ICSID Rule Amendment: An attempt to remedy some of the concerns regarding ISDS identified by UNCITRAL WG III

1. Introduction

In the midst of the ISDS crisis and the UNCITRAL Working Group III (WG III) discussions to reform the investment arbitration regime, the ICSID secretariat initiated consultations with ICSID member states and the general public to identify areas of the ICSID rules where reform would be needed. This marks the fourth rule amendment process and is the most extensive review to date.[1]

The consultation resulted in 16 areas for potential rule amendment,[2] which coincide with several concerns identified by UNCITRAL member states—notably the lack of consistency of arbitral awards, the lack of independence and impartiality of arbitrators, the lack of transparency, as well as the high costs and excessive duration of ISDS proceedings.

This article analyzes whether and how the current ICSID rule amendment process could remedy concerns identified by the UNCITRAL WG III with respect to investor–state arbitration and improve the functioning of the ISDS regime.

2. Improving consistency of ICSID arbitral awards

Although ICSID tribunals settle investment disputes on the basis of diversely worded treaty provisions, they tend to develop a homogeneous application of international investment law. However, ICSID could do significantly more to enhance the consistency of the awards issued by its numerous tribunals.[3]

Proposed Arbitration Rule 45 innovates by introducing options for voluntary consolidation of claims, subject to the parties’ consent.[4] These options include the appointment of the same arbitrators to hear otherwise separate cases, organizing joint hearings and ensuring that the awards are rendered simultaneously. The consolidation of claims tends to reduce the costs of proceedings and improve the consistency of the awards in cases where the background of the disputes is identical or similar. This novelty replicates provisions already in place for the permanent courts recently negotiated by the European Union in its agreements with Canada and with Vietnam.[5]

The first version of the working paper guiding the ICSID rule amendment process included, for consideration of member states, a provision (AR 38 bis) on mandatory consolidation ordered by a tribunal.[6] However, the provision is no longer featured in the second and third working papers, which propose voluntary consolidation only.

3. Addressing the lack of independence and impartiality of arbitrators

Without going so far as abandoning the current scheme of party appointments, the amendments attempt to improve selected provisions that could affect the arbitrators’ independence and impartiality. For example, revisions are proposed to the process of challenging arbitrators, including the introduction of an expedited schedule for parties to file a challenge, as well as an enhanced declaration of independence and impartiality.[7]

Moreover, the ICSID secretariat, together with the UNCITRAL secretariat, is working on a code of conduct for arbitrators aimed at ensuring the consistency of ethical requirements across all the major sets of rules used for ISDS.[8] Once final, this code of conduct would become an amendment to the ICSID arbitration rules. It will be crucial for ICSID to ensure that the new code of conduct will be binding on all ICSID arbitrators and annulment committee members.

Proposed Arbitration Rule 19 increases the information disclosure requirements from appointed arbitrators. The new format of the declaration requires the disclosure of significant relationships within the preceding five years between the appointee and the parties, the parties’ counsel, other members of the tribunal or third-party funders, and of any involvement of the appointee in other investor–state cases, in any capacity.[9] These provisions could prevent conflicts of interest during the selection process by providing the parties with more complete information on how to instruct a disqualification claim. However, they fall short of prohibiting “double hatting,” the controversial arbitrator–counsel dual role.

4. Promoting the transparency of proceedings

The proposed Arbitration Rule 66 aims for the greater participation of non-disputing parties (NDPs). The possibility of NDPs making written submissions has existed in the ICSID rules since 2006. The changes incorporate new provisions based on practice and experience to date and are meant to further codify how NDP participation is currently regulated, without creating mechanisms to make it easier or more effective.

Proposed Arbitration Rule 66(6) states that “the Tribunal may provide the [NDP] with access to relevant documents filed in the proceeding, unless either party objects.”[10] Even though an NDP is granted permission to file an amicus curiae submission, the tribunal may still decide not to provide it with access to the relevant documents. This significantly hinders the ability of the NDP to make a meaningful submission. ICSID’s choice to use the word “may” rather than “shall,” together with establishing criteria based on which a party is allowed to oppose an NDP submission, significantly limits the capacity of this provision to enhance the transparency of ISDS proceedings.

Moreover, parties would still be able to prevent the NDP from accessing any document that they might classify as confidential. The novelties also include additional criteria for consideration as to whether to allow written submissions from an NDP, such as the identification of its activity or any affiliation with a disputing party, and whether the NDP has received any assistance with its filing. This will allow the tribunal to better assess whether there are any relationships between the NDP and a party. However, the amended rules would continue to offer limited opportunities for effective participation of affected non-party stakeholders, despite the public interest issues often involved in ISDS proceedings.

Third-party funding is thought to exacerbate pathologies in the ISDS regime by fuelling speculative claims, as well as its asymmetric operation in favour of claimants.[11] However, proposed Arbitration Rule 14 treats third-party funding as a transparency issue; it merely imposes the obligation on the parties to inform whether they have third-party funding, the source of the funding, as well as the requirement of keeping such disclosures updated throughout the proceeding. The identity of the funder is required to be disclosed to potential arbitrators before their appointment. Even so, “whether minimal or extensive, transparency in third-party funding is insufficient to address the broader concerns identified beyond arbitrators’ conflicts of interest.”[12]

5. Reducing the costs of proceedings

Proposed Administrative and Financial Regulation (AFR) 14(1) would modify the current rule to entitle members to a fixed fee, measured only by hours of work, rather than the current method of a flat daily fee irrespective of the number of hours worked during the hearings. The new rule aims to ensure that the work performed is compensated more transparently and exactly but has no effect in reducing costs of proceedings. Moreover, proposed Arbitration Rule 3(1) states that all filings would have to be done electronically, unless the tribunal orders otherwise in special circumstances, in an attempt to make the processes faster and less expensive.[13]

Furthermore, proposed AFR 14(2) further regulates requests by tribunal members to be paid more than the ICSID fee (currently USD 3,000 per day), requiring that it must be made through the Secretary-General before the first session and must be justified. The proposed amendments could simplify the financial administration of proceedings, but the potential to make them cheaper is very low.

6. Establishing time limits to expedite cases

Current Arbitration Rule 46 deals with the preparation and timing of the award, determining that the award must be rendered within 120 days after the closure of the proceedings. However, since tribunals normally do not close the proceedings until the award is almost finalized, this provision rarely limits the time for deciding a case.[14] The latest available numbers demonstrate that the average duration of ICSID arbitration proceedings, from the registration of the case until the rendering of the award, is approximately 49 months.[15]

The proposed amendments aim at setting clearer timeframes and implement options for expedited proceedings, featuring additional and shortened timelines. Proposed Arbitration Rule 57 sets clear expectations for tribunal members to render the award in a timely manner, while maintaining flexibility based on the circumstances of each case. It states that awards must be rendered within 60 days after the last submission of an application for manifest lack of legal merit, 180 days after the last submission on a preliminary objection, and 240 days after the last submission on all other matters.

Another modification aimed at reducing the duration of ISDS proceedings is the adoption of an expedited schedule for parties to challenge arbitrators. Mentioned as one of the most prominent causes for delays in the conclusion of ISDS cases, challenges to arbitrators are one of the three most significant delaying factors concerning procedural events that occur during an arbitration.[16]

Proposed Arbitration Rule 22 would introduce an expedited schedule for parties to file a challenge, where a specific time limit of 21 days for filing a disqualification motion replaces the former requirement that it should be filed promptly. The proposed rules also require all arguments and supporting documents to be included in the disqualification proposal, transforming what could otherwise be a formally lodged challenge into a complete written submission.

While aimed at reducing the overall duration of ISDS proceedings, the proposed rules on expedited proceedings and schedules with shortened time limits can increase costs for respondent states, requiring their legal defence to be conducted with more intensity to cope with shorter deadlines, and can be burdensome to developing countries who already lack capacity and resources. Therefore, a careful and comprehensive study is necessary to assess the potentially problematic implications of the proposed amendments for respondent states.

7. Conclusion

The areas for potential amendment of ICSID rules have a clear correlation with the concerns with respect to ISDS identified by UNCITRAL WG III. The proposals attempt to address some of the issues of high costs and long duration of ISDS proceedings by setting up clearer rules envisaged to make the process more predictable and simpler.

The proposed changes, however, are neither intended nor designed to make profound changes in the current regime of investor–state arbitration. Instead, they demonstrate a preference to only minimally depart from existing rules, maintaining the status quo and making mere cosmetic changes. Furthermore, it is unclear whether the amendments would effectively reduce costs for respondent states, and ICSID members should carefully consider whether certain proposed duration cuts would not impose additional burdens on state defence. Finally, short of prohibiting double hatting and third-party funding, the proposed amendments merely codify their regulation.

Authors

Rafael Ramos Codeço is a Foreign Trade Analyst in the Department of International Negotiations at the Ministry of Economy, Brazil, taking part in IIA negotiations. He holds a master’s degree in globalization and development

Henrique Martins Sachetim is Foreign Trade Analyst at the Brazilian Ministry of Economy. He is a doctoral student of international law, focusing on trade and investment law, and holds a master’s degree in international law and economics.

The views expressed in this article are those of the authors and do not necessarily reflect the views of the Brazilian Ministry of Economy or the Brazilian government.

Notes

[1] See the ICSID webpage about the rule amendments, available at https://icsid.worldbank.org/en/amendments

[2] See the list of topics for potential ICSID rule amendment, available at https://icsid.worldbank.org/en/Documents/about/List%20of%20Topics%20for%20Potential%20ICSID%20Rule%20Amendment-ENG.pdf

[3] Fauchald, O. K. (2008). The legal reasoning of ICSID tribunals–an empirical analysis. European Journal of International Law, 19(2), 301–364.

[4] For the current (third) version of the proposed Arbitration Rules and Administrative and Financial Regulations (AFRs), in English, French and Spanish, see ICSID Secretariat. (2019, August). Proposals for amendment of the ICSID rules (Working paper #3, v. 1). Retrieved from https://icsid.worldbank.org/en/Documents/WP_3_VOLUME_1_ENGLISH.pdf [hereafter “Working Paper”].

[5] See Comprehensive Economic and Trade Agreement between Canada and the European Union, October 30, 2016 (entered into force provisionally September 21, 2017), Art. 8.43.1. Retrieved from https://eur-lex.europa.EU/legal-content/EN/TXT/?uri=CELEX:22017A0114(01); and Free Trade Agreement between the European Union and the Socialist Republic of Viet Nam, June 30, 2019 (not in force), Art. 3.59.1. Retrieved from https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1551257348905&uri=CELEX:52018PC0691

[6] ICSID Secretariat. (2018, August). Proposals for amendment of the ICSID rules (Working paper #1, v. 3). Retrieved from https://icsid.worldbank.org/en/Documents/Amendments_Vol_3_Complete_WP+Schedules.pdf

[7] ICSID Secretariat. (2018). Backgrounder on proposals for amendment of the ICSID rules. Retrieved from https://icsid.worldbank.org/en/Documents/Amendment_Backgrounder.pdf [hereafter “Backgrounder”].

[8] ICSID Secretariat. (2018). Proposals for amendment of the ICSID rules — Synopsis. Retrieved from https://icsid.worldbank.org/en/amendments/Documents/Homepage/Amendments-Vol_1_Synopsis_EN,FR,SP.pdf [hereafter “Synopsis”].

[9] Working Paper, supra note 4.

[10] Working Paper, supra note 4, p. 212.

[11] Howse, R. (2017). Designing a multilateral investment court: issues and options. Yearbook of European Law, 36, 209–236.

[12] IISD. (2019, April). Summary comments to the proposals for amendment of the ICSID arbitration rules. Geneva: IISD, p. 13. Retrieved from https://www.iisd.org/library/summary-comments-proposals-amendment-icsid-arbitration-rules. See also Güven, B. & Johnson, L. (2019, June). Third-party funding and the objectives of investment treaties: friends or foes? Investment Treaty News, 10(2), 4–7. Retrieved from https://iisd.org/ITN/2019/06/27/third-party-funding-and-the-objectives-of-investment-treaties-friends-or-foes-brooke-guven-lise-johnson

[13] Backgrounder, supra note 7, p. 2.

[14] Working Paper, supra note 6, para. 257.

[15] Ibid.

[16] Langford, M., Behn, D. & Létorneau-Tremblay, L. (2019). Empirical perspectives on investment arbitration: What do we know? Does it matter? ISDS Academic Forum Working Group 7 Paper, p. 20. Retrieved from https://www.cids.ch/images/Documents/Academic-Forum/7_Empirical_perspectives_-_WG7.pdf