On 21 March 2022, the Member States of the International Centre for Settlement of Investment Disputes ("ICSID") approved a comprehensive set of amendments to ICSID's Regulations and Rules, including the ICSID Arbitration Rules (the "2022 Rules"), for resolving disputes between foreign investors and their host States. The 2022 Rules will come into effect on 1 July 2022 and apply to ICSID arbitrations commenced from that date onwards.
ICSID's Arbitration Rules are the most widely used set of rules in investor-state dispute settlement ("ISDS") and the 2022 Rules represent a significant overhaul to their 2006 predecessors in many respects (some 56 rules have metamorphosed into 86 rules). Last updated 16 years ago, the long-awaited 2022 Rules are the product of ICSID's most extensive review to date. This entailed a 5-year consultative process with the Member States involving hundreds of State officials, legal specialists and business representatives, which generated six voluminous working papers.
According to the Chair of the ICSID Administrative Council, the 2022 Rules aim to "streamline procedures to enable greater access and speed, increase transparency, and enhance disclosures, with the ultimate goal of facilitating foreign investment for economic growth"1. This Legal Update summarizes the key changes to the 2022 Rules against the backdrop of these ambitions.
1. Improving time and cost efficiency
The 2022 Rules attempt to address a common criticism levelled against ICSID arbitration, and ISDS more generally, namely high costs and delayed proceedings. Important changes which address these concerns include:
- New opt-in expedited arbitration rules, which have the potential to reduce the length of proceedings by 50%. In this procedure, the parties can jointly elect either a sole arbitrator or a three-member tribunal (failing which, a sole arbitrator is the default). Among other benefits, the expedited arbitration procedure could promote investment and access to dispute settlement by small and medium enterprises, especially those with limited financial resources.
- Revised special procedure to dispose of a claim that is "manifestly without legal merit". The 2022 Rules now make explicitly clear that the objection may relate not only to the substance of the claim, but also to ICSID's jurisdiction or the competence of the tribunal (Rule 41).
- The 2022 Rules encourage tribunals to be pro-active, expeditious and cost-conscious. In particular, there is a new requirement that tribunals convene at least one case management conference after the first session to clarify/narrow the issues in dispute, identify uncontested facts or address other procedural/substantive issues. This rule is likely aimed at giving permission to arbitral tribunals to make use of case management conferences and to provide reassurance that narrowing issues would not amount to prejudging the substantive issues, with the goal of avoiding the situation where the arbitral tribunal is faced with a mountain of issues and evidence at the hearing.
- Rule 46 which provides for the consolidation or coordination of related cases. Unlike consolidation which results in a single arbitration and one award, and must involve the same State, coordination aligns procedural aspects of two or more arbitrations and generates separate awards in each arbitration.
- A mandatory deadline for tribunals to render awards: 240 days after the last submission (subject to certain exceptions in Rule 58).
- An express 120-day deadline (after the last submission on the application) for a decision following interpretation, revision and annulment proceedings. The enforcement of the award is also automatically stayed if it is requested within a revision or annulment application.
- A new provision that the time-frame for certain post-award remedies (rectification of minor errors, revision and annulment) cannot be extended in any circumstances.
- New general duties on both the tribunal and the parties to conduct the proceedings in good faith and in an expeditious and cost-effective manner (Rule 3).
- Rule 22 imposes strict time limits of 21 days on proposals to disqualify an arbitrator (former Rule 9 only required proposals to be made "promptly").
ICSID has also issued a new set of rules and regulation for fact-finding proceedings and mediation proceedings, which can be used independently or as part of arbitral proceedings.
2. Increasing Transparency
The 2022 Rules aim to increase the level of transparency with regard to the publication of procedural orders, awards and annulment decisions, an important step given the "lack of transparency" criticism often levelled at ISDS.
- In order for awards and annulment decisions to be published as soon as possible, the 2022 Rules now provide a clear process for the parties to agree on necessary redactions.
- While the consent of both parties is still required for the publication of awards and annulment decisions, Rule 62(3) now provides for the deemed consent of a party who does not object within 60 days.
- Where no such consent is given, ICSID will publish anonymized excerpts of awards and annulment decisions.
- Likewise, procedural orders and decisions will be published, with redactions as agreed to by the parties (or by the tribunal if the parties disagree) (Rule 63). The publication of procedural orders may facilitate the development of consistent jurisprudence with regard to procedural issues in ICSID arbitrations.
Other transparency-related amendments include:
- Rule 52(4) which promotes costs transparency as all decisions on costs have to be reasoned and form part of the award.
- The new requirement for parties to set out the description of an investment and its ownership and control in their Request for Arbitration ("Request"), which will require greater transparency for complex claims that were previously able to rely on generalized descriptions of the relevant assets.
- The presumption in favour of public hearings (Rule 65(1)).
3. Enhancing Disclosures
Third-party funding was not addressed under the previous rules but is now dealt with under Rule 14 of the 2022 Rules. Rule 14 requires that parties disclose, when registering the Request (or as soon as the funding arrangement is concluded, if later) the name and address of any non-party from which they received funding, with an ongoing obligation until the completion of the proceedings to disclose changes to their funding arrangements.
The definition of third-party funding is quite broad under the 2022 Rules; for example, for corporate funders, it extends to persons and entities that own and control them. Further, although the 2022 Rules do not mandate the disclosure of any funding agreement, their disclosure can be ordered by an ICSID tribunal where it deems it necessary. Tribunals can also ask for further information in relation to the third-party funder.
It is expected that these enhanced disclosures will assist with the early identification of potential conflicts of interest, increase transparency, and potentially reduce conflict-related challenges.
4. Broader Access through the Additional Facility Rules
While arbitration and conciliation under the ICSID Convention remain available only to Member States and their nationals, the Additional Facility Rules will now be available when one or both disputing parties is not an ICSID Member State or a national thereof.
Additionally, Regional Economic Integration Organizations (such as the European Union or ASEAN) will be able to be a party to proceedings under the revised Additional Facility Rules, an important development given that States increasingly negotiate investment agreements as part of a regional entity.
This significant lowering of the jurisdictional requirements is likely to promote wider use of the ICSID Additional Facility Rules. Although other arbitral institutions are attempting to adapt to ISDS, this will allow more parties to benefit from ICSID's experience and services, which remains the leading institution for investor-State arbitration.
5. Cost Allocation and Security for Costs
The 2022 Rules retain the tribunal's discretion to allocate costs, except that where a tribunal disposes of all claims on the basis that they are manifestly without legal merit, it shall award the successful party their reasonable costs, unless "special circumstances" justify a different outcome.
The prior ICSID rules did not provide guidance as to how tribunals were to exercise their discretion, which is now directly addressed by Rule 52. It sets out the circumstances that the tribunal shall consider when allocating costs, which includes, inter alia, the outcome of the proceeding or any part of it, the complexity of the issues and the parties' conduct, including the extent to which they acted in an expeditious and cost-effective manner. Further, in addition to submitting a statement of costs, each party must file a written submission on the allocation of costs.
The 2022 Rules also introduce a new stand-alone provision on security for costs, a remedy previously available under the prior "Provisional Measures" rule. Rule 53 of the 2022 Rules empowers tribunals to award security in relation to both claims and counterclaims and sets out the procedure and the relevant circumstances that the tribunal shall consider, which, notably, includes a party's "willingness" and not only its ability to pay an adverse cost award, and evidence about the existence of third-party funding. Rule 53(4) seems to imply that the mere existence of third-party funding does not determine that a party is impecunious and thus that security for costs should be automatically granted. Rule 53 also prescribes what happens if a party fails to comply with an order to provide security for costs.
These new changes should give parties confidence that their ICSID arbitrations will be conducted as cost-effectively, efficiently, fairly and transparently as possible and inject further legitimacy into investment arbitration more generally. Consequently, the 2022 Rules are likely to facilitate foreign investment.
What is next?
ICSID has committed to publishing guidance notes over the coming months2, which, together with published ICSID arbitral decisions, should help guide parties in relation to the proper application of the 2022 Rules. We will also issue a further Legal Update in due course focusing on the 2022 Rules in more depth.
1 ICSID, "ICSID Administrative Council Approves Amendment of ICSID Rules”, https://icsid.worldbank.org/news-and-events/communiques/icsid-administrative-council-approves-amendment-icsid-rules