The International Centre for Settlement of Investment Disputes (“ICSID“) amended its arbitration (“Arbitration Rules“) and conciliation rules and established new standalone rules on mediation and fact-finding (together, “Rules“). The comprehensive amendments are the result of a five-year long process. The amendments to the Rules were approved by the majority of the ICSID member states on 21 March 2022 and will enter into force on 1 July 2022. The main purpose of the amendments is to make the Rules more accessible by modernizing and streamlining them, increasing the time and cost efficiency and reducing the environmental footprint of proceedings through the use of technology, as well as providing greater transparency. David Malpass, who is the President of the World Bank Group and the Chair of the ICSID Administrative Council, expressed the aim of the amendments as follows:
“The amended rules streamline procedures to enable greater access and speed, increase transparency, and enhance disclosures, with the ultimate goal of facilitating foreign investment for economic growth.”
Amendments to the Rules
This is the fourth and the most comprehensive amendment to the Rules in ICSID’s history. The most significant amendments can be categorized as amendments regarding: (i) the efficiency of proceedings; (ii) third-party funding; (iii) costs; (iv) constitution of the arbitral tribunal and disqualification of arbitrators; (v) transparency; (vi) provisional measures; and (vii) enabling broader access to the ICSID Additional Facility Rules.
Amendments Aimed at Increasing the Efficiency of the Proceedings
One of the main goals of the amendments was increasing the efficiency of the proceedings and there are multiple amendments serving this goal from different angles, some through amending existing rules whereas others bring entirely new provisions.
- First, Rule 4 of the Arbitration Rules is an amendment on the method of filing. Accordingly, in contrast to the previous practice of physical submissions, the filings must be made electronically unless there are special circumstances requiring a different form of filing. This amendment is in line with the green arbitration trend and provides for more time and cost-efficient filings.
- Second, Rule 2 of ICSID Institution Rules stipulates that the request for arbitration will provide a description of the investment and its ownership and control, which was not previously required. Also, Rule 3 of ICSID Institution Rules lists certain recommended additional information that the parties can include in their request for arbitration to help expedite the first steps of the proceedings, such as parties’ procedural proposals or agreements; (i) on the number and method of appointment of arbitrators, (ii) the procedural language, (iii) the use of expedited arbitration and (iv) if the requesting party is a juridical person, names of persons and entities owning or controlling such juridical person.
- Additionally, Rule 31 of the Arbitration Rules stipulates that the arbitral tribunal will hold one or more case management conferences to identify uncontested facts, clarify and narrow the issues in dispute in order to conduct time and cost effective proceedings.
- Moreover, the Arbitration Rules now contain entirely new provisions on expedited arbitration, thus enabling for expedited proceedings should the parties consent to it. The expedited proceeding provisions can halve the length of the proceedings as they provide for shorter timelines and submissions. It is important to emphasize that the parties can opt out of expedited arbitration at any time as per Rule 86 of the Arbitration Rules.
- Furthermore, with Rule 42 of the Arbitration Rules, bifurcation, which already existed in practice but was not previously codified, is expressly permitted along with a list of non-exhaustive criteria (such as material reduction of time and costs of the proceedings) that should be assessed by the arbitral tribunal when deciding on bifurcation. The amendments further confirm that the arbitral tribunal has the ability to ex-officio decide on bifurcation as well; even if not demanded by the parties.
- The Arbitration Rules now enable consolidation and coordination of arbitrations as well. This amendment is in line with the arbitration rules of other preferred international institutions, such as the International Chamber of Commerce. It should be noted that, unlike bifurcation, consolidation and coordination do require the parties’ consent.
- The Arbitration Rules also provide for stricter timelines throughout the proceedings compared to the previous rules, aiming at reducing time and costs. Furthermore, there are also timelines for the arbitral tribunal to render their awards and decisions. It is not certain what effect the timelines for the arbitral tribunal’s awards and decisions will actually have, as they are not absolute timelines.
Third-party funding was one of the more controversial issues during the amendment process, due to certain member states calling for a complete ban of the practice. However, the Arbitration Rules still enable third-party funding while imposing stricter disclosure requirements.
- According to Rule 14 of the Arbitration Rules, the party utilizing third-party funding is required to disclose, in written form, the name and address of third-party funders upon registration of the request for arbitration or, if the third-party funding arrangement is made afterwards, immediately upon making such arrangement. In addition, if the funder is a juridical person, names of entities controlling the juridical person must also be disclosed. The scope of third-party funding is expansive and covers nonprofit arrangements.
- The arbitral tribunal is empowered to request further information to be disclosed, thus enabling for a comprehensive and strong protection against possible conflicts of interests.
- The amendments establish a chapter entirely dedicated to costs, which among other provisions, provides that all decisions on costs must be reasoned as per Rule 52 of the Arbitration Rules.
- Furthermore, Rule 52 of the Arbitration Rules also guides the arbitral tribunal in evaluating how to allocate costs, by providing a non-exhaustive list of criteria to be considered. It is emphasized that all relevant circumstances must be considered, including but not limited to the complexity of the case, whether the costs claimed are reasonable and the parties’ conduct in the course of the proceedings.
- Most notably, the arbitral tribunal can now rule on interim costs if such is deemed necessary and “the costs follow the event” rule does not necessarily apply, except when a claim is dismissed due to manifest lack of merit.
- Rule 53 of the Arbitration Rules is a new provision on security for costs. Accordingly, upon a party’s request, arbitral tribunals can order a party asserting a claim or counterclaim to provide security for costs. A non-exhaustive list of criteria that the arbitral tribunal can consider while evaluating whether to make such an order is also provided. It should be noted that failure to comply with the order on security for costs may initially result in the suspension of proceedings and, if the suspension proceeds for 90 days, the arbitral tribunal may order discontinuance of the proceedings after consulting the parties.
Constitution of the Arbitral Tribunal and Disqualification of Arbitrators
- Rule 15 of the Arbitration Rules provides for a method of constituting the arbitral tribunal and streamlines the process by stipulating that, if the parties cannot agree on an uneven number of arbitrators and the method of their appointment within 45 days of registration, the arbitral tribunal will consist of three arbitrators, one appointed by each party and the third, who will act as president, appointed by the parties’ agreement as per Article 37(2)(b) of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention“).
- Rules 22 and 23 of the Arbitration Rules also provide for shorter timelines for the challenge of arbitrators. Furthermore, it is clearly established that arbitrators who are not subject to the proposal for disqualification or the Chair of the ICSID Administrative Council will decide on disqualification.
- New Chapter X of the Arbitration Rules improves transparency. Rule 62 of the Arbitration Rules provides that all awards and decisions on annulment will be published, in full or redacted, with the consent of the parties. Notably, if the parties do not object to the publication of a document in writing within 60 days of its dispatch, then consent will be deemed given. It should be noted that if the parties do not consent to the publication of an entire document, the previous practice on publishing excerpts of documents continues. Furthermore, Rules 63 and 64 provide the requirements and process of publishing orders, decisions and documents filed during the proceedings.
- Rule 65 of the Arbitration Rules is an important step towards providing greater transparency and provides for a presumption in favor of open hearings, unless either party objects to it. Additionally, if the hearings will be open to third parties, the arbitral tribunal will take procedural measures to prevent the disclosure of confidential and protected information.
- Rule 67 of the Arbitration Rules provides for an extended list of non-exhaustive criteria that the arbitral tribunal will consider while permitting a non-disputing party to participate in the proceedings, which is another improvement to transparency.
- Rule 47 of the Arbitration Rules on provisional measures expressly provides that arbitral tribunals can grant provisional measures upon a party’s request or ex-officio after taking into consideration all the relevant circumstances.
Amendments to the ICSID Additional Facility Rules
Since the ICSID Convention’s scope is limited to disputes between member states and nationals of other member states, the ICSID Additional Facility Rules aim to broaden access to ICSID’s facilities and competence. With the new amendments, the scope of the ICSID Additional Facility Rules has been further expanded by (i) enabling their application to disputes where neither host state nor the investor are among member states; and (ii) enabling regional economic integration organizations, the most well-known example of which is the European Union, to access them.
The amendments to the Rules are the product of an ambitious and comprehensive project and include significant improvements, most notably aimed at reducing the time and cost of proceedings and achieving greater transparency. In time, practice will show how some of these amendments will be implemented and whether they will be successful. It is expected that ICSID will publish guidance notes on the Rules and their application in the upcoming months.