REUTERS | Gary Cameron

ICSID arbitration in the age of populism: the case for reform

On 12 November 2019, Quadrant Chambers held its biannual international arbitration seminar. The topic for discussion and debate was “ICSID arbitration in the age of populism: the case for reform”. The panel event was chaired by Ruth Hosking of Quadrant Chambers and the speakers were Emma Johnson, partner at Ashurst; Guy Blackwood QC of Quadrant Chambers and Timothy Foden, partner at Lalive.

The debate

First, Emma Johnson considered investor-state dispute settlement (ISDS) criticisms and why they matter. She began by considering the range and breadth of those criticising the system and noted that it included Hillary Clinton (“a fundamentally anti-democratic process”); Jean Claude-Junker (“secret courts”); Karl Heinz Böckstiegel (“hotel room justice”) and Oxfam (“unfair rules [which] threaten any prospect for the implementation of sustainable development goals”). She noted that considering whether the criticisms stack up was particularly timely given the array of multinational treaties currently under negotiation, and particularly for the UK which would have to give careful consideration to its position should Brexit happen. She considered the often repeated criticisms levelled at the system, namely:

  • The significant costs involved (and the perceived imbalance between investor/state).
  • The fetter on states’ ability to regulate.
  • A lack of transparency.

When considering whether the latter criticism was warranted, Emma noted that the UNCITRAL Transparency Rules had not assisted as only 15 out of 325 cases since 2014 have adopted the Rules (given they only apply to post 2014 treaties and with parties, often including state parties, having chosen to opt out of them). She noted, however, that significant reform is under way, aimed at addressing some, if not all, of these criticisms, and that state practice in terms of recent treaty amendments demonstrates that ISDS is not dead.

Guy Blackwood QC then focused on the proposed ICSID reforms in relation to expedition and expense. He started by considering some statistics (taken from Allen & Overy and ICSID), including that the average period from notice of arbitration to an award is four years; the average costs for the claimant exceed US $6 million and US $4.8 million for the respondent. Guy then addressed the length of tribunal deliberation, noting that for proceedings which dealt with jurisdiction and the merits the average tribunal deliberation was 414 days.

In light of the delay and expense, Guy considered two different routes set out in the reforms. First, he considered the expedited arbitration proceedings. In relation to the proposed amendment currently known as Rule 74 (Consent of parties to expedited arbitration), he noted that it was an opt in procedure and asked, rhetorically, “how realistic is it that states will ever agree to expedited arbitration?”. He considered that the progress of the expedited procedure was sensible, with page limits on memorials and counter-memorials as well as provision for awards to be rendered no later than 120 days, with a possible grace period of 30 days (proposed Rule 81).

Secondly, he considered the proposals for the ordinary ICSID procedure going forward. He noted the tribunal’s duty to conduct the arbitration in an expeditious and cost-effective proceeding (proposed Rule 31), as well as the time limits for rendering an award (proposed Rules 41, 44 and 57). Whilst Guy thought the majority of the proposed reforms to be sensible, he considered that the proposed rule changes failed to include:

  • A page limit for all cases save where the tribunal expressly permits longer submissions.
  • Sanctions for unmeritorious challenges to arbitrators.

Timothy Foden was the last speaker. He considered the premise of the topic to be wrong. He challenged the received wisdom that “reform” is necessary, challenging anyone to show him actual abuse of the investment treaty system which had not been ultimately self-regulated. He noted that many of the states that created the system are now those who seek to reform the system.

The system was created for three purposes, namely:

  • To increase investment flows into the developing world.
  • Protect investors from the developed world against state abuses typically committed by populist governments in developing states.
  • To inculcate norms of behaviour in states transitioning to the free market, replete with a disciplinary mechanism for when they transgressed those norms.

With those goals in mind, delegates from some 86 states held meetings throughout the world to debate a draft ICSID Convention from 1963 to 1964. The competing interests (of capital importing states wanting further investment and capital exporting states wanting to protect their companies) resulted in a system of compromises looking to provide protections to both investors and host states. In his view, the system does not need reform and where there are areas of legitimate complaint (for example, gender disparity on panels) those issues will not be remedied by the proposed reforms.

The discussion was then opened to the floor. The debate was lively and participants gave a range of views on the perceived weaknesses in the system and whether the proposed reforms were necessary or helpful. Insofar as there was a general consensus on anything, it was that this is an area of law to watch in the future and one which is impacted by political as well as legal considerations.

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