The International Centre for Settlement of Investment Disputes (ICSID) – a World Bank organization that provides facilities for the conciliation and arbitration of international investment disputes – has approved comprehensive amendments to its arbitration rules and new procedural rules for mediation and fact-finding. ICSID is the world’s busiest institution for the resolution of international investment cases, with its case tally nearing 1,000. Historically, investors in the natural resources industries used ICSID arbitration disproportionately to other sectors to recover damages suffered from adverse government measures falling afoul of standards of protection applicable under investment treaties. Recognizing the important role that ICSID arbitration plays in seeking recourse and recouping losses, and the many successes enjoyed by aggrieved investors in the natural resources industries, many other industries, including the technology and financial institutions sectors, are now turning to this forum more frequently.
After five years of consultations, last month ICSID’s member states approved the largest overhaul of its flagship arbitration rules in ICSID’s 55-year history, marking the fourth time ICSID has amended its rules and regulations to date. These rules will apply to all proceedings initiated after July 1, 2022. The changes depart significantly from the previous rules. We summarize some of the most notable changes below.
- Stricter time limits to issue decisions. ICSID awards take, on average, 13 months post-hearing to be issued, with dual-language awards taking even longer. Under the previous rules, tribunals were required to issue the award within 120 days of the closure of the proceeding. In practice, tribunals tended to wait until they were ready to issue the award before declaring the proceedings closed, which meant that the 120-day limit had little effect on controlling the time available for ICSID tribunals to render awards. In an effort to shorten proceedings, tribunals will be required to issue awards “as soon as possible” and no later than eight months after the last submission (AR 58). Shorter time limits apply to the issuance of an award upon a successful objection that a claim is manifestly without legal merit (two months) and for a dispositive preliminary objection that the tribunal agrees to hear in a separate phase (six months) (AR 58). Tribunals are required to use their “best efforts” to comply with these time limits and justify the “special circumstances” where compliance is not possible (AR 12).
- Fast-track proceedings. ICSID disputes have historically involved high-value claims, averaging US$1.2 billion in damages sought (the average damages award in those cases is US$437.5 million). On average, it costs claimants US$6.4 million in fees to bring a claim. In hopes of increasing access to ICSID arbitration, especially for natural persons and small and medium-sized companies, and to expedite the resolution of lower value or less complex disputes, the amendments include rules for expedited arbitration where the disputing parties consent to their application (AR 75-86). Whereas normally the procedural schedule will be set by the tribunal in consultation with the parties, the expedited arbitration procedure includes a default streamlined procedural calendar applicable to the proceedings and shortened deadlines for the tribunal’s issuance of awards (AR 81). ICSID expects that case times will be cut in half in expedited arbitration proceedings.
- Increased transparency. ICSID will now publish on its website awards, decisions and orders within 60 days of the rendering of any such decision, absent party objection (AR 63). Even if a party objects, ICSID will still publish the decisions with redactions to protect confidential information (AR 62). This departs from the previous rules, where a party could refuse to consent to the publication of an award or decision. These amendments respond to concerns over a lack of transparency in investor-state dispute settlement and are in line with broader efforts across the arbitration community to make information regarding these disputes available to the public.
- Required disclosure of third-party funding. Third-party funding has increased substantially in the past few years in the investor-state dispute space, which has enabled even impecunious claimants to have access to justice. The rise in third-party funding has resulted in certain concerns about conflicts of interest between an undisclosed funder and the other actors in the arbitration. In some cases, this has led to prolonged document disclosure inquiries from respondent states. Parties will now have to disclose the existence and identity of the third-party funders upon registration of the request for arbitration or immediately upon concluding a third-party funding arrangement after registration. The tribunal may order disclosure of further information regarding the funding agreement and the non-party providing funding (AR 14).
- Greater access to ICSID dispute resolution procedures. In order to access ICSID’s arbitration rules, both the investor’s home state and the respondent state must be a party to the ICSID Convention. The ICSID Additional Facility Rules were created as a stand-alone set of procedural rules to increase access to ICSID’s dispute resolution procedures where one of the investor’s home state or the respondent state was not a party to the ICSID Convention. With the new amendments, disputing parties can consent to the use of the ICSID Additional Facility rules even where neither the investor’s home state nor the respondent state is a party to the ICSID Convention (AFR 2). Additionally, dual nationals and regional economic integration organizations (REIOs) – such as the European Union – may also use the Additional Facility Rules where the disputing parties so consent (AFR 1(4)-(5)).
ICSID has also developed the first set of institutional mediation rules created specifically for investment disputes and amended its procedural rules on fact-finding, which enable parties to constitute an investigative committee to inquire into facts at issue and render an impartial evaluation. Notably, these procedures can be used as stand-alone rules or combined with ICSID arbitration.
In sum, ICSID’s new rules modernize and streamline proceedings, providing tribunals with improved case management tools to deliver faster decisions, increase transparency and lower the costs of international arbitration. We look forward to sharing practical tips once the rules are applied in practice.