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Shuffling the pack - new rules for ICSID investment treaty arbitration

  • Legal Development 2022年6月27日 2022年6月27日
  • 国际仲裁

After more than five years of consultation, six working papers, and a vote of approval by member states, the new arbitration rules of the International Centre for the Settlement of Investment Disputes (ICSID) are finally ready for use and will come into effect on 1 July 2022. No fundamental changes have been made to the way investment arbitration works, but there are many more rules now, and they have been shuffled around. Most of the changes aim to speed up proceedings or improve their transparency, as well as to flesh out ICSID procedure generally. Ben Knowles and Giles Hutt explain.

A number of institutions have updated their arbitration rules recently, partly to deal with the pandemic and adapt to the new ways of working that have arisen from that. ICSID has done the same, making electronic filing the default procedure now (new Rule 4(2)). However, the process of revising its 2006 arbitration rules started well before the pandemic and addresses more fundamental issues. ICSID has also rewritten its Additional Facility Rules, although they are outside the scope of this article.

In addition to there being more arbitration rules - there are now 86 rather than 56  -  they are also structured differently, which practitioners will initially find confusing. Instead of eight Chapters, there are now thirteen, with largely different headings. Topics are also covered in a slightly different order.  For example, the language of the proceedings (and need for translations) used to be governed by Rule 22, in old Chapter III.  Now the relevant provisions are not only more elaborate, but have been moved forward to new Chapter I, where they appear as Rule 7. Changes of this kind may be logical, but will take some getting used to.   

Where the rules have changed in substance, this has generally been to codify existing ICSID practice and clarify procedure generally, or to serve one of two specific purposes. The first of these is to improve the speed (and therefore cost) of investor-state arbitration, which sometimes advances at a glacial pace. The second is to improve the transparency of the process, which is desirable for a number of reasons. We examine below how each of these goals is served by the new rules.

Speed

One reason why ICSID arbitration takes a long time is that, unless the parties settle or one of them backs down, they generally follow the full procedure from beginning to end. Provision is made for claims to be disposed of quickly where they are “manifestly without legal merit” (Rule 41) - a summary judgment-style procedure that can save a Respondent (and the Claimant itself) considerable time and money. But as the wording suggests, the threshold for claims to be disposed of in this way is very high. 

The question is what to do with claims that are basically sound but relatively simple, so do not justify the full arbitration procedure. The International Chamber of Commerce (ICC), for example, has introduced an expedited (ie simplified and quicker) procedure for smaller claims. That initially covered disputes worth USD 2 million or less, subject to a veto by the parties or the ICC court, but the financial limit has recently been raised to USD 3 million.[1] The London Court of International Arbitration (LCIA) followed suit in 2020, when its new rules encouraged tribunals to adopt an expedited procedure on a discretionary basis.[2] Such initiatives echo what is going on in the courts, where there is a particular need to avoid the rigours of civil procedure in more straightforward cases - see, for example, the Shorter Trials Scheme in the English High Court, which was piloted in 2015 and is now a permanent feature there.[3] 

The question, though, is when an expedited procedure should be used, and whether it should be discretionary or mandatory - or something in between.  ICSID has chosen to make it discretionary, and to put the matter entirely in the hands of the parties, with no reference to the value of the claim (new Rule 75(1)). This is partly, no doubt, because there are very few low value claims in investment arbitration, so a financial threshold like the one adopted by the ICC would hardly work. However, it is also a reflection of the political sensitivity of this kind of arbitration, and the need to avoid the perception that a state is being railroaded into a procedure that may ultimately disadvantage it. That said, where the expedited procedure is used under the new ICSID rules, it is clear cut, truncating the usual rules in a radical and predictable way, imposing shorter deadlines, for example, and the use of just one arbitrator where the tribunal is not already constituted (new Chapter XII). In these respects ICSID follows broadly the approach of the ICC rather than the LCIA.

Even where the arbitration continues as normal, ICSID’s procedure should be somewhat quicker now, since a new longstop deadline has been imposed on a tribunal producing an award. This is 240 days from the last submission in the case, excluding submissions on costs (new Rule 58).[4] There is also a requirement now to hold the initial procedural session - remotely or otherwise - within 60 days of the constitution of the tribunal, unless the parties agree some other deadline (new Rule 29(3)). Crucially, this must be followed up by at least one case management conference, “with a view to conducting an expeditious and cost-effective proceedings” (new Rule 31). This echoes the wording of new Rule 3, which also emphasises the need for the tribunal to conduct the proceedings in good faith and treat the parties equally.

Underpinning all these measures is a requirement that arbitrators declare at the outset that they are available, as well as independent and impartial and committed to maintaining the confidentiality of the proceedings (new Rules 19(3) and 79(2)). This should ensure that they are able as well as willing to conduct an ICSID arbitration in the spirit of the new rules. 

Of course, investment arbitration is always expensive for the parties, however efficiently it is managed. The question therefore arises: who should pay for the proceedings? Costs shifting was already allowed under the old ICSID rules and the ICSID Convention itself (old Rule 28 and Art 61(2) respectively), but the main factors that the tribunal should consider when awarding costs were not spelt out.  This has now changed. New Rule 52 states that they include, first, the outcome of the proceedings - an invitation to the tribunal to apply the usual ‘looser pays’ principle - but they also include the complexity of the issues, the reasonableness of the costs claimed and, significantly, the conduct of the parties during the proceedings. This in turn includes “the extent to which they acted in an expeditious and cost-effective manner” and complied with rules, orders and decisions, again echoing and reinforcing new Rule 3. 

In fact, Rule 52 is part of a whole new Chapter on different aspects of costs, including security for costs, which is dealt with for the first time in new Rule 53. This is quite detailed, and includes a reference to the existence of third-party funding, which is one of the factors that the tribunal should take into account when deciding whether or not to order security for costs.

Transparency

It is clear that investment arbitration should be conducted as quickly and cheaply as reasonably possible, without disadvantaging any of the parties. Less obvious is why transparency is important, given that arbitration in general is meant to be a private procedure. In fact, there are several reasons greater transparency is highly desirable in this context. 

The most obvious reason is that it to exposes any conflicts of interest that may exist under the surface. Like other institutions, ICSID is concerned (among other things) that tribunal members may have connections with organisations funding the parties, for example because they have vetted applications for funding in the past.  It is partly for this reason that ICSID has introduced new Rule 14, which imposes on parties an initial and ongoing duty to inform the organisation of any funding arrangements. This requirement is now a common feature of arbitration rules; however, the definition of funding is surprisingly wide here, covering donations and grants, for example, as well as more regular arrangements with professional funders.  Outcome-based fee agreements with lawyers also have to be disclosed. Moreover, information must be provided regarding the ownership of a funder, so that the ultimate source of any funding is clear. That said, the rules stop short of requiring the funding arrangements themselves to be disclosed as a matter of course.[5] This is inevitable, given that the precise terms agreed between a party and its funder often reveal the latter’s assessment of the strengths and weaknesses of the party’s case. 

A further reason for increasing transparency is to improve the consistency of awards. Unlike court judgments, which are publicly available and may form binding precedents, arbitral awards in investment and commercial arbitration often remain unpublished or are published only in part. The intention, of course, is to preserve the privacy of the parties and their dispute. However, it does mean that only a limited body of arbitration case law develops to inform future awards. To deal with this problem, ICSID will now take a rather more liberal approach to the publication of awards. It remains the case that the ICSID Secretariat may only publish awards in full with the consent of the parties (Art 48(5) of the ICSID Convention). However, consent is now presumed unless a party says otherwise. Moreover, any objection must be made in writing within 60 days of dispatch of the award if publication is to be averted (new Rule 62(3)). Consistency of awards in concurrent arbitrations will also be improved by new Rule 46, which allows parties to agree to the consolidation of coordination of pending arbitrations. This will also save time and money, of course. 

Finally, transparency is important in order to maintain public confidence in the system of investment arbitration.  The criticism is often made that it operates ‘behind closed doors’. Clearly, publication of more awards will help in this respect, but it is the process of an investment arbitration, and not just its result, that the public wishes to see. To improve transparency in this sense, new Rule 65 requires the tribunal to allow third parties to observe hearings, provided a party does not object. Until now, old Rule 32 said only that the tribunal ‘may’ allow this, and the Secretary-General had to be consulted first. In addition, ICSID will publish recordings or transcripts of hearings at the request of one party, if the other does not object (new Rule 65(3)). 

Conclusion

Those fearful - or hopeful - that the balance of investment arbitration might be altered by the new rules will be relieved or disappointed, depending on their point of view. As Secretary-General Meg Kinnear has pointed out, ICSID has been scrupulous throughout the redrafting process in ensuring that a balance is maintained, since “a set of rules that are not perceived as balanced will not be used by parties”.[6]

In fact, only a few of the changes to the rules are controversial, and the more substantial changes generally follow recent trends rather than heading in a different direction. Nevertheless, the new rules, taken as a whole, represent a considerable advance on the existing (2006) version of the rules. They are more numerous and more detailed, and above all do considerably more to ensure that arbitrations are conducted in a quick and efficient manner. At the same time, the new provisions promoting transparency should help tribunals manage conflicts of interest where they occur and, just as important, increase public confidence in the investment arbitration process at a time when it is subject to sustained criticism from European Union bodies and other organisations.

The new arbitration rules will apply wherever parties consent to ICSID arbitration on or after 1 July 2022 and do not agree to opt out of them (Art 44 of the ICSID Convention).[7]

 

[1] LCIA 2021 Arbitration Rules Art 30 and Appendix VI.

[2] LCIA 2020 Arbitration Rules Art 14.6.

[3] The rules of the Shorter and Flexible Trials Schemes are to be found in Practice Direction 57AB of the English Civil Procedure Rules, and apply to all cases in the Business and Property Courts. 

[4] Shorter deadlines apply where a party argues that a claim is manifestly without legal merit, or where a preliminary objection is made  -  see new Rule 58(1)(a) & (b).   The previous deadline for producing an award was effectively 180 days “after closure of the proceeding” (old Rule 46).

[5] However, new Rule 14 does allow the tribunal to order disclosure of further information about a funding arrangement where that is deemed necessary (new Rules 14(4) and 36(3)).

[6] Interview with ICSID Secretary-General Meg Kinnear published 8 April 2022: http://arbitrationblog.practicallaw.com/icsid-rules-and-regulations-2022-an-interview-with-meg-kinnear/

[7] See also https://icsid.worldbank.org/news-and-events/communiques/icsid-administrative-council-approves-amendment-icsid-rules

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