On 15 March 2019, following public consultations with states and stakeholders, ICSID released its second draft working paper of its proposed amendments to its body of rules. In the "most comprehensive" exercise at amending its rules in ICSID's history (the last one being over 13 years ago) the proposed amendments cover – amongst others – provisions on transparency, third-party funding, arbitrator challenges, expedited proceedings and provisional measures, with the overall aim of reducing time and costs, and to address certain criticisms of the system of investor state dispute settlement ("ISDS"). On 28 June 2019, ICSID released a second compendium of comments from States and the public on proposed amendments to its procedural rules. The compendium consolidates feedback received from 21 States, organisations and individuals on the second working paper.
We previously covered the topics which ICSID would consider in its review of its rules. In this post, we will consider some of the main proposed changes to ICSID's body of rules, with our focus mainly on its arbitration rules and also consider the comments made by States in response to those proposals.
Refreshing the language
The proposed amendments see the rules fully redrafted with a view to using plain, modern, gender-neutral language, and restructured to be more user friendly. Inconsistences in the English, French and Spanish-language versions of the rules have been addressed with a view to ensuring that the rules read the same across all three languages.
The new draft proposal allows parties the option to opt in to an expedited arbitration process at any time by mutual agreement, which ICSID says "would reduce the length of proceedings by half". Parties will also be able to agree to opt out of the expedited process at any time.
Heightened transparency and non-disputing party participation
Last year, ICSID proposed that consent to publish ICSID Convention awards and decisions on annulment would be presumed "if no party objects in writing to such publication within 60 days after the date of dispatch of the document". Several states objected, finding such 'deemed consent' inconsistent with the Convention's stipulation that ICSID may only publish these categories of rulings with the consent of both parties.
ICSID has since retreated from this proposal by removing the proposed provision for 'deemed consent'. Instead, parties "may consent to publication of the full text or a redacted text" of such rulings. Nevertheless, even if parties do not consent, ICSID retains its residual (but well established) power to publish "excerpts of the legal reasoning" of such otherwise unpublished awards/annulment decisions.
ICSID initially proposed express wording to allow tribunals to require non-disputing parties to pay the increased arbitral costs associated with their participation in a case. However, it has since withdrawn this proposal, citing stakeholder feedback which praised the potential utility of such interventions, and the possible deterrent effect the rule may have against such participation. However, it can be assumed that the Tribunal retains the discretion to order a non-disputing party to pay costs.
Some relatively minor but meaningful measures aimed at increasing efficiency have been proposed, including:
- New time limits and deadlines to expedite cases.
- Electronic filings unless there are special reasons to maintain paper filing.
- At least one case management conference to ensure efficiency in the proceedings.
- Under a new rule, Tribunals are now required to consider whether bifurcation "could materially reduce the time and cost of the proceeding".
Detailed test of proportionality for provisional measures
In its first working paper, ICSID proposed to revise the rule governing provisional measures, setting out various illustrative rationales, and requiring the applying party to demonstrate that such provisional measures are "urgent and necessary". In response to further feedback, ICSID now proposes to add a balancing test in the form of a requirement of 'proportionality'; a test routinely employed by many ICSID tribunals. With this proposal, tribunals are required to consider the effect any provisional measure sought would have on each party.
In its commentary to the updated working paper, ICSID stated that tribunals retain the discretion to consider other requirements that appear relevant in a given context, such as the 'irreparable harm' test insisted on by some states. However, ICSID declined to go so far as to expressly lay out this test or other tests as a criterion for ordering provisional measures.
Expanded rule on security for costs
In response to growing demands amongst states for means to hold unsuccessful claimant-investors liable for unpaid costs awards, ICSID last year proposed a new standalone rule to address requests for security for costs. In this proposed rule, tribunals seised of a request for security for costs are required to consider:
- the party's ability and willingness to comply with an adverse decision on costs;
- the effect providing security for costs may have on the party's ability to pursue its claim or counterclaim;
- the conduct of the parties; and
- all other relevant circumstances.
However, ICSID has declined calls by some commentators to clarify the standard of proof for an order of security for costs. Instead, that question is left for tribunals to decide according to the circumstances of each specific case.
The revised proposals clarify that it is not only claimant-investors that may be ordered to provide security for costs, but rather a party making a claim or counterclaim. This could potentially give rise to requests that states post security in relation to counterclaims brought against the claimant-investor in that case.
ICSID has resisted suggestions to include an express reference to third-party funding in the context of the security for costs rule, stating that most cases do not involve such funding. Nevertheless, the proposed guidance indicates in principle that parties may raise this as a factor in any request for security for costs.
Framework for the disclosure of third party funding
A requirement that parties disclose whether they have third-party funding and identify its source – which was proposed in the first working paper – has now been amended to accommodate the various forms that funding can take. Under the rule, parties will be required to file a written notice "disclosing the name of any non-party from which the party, its affiliate or its representative has received funds or equivalent support for the pursuit or defence of the proceeding". This requirement for disclosure is framed as a tool for guarding against arbitrator conflicts of interest, as opposed to a means to address any wider issues related to third party funding in investor-state disputes.
ICSID continues to resist calls made by some states to regulate such funding either through an outright ban (as advocated by Argentina, amongst others), or by imposing further requirements for funded cases.
Challenge to arbitral tribunal
The time limit for a response to a proposal to disqualify an arbitrator has been increased from one week to three weeks. A proposal in the first working paper, that proceedings should continue while a challenge to an arbitrator is pending, has been dropped in the second draft. Currently, it is proposed that proceedings should automatically be suspended when a challenge is filed, unless the parties agree no suspension is necessary.
Expanded access to the Additional Facility Rules
ICSID proposes that under the ICSID Additional Facility Rules, regional economic integration organisations ("REIO") can be party to such proceedings. This proposal reflects the fact that states increasingly negotiate international investment agreements as regional entities, and sign them in the name of an REIO, such as the EU and ASEAN. The proposal also notes that the inclusion of REIOs means that the definition of a "national of another State" must be revised to include persons that are nationals of any constituent state of an REIO party to the dispute.
ICSID also proposes extending the availability of Additional Facility arbitration (and conciliation) to cases where both the claimant and the respondent are not ICSID Contracting States or nationals of a Contracting State.
Dedicated mediation rules and increased accessibility to conciliation and fact finding rules
ICSID proposes an entirely new set of rules on mediation, in response to requests by States and investors that ICSID provide greater mediation capacity. This is also in line with ICSID's objective to provide parties with a comprehensive suite of dispute resolution processes.
The second working paper separates the ICSID fact-finding rules and its mediation rules from the Additional Facility Rules. This is intended to avoid any confusion as to their availability in parallel with other proceedings. The use of the fact-finding and mediation rules is by consent of the parties and is not reliant on any other type of jurisdiction.
ICSID also proposes that the rules for conciliation be amended significantly, with the aim of promoting flexibility into the process, as well as a complete revision of the rules for fact-finding to be simpler, and more user-friendly and cost-effective.
The second working paper was discussed at a meeting of State experts in Washington, DC from 2-9 April 2019.
ICSID aims to prepare a further update to the draft text of the rules ahead of a third consultation meeting with ICSID Member States in November 2019. This exercise signals ICSID's increased public engagement in its Rules Amendment Process. Amendments to the ICSID rules require the approval of two-thirds of ICSID Member States.
The full and consolidated text of the Proposals for Amendment of the ICSID Rules and its comparison against the existing rules, both in English, French and Spanish, are available here and here. The second compendium of State and public comments are available here, which includes links to the full submission of the commenting party.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.