules for fact-finding and mediation in investment disputes.
Until today, three working papers were published on August 2018 (Working Paper #1), March 2019 (Working Paper #2) and August 2019 (Working Paper #3), respectively. These working papers explain the basis for the proposed changes and suggest a potential new wording or potential structure of amendments.
The ICSID’s overarching goals are to modernize, simplify, and streamline its rules while also leveraging information technology to reduce the environmental footprint of ICSID proceedings. In amending the current rules, the ICSID aims to ultimately make the procedure less paper-intensive by using technology for the digital transmission of documents and case procedures. In addition, the amendments are aimed at making the process increasingly time and cost effective while maintaining due process and the balance between investors and States. The amendment process draws on the lessons learned from hundreds of ICSID cases.
Current Proposed Amendments
In the Working Paper #3, ICSID has continued to address ongoing concerns about the lack of transparency in the investor-state disputes and proposed amendments to the rules in this regard. Introduction of open hearings and the publication of the full text of the awards upon parties’ approval are the most significant amendments for the time being.
- Open Hearings: The arbitral tribunal will allow open hearings after consulting with the parties and will establish procedures to prevent the disclosure of any confidential or protected information to persons observing the hearings to preserve confidential information. ICSID will publish parts of recordings and hearing transcripts for public observation unless either party objects.
- Publication of Awards: Full texts of the awards rendered under the rules of the ICSID will be published if no party objects in writing within 60 days after the dispatch of the document. Orders and decisions will be published upon parties’ agreement on redactions of the orders and decisions within 60 days following the issuance of the respective order or decision.
Security for costs and third party funding
ICSID has agreed to include an express reference to third party funding as a factor that may affect tribunals’ decisions on whether or not to issue any order for security for costs. The proposed amendments require parties to disclose any third-party funding.
- Disclosing Third-Party Funding: The proposed rules introduce an obligation on the parties to disclose whether they benefit from the third-party funding, and if so, the source of the funding. This disclosure obligation applies throughout the proceeding. The name of the involved funder will be provided to potential arbitrators prior to appointment to avoid inadvertent conflicts of interest. In the Working Paper #3, the definition of third-party funding has been revised so as to include “a donation or grant, or the provision of funds in return for remuneration dependent on the outcome of the dispute.”
- New Rule on Security for Costs: A new, stand-alone rule would allow a tribunal to order security for costs. The rule states that the tribunal must consider the relevant party’s ability to comply with an adverse decision on costs and any other relevant circumstances. The proposed amendments in Working Paper #3 include a reference to third-party funding and state that a tribunal may consider third-party funding as evidence relating to a circumstance required to obtain an order for a security listed in AR 52(3), but the existence of third-party funding by itself is insufficient to justify an order for security for costs. ICSID believes that this amendment is consistent with current case law.
As investor-state disputes can be considerably lengthy, the proposed amendments encourage timely proceedings from beginning to end.
- Initial Procedures: An express rule allowing bifurcation is proposed. A request for the bifurcation of preliminary objections would need to be made within 45 days of the memorial on the merits or ancillary claim. Preliminary objections must be filed as soon as possible; if the objection relates to the main claim, it must be filed at the latest on the date for filing the counter-memorial. The Working Paper #3 set forth that when determining whether to bifurcate, the arbitral tribunal should consider whether (i) bifurcation would materially reduce the time and cost of the proceeding; and (ii) the preliminary objection and the merits are so intertwined as to make bifurcation impractical.
- Disqualification of Arbitrators: The process for challenging arbitrators has been revised, including the introduction of an expedited schedule for parties filing a challenge. An enhanced declaration of independence and impartiality is also proposed for arbitrators. ICSID is currently working with the UNCITRAL Secretariat on a Code of Conduct for Arbitrators which will ensure a consistent Code of Conduct across all the major sets of rules and can be incorporated into the ICSID declarations made by arbitrators at the beginning of a case.
- Timing of Awards: Awards must be rendered as soon as possible and in any event no later than (i) 60 days after the latest of (a) the Tribunal constitution, or (b) the last written submission or (c) the last oral submission to an application for manifest lack of legal merit; (ii) 180 days after later of the last written or last oral submission to a preliminary objection; and (iii) 240 days after later of the last written or submission to all other matters.
- Expedited Proceedings: Parties may opt to use newly drafted rules for expedited proceedings featuring additional and shortened timelines.
Representatives of ICSID Member States convened in Washington, D.C. from November 11 to 15, 2019, for a third consultation on the amendments to the ICSID rules for resolving international investment disputes. ICSID continues to fine-tune the proposals and as a next step, the ICSID Secretariat will prepare a fourth working paper that addresses the comments received during the consultation meeting and in writing, which proves that there is still time for ICSID to promulgate these revisions that will enhance ICSID proceedings.