On 28 February 2020, ICSID released its fourth working paper on the amendment of its rules for investor-state proceedings. This forms part of the most extensive review of ICSID’s rules since their adoption in 1967 (the Additional Facility Rules were adopted in 1978). ICSID describes the overarching goals of the present review as “to modernize, simplify, and streamline the rules, while also leveraging information technology to reduce the environmental footprint of ICSID proceedings.” One of the focal points of the proposed amendments has been an increase in the transparency of ICSID proceedings, and the fourth working paper undoubtedly continues that theme.
In my experience, these are important issues to both investors and states, although usually for contrasting reasons. Investors will often wish for the details of their disputes to remain confidential, particularly where those details may encroach on information that is confidential or sensitive to their business. States, meanwhile, have generally been more in favour of openness and publication.
In this post, I have summarised some of the key proposed changes that would increase transparency, and reflect on what this might mean for future disputes.
Corporate structure
The revised Institution Rule 3 recommends that certain information should be submitted with the request for arbitration. It is proposed that this will be amended to include “the names of the persons and entities that own or control a requesting party which is a juridical person.” The stated justification for this amendment is to assist the parties and any appointing authorities in (among other things) identifying tribunal candidates who are free from conflicts of interest. However, I anticipate that disclosure of this information may well give respondent states fuel for jurisdictional objections, focusing on the status of the claimant as a protected investor under the ICSID Convention or the relevant bilateral investment treaty.
Disclosure of third party funders
ICSID arbitrations have increasingly become attractive investments to litigation funders, particularly given the potentially high-value awards rendered. In response to this increase in the use of third party funding, under the proposed amendments to the rules, parties will have to disclose the details of third party funders (revised Arbitration Rule 14). The fourth working paper adds a requirement that any such disclosure must include details of both direct and indirect funders. This broadens the disclosure requirements and will likely capture, for example, certain types of fee arrangements entered into between law firms and the parties (whether investors or states) relating to the dispute. Balancing these disclosure obligations with maintaining the parties’ rights of legal privilege may prove a challenge.
In consultation, some states requested more comprehensive disclosure of third party funding arrangements. Although that has not been included, the fourth working paper adds a new paragraph (5) to revised Arbitration Rule 14. That new paragraph allows the tribunal to order disclosure of further information regarding the funding arrangement “if it deems it necessary at any stage of the proceeding.”
Again, the stated justification for these changes is to try to avoid conflicts of interest. However, it is certainly possible that this will cause potential funders to think twice about investing in an ICSID arbitration, particularly if the nature of the funding arrangement is at risk of being made public as part of the push towards publication of submissions and awards (see below). Whether or not funders will continue to see the value of an award as outweighing the risks associated with disclosure of their funding arrangements is a very interesting question.
The disclosure of third party funding also affects the Arbitration Rules relating to security for costs. Revised Arbitration Rule 53(4) in the fourth working paper encourages tribunals to consider, as part of the analysis of whether or not to grant security for costs, any third party funding arrangement. Indeed, the proposed new wording mandates that the tribunal “shall” consider all circumstances relevant to the granting of security for costs. That could include third party funding, as revised Arbitration Rule 53(4) expressly states. However, revised Arbitration Rule 53(4) also provides that evidence of third party funding “is not by itself sufficient to justify an order for security for costs.” Even so, I expect that respondent states will rely very heavily on evidence of third party funding in pursuit of security for costs applications.
Publication of decisions and documents filed in the arbitration
The proposed revisions to the Arbitration Rules (unchanged by the fourth working paper) make provision for publication of orders and decisions (revised Arbitration Rule 63). That publication is subject to the parties’ rights to retain protection over any confidential information, as defined in revised Arbitration Rule 66.
Revised Arbitration Rule 64 in the fourth working paper retains the new provision for publication of documents filed in the arbitration. However, an important change set out in the fourth working paper is that parties must now consent to publication of the documents and agree on any redactions (revised Arbitration Rule 64(1)). Disputes regarding the redaction of submissions can be referred to the tribunal. The tribunal would decide on any disputed redactions to the document and the centre would publish it in accordance with the tribunal’s decision. However, supporting documents appended to submissions (including witness statements and exhibits) will only be published with the parties’ consent. Disputes regarding redaction of such supporting materials must be resolved by the parties.
In practice, this should lead to broader publication of the parties’ pleadings, which will allow for a deeper analysis of the issues that are the subject of tribunal’s decisions. However, I doubt that we will see widespread publication of supporting materials attached to parties’ written submissions, not least because of the confidentiality issues that such publication would raise.
Observance of hearings
Another open justice amendment retained by the fourth working paper is that non-parties to arbitrations will be able to observe hearings (revised Arbitration Rule 65). The fourth working paper changes the emphasis slightly: as opposed to the tribunal determining whether or not to allow such non-parties to observe, the non-parties shall be entitled to do so “unless either party objects.”
There will undoubtedly be disputes where the parties will object. But even if they do not, I am curious to see how tribunals will address revised Arbitration Rule 65(2), which requires the tribunal to “establish procedures to prevent the disclosure of confidential or protected information as defined in Rule 66 to persons observing the hearings.” I have experience of such restrictions, where certain party representatives have not been allowed to be present for parts of the hearing. This means that they have to leave the hearing room, or be cut from the video feed (if the hearing is being viewed in that way). These procedures can be quite disruptive if not managed properly, and parties and tribunals will need to be prepared to accommodate more of this kind of interruption.
