Author: McDermott Will & Emery
On July 1, 2022, the amended Regulations and Rules of the International Centre for Settlement of Investment Disputes (ICSID) (the 2022 Rules) came into effect after being approved by the Member States on March 21, 2022. As expressed by David Malpass, Chair of the ICSID Administrative Council, these amendments are aimed at “streamlining procedures to enable greater access and speed, increasing transparency, and enhancing disclosures.”
The amendment of the ICSID Rules is the result of years of work and delicate compromises between the Member States to increase transparency and efficiency in the proceedings. In the coming months, ICSID has foreshadowed that it will publish a user’s guide to assist in the practical application of the new Rules.
Major changes include provisions in the areas of transparency, efficiency and provisional measures, costs, challenges to arbitrators and access to arbitration.
A. TRANSPARENCY
Third-Party Funding
Third-Party Funding (TPF) has long been highly debated in ICSID proceedings and has received substantial scrutiny. The Rules now directly address disclosure obligations regarding TPF in ICSID proceedings through a measured and nuanced approach. Overall, the new Rules mandate greater disclosure of the involvement of TPF.
Under new Rule 14, the party having recourse to a third-party funder is required to file a written notice disclosing the name and address of any funders. Further, if the funder is a juridical person, the notice shall “include the names of the persons and entities that own and control that juridical person.” This notice is to be filed with the Secretary-General “upon registration of the Request for arbitration, or immediately upon concluding a third-party funding arrangement after registration.”
While the new rules do not go as far as the rules of some other arbitral institutions in requiring providing access to the content of the funding agreement, they do interpret TPF broadly. Funders are defined under Rule 14 as “any non-party from which the party, directly or indirectly, has received funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding.” This definition then covers agreements that are not-for-profit, such as the one between Uruguay and the Bloomberg Foundation in Philip Morris. Arguably, success fee arrangements with the law firm representing a party might qualify under this definition. Tribunals are also empowered to require further disclosure on the TPF agreement if they deem it necessary.
Publication, Access to Proceedings and Non-Disputing Party Submissions
A completely new chapter in the amended Rules covers “Publication, Access to Proceedings and Non-Disputing Party Submissions,” responding to what some have termed the legitimacy crisis of Investor-State Dispute Settlement (ISDS) with enhanced transparency.
Under new Rule 62(3), the consent to publish the award is deemed to have been given when no party objects in writing to the publication within 60 days of the award being rendered.
Under new Rule 65, open hearings are favoured as the Tribunal “shall allow persons in addition to the parties, their representatives, witnesses and experts during their testimony, and persons assisting the Tribunal, to observe hearings, unless either party objects.” However, it is the responsibility of the tribunal to “establish procedures to prevent the disclosure of confidential or protected information.” Some of the mechanisms ICSID has used in past years where access was granted to protect confidentiality is, for example, setting up a separate viewing room to which only those individuals of the public who had preregistered are admitted, sometimes without being permitted to bring in electronic devices such as phones, computers and the like.
B. EFFICIENCY AND PROVISIONAL MEASURES
Time and efficiency are of the essence in arbitration proceedings, and the new Rules introduce new procedures to this end. While most of those procedures were already adopted by Tribunals before the amendment, they are now codified. Overall, various strict timelines have been introduced at all stages of the proceedings. However, contrary to what was originally proposed, the final new Rules require Tribunals only to use their “best efforts” to meet these timelines. Additional new provisions relating to efficiency and provisional measures include:
Bifurcation: Under the new Rules, Tribunals can bifurcate proceedings on their own initiative. In doing so, Tribunals should consider whether: “(a) bifurcation would materially reduce the time and cost of the proceeding; (b) determination of the questions to be bifurcated would dispose of all or a substantial portion of the dispute; and (c) the questions to be addressed in separate phases of the proceeding are so intertwined as to make bifurcation impractical.
Consolidation and Coordination: As is now typical under most arbitration rules, parties in ICSID arbitrations may “agree to consolidate or coordinate” arbitrations where they are both parties. Under new Rule 46(1), this ability is subject to the parties’ consent.
Expedited Arbitration: Under new Rule 75(1), parties may agree to expedited arbitration and subject the proceedings to shorter timelines. Expedited arbitrations also limit the length of submissions.
Provisional Measures: The new Rules also clarify the ability of Tribunals to grant provisional measures. Particularly, new Rule 47(1) empowers tribunals to grant provisional measures to “prevent action that is likely to cause current or imminent harm to that party or prejudice to the arbitral process,” “maintain or restore the status quo pending determination of the dispute” and “preserve evidence that may be relevant to the resolution of the dispute.”
C. COSTS
The new Rules contain a chapter on costs, which notably provides under new Rule 52(4) that “all decisions on costs [be] reasoned and form part of the Award.” Two modifications are particularly noteworthy.
First, Tribunals have the authority to order security for costs and should consider the following in doing so: the party’s (a) ability and (b) willingness to comply with an adverse decision on costs; (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. Contrary to the position of some scholars and arbitrators, the fact that a party had recourse to TPF is not a determinative factor.
Second, the new Rules establish a list of factors that a Tribunal may consider at the cost-allocation stage. While Tribunals’ authority on cost decisions is particularly broad, they are to consider “all relevant circumstances.” The new Rules further state that they should consider in particular: (a) the outcome of the proceeding or any part of it; (b) the conduct of the parties during the proceeding, including the extent to which they acted in an expeditious and cost-effective manner and complied with these Rules, orders and decisions of the Tribunal; (c) the complexity of the issues; and (d) the reasonableness of the costs claimed.
Finally, under new Rule 52(2), the Tribunal is not bound by the “cost-follow-the-event” principle, as it can “determine [] that there are special circumstances justifying a different allocation of costs.”
D. ARBITRATORS
Challenges to arbitrators have been streamlined under the new Rules. Under new Rules 22 and 23, parties wishing to challenge an arbitrator must be vigilant about respecting the new time limits imposed, under the 2006 ICSID Rules the parties could propose the disqualification of an arbitrator at any time before the proceeding was declared closed (Rule 9). Parties must file their proposal for disqualification of an arbitrator after the constitution of the Tribunal and within 21 days after the later of the following: the constitution of the Tribunal or the date on which the party proposing the disqualification first knew or first should have known of the facts on which the proposal is based. The other party should subsequently file its response and supporting documents within 21 days after the receipt of the proposal for disqualification. Under Rule 23(3), the rest of the tribunal shall use its “best efforts” to decide on the proposals within 30 days after the receipt of the final written submissions from the parties.
E. ACCESS TO ARBITRATION
The new Rules notably relax the jurisdictional requirements of the Additional Facility (AF) Rules. Under new AF Rule 2(1)(a), the rules now also apply to disputes between States and nationals of another State even where both of those States are not Members of the ICSID Convention. Under new AF Rule 2(1)(c), regional economic integration organizations, such as the European Union, or the Association of Southeast Asian Nations, can also access ICSID jurisdiction under the AF Rules.
