On 16 August 2019, the International Centre for the Settlement of Investment Disputes (ICSID) published its third working paper on its proposed amendments to the ICSID Arbitration Rules. ICSID intends to submit the revised rules to member states for consultation in November 2019 and to approve the final text of the rules next year.
Since their adoption in 1967, the ICSID Arbitration Rules have been amended three times, most recently in 2006. In October 2016, ICSID opened consultation on the fourth revision of its rules, which it has described as “the most extensive review to date”. This project relates to the ICSID Arbitration Rules, Conciliation Rules and Regulations, although only the amendments to the Arbitration Rules (as also reflected in the Additional Facility Rules) are discussed below.
As well as modernising and simplifying the language of the Arbitration Rules, ICSID has made several proposals to amend their substance, including:
- Streamlining proceedings by adding provisions on early dismissal for manifest lack of legal merit and an expedited procedure.
- Codifying tribunals’ powers in relation to third-party funding disclosure and security for costs.
- Inserting new provisions on transparency and the publication of awards.
The ICSID secretariat published a first working paper and proposed text in August 2018, followed by a revised text in March 2019. The third working paper, published in August 2019, takes into account comments from member states and other stakeholders on the draft rules proposed in March 2019. It includes a new proposed text with explanatory notes on the changes to the previous version.
New developments in the proposed rules
The third working paper contains fewer changes to the draft text than in previous working papers, which ICSID attributes to a “developing consensus” on the amendments. Nevertheless, several developments in the text of the proposed rules merit further attention.
Transparency and publication of awards
The new draft maintains ICSID’s proposals to increase transparency in arbitration proceedings, while modifying some aspects.
First, it reintroduces the notion of “deemed consent” to the publication of ICSID awards and decisions on rectification, interpretation, revision and annulment. If no party objects within 60 days of the award or decision being dispatched, then the parties’ consent to publication is presumed (Rule 61).
ICSID had in fact included a similar proposal in its first working paper. However, it withdrew this in its second draft after some states queried whether this would run afoul of Article 48(5) of the ICSID Convention, which states that ICSID “shall not publish the award without the consent of the parties.” After other states spoke up in favour of an opt-out system, however, ICSID revived the proposal in the latest draft. The third working paper takes the view that deemed consent is consistent with the ICSID Convention, since any objection by any party will prevent the publication of an award. ICSID may still publish excerpts of awards.
Second, the current draft retains ICSID’s proposals on publication of orders, decisions and filings (Rules 62-63). Unlike awards, party consent is not required for the publication of these documents. However, the third working paper strengthens protection for the parties by adding a requirement that “the Tribunal shall ensure that publication does not disclose any confidential or protected information.” It goes on to define “confidential or protected information” to include, among others, information protected under applicable law, confidential business information or information which would prejudice the essential security interests of the state (Rule 65). In the event of disagreement between the parties, the tribunal will decide on any redactions.
Third, previous drafts had provided that hearings should take place in public unless one party objects. The third working paper removes parties’ veto rights by allowing the tribunal, after consulting with the parties, to decide whether hearings should be open to observers. The tribunal has a procedural duty to establish procedures to prevent the disclosure of confidential or protected information, as defined within the Arbitration Rules (Rule 64).
Third-party funding and security for costs
Previous drafts have included a requirement for parties to give written notice of any third-party funding (TPF). The latest draft clarifies that TPF includes donations and grants given for the pursuit or defence of the proceedings, as well as funds in return for remuneration (as with commercial funders) (Rule 14).
In the last round of consultations, Indonesia had suggested that security for costs should be automatic where a claimant is receiving TPF. The third working paper rejects this proposal on the grounds that it could unreasonably restrict access to ICSID arbitration, particularly for small and medium-sized enterprises. Instead, it has added a new paragraph to Rule 52 which specifically addresses the interplay between TPF and security for costs. This largely codifies ICSID practice in specifying that the tribunal may consider any TPF arrangement as relevant evidence, but that “the existence of third-party funding by itself is not sufficient to justify an order for security for costs” (Rule 52(4)).
Bifurcation and preliminary objections
A party may request bifurcation of any preliminary objections to jurisdiction. The latest draft now includes a list of factors for the tribunal to consider in determining whether bifurcation is justified. For example, as well as considering whether bifurcation could materially reduce the time and cost of the proceeding, the tribunal should also examine whether it would dispose of all or a substantial portion of the dispute, or whether the objections and the merits of the dispute are so intertwined as to make bifurcation impractical (Rule 44). These factors, which are taken from ICSID case law, are non-exhaustive.
Similar considerations apply where a party requests bifurcation of other issues, such as a request to decide on merits and quantum in separate stages (Rule 42).
As in previous drafts, the parties may agree to an expedited procedure, with accelerated deadlines and page limits for submissions. The third working paper now clarifies the situation where one party subsequently changes its mind and wishes to opt out of expedited arbitration. In this case, the tribunal will decide whether the arbitration should remain expedited, taking into account the complexity of the issues, the stage of the proceedings and all other relevant circumstances (Rule 85).
Declarations of independence for tribunal-appointed experts
Another innovation is the new requirement for tribunal-appointed experts to sign a declaration of independence and impartiality (Rule 39). The proposed wording of the form requires that the expert disclose any potential conflict, including any relationships in the past five years with the participants in the arbitration, as well as any investor-state cases in which he or she is currently involved.
ICSID explains in its commentary that it rejected suggestions to extend the same requirement to party-appointed experts. Independence and disclosure obligations for party-appointed experts may nevertheless be governed by “soft law”, such as the IBA Rules on the Taking of Evidence, and rules of professional conduct.
Indeed, it is worth noting that ICSID declined to adopt several comments on the previous version of the rules. In particular, some commentators urged ICSID to remove the automatic suspension of proceedings whenever an arbitrator is challenged, a proposal included in ICSID’s initial draft but later dropped. The ICSID secretariat decided not to reintroduce the proposal, arguing that it could give rise to complications and legitimacy concerns if it allowed the challenged arbitrator to continue participating in the proceedings.
ICSID will hold an in-person consultation on the third working paper with member states from 11 to 15 November 2019. It intends this to be the “final, or at least penultimate” consultation on the rule amendments.
Due to slippage in the timeframe, it will no longer be possible to approve the final text of the Arbitration Rules this autumn, as the ICSID secretariat had previously envisaged. ICSID now intends to submit the rule amendments for approval at the next meeting of the ICSID Administrative Council, currently scheduled for October 2020.