The 2022 ICSID Rule Amendments: What investors and States need to know

On 21 March 2022, the Member States of ICSID adopted a new set of rules that will apply to arbitrations commenced from 1 July 2022. The key changes, which will affect investors and States alike, are focussed on four key areas: (i) procedural efficiency (including new rules on bifurcation and the expedited procedure), (ii) costs (including new provisions on security for costs), (iii) third-party funding, and (iv) overarching framework to promote greater transparency.

These reforms mark an end to a six-year long process that ICSID launched in October 2016 to “modernize, simplify, and streamline the rules while also leveraging information technology to reduce the environmental footprint of ICSID proceedings”. The reforms also seek to make ICSID procedures “increasingly time and cost effective while maintaining due process and a balance between investors and States”.

Below, we analyse some of the most significant changes which affect the conduct of ICSID proceedings.

Procedural efficiency

An average ICSID arbitration is estimated to last between three and four years, which many stakeholders perceive as unsatisfactory. The new rules introduce a number of provisions intended to make the process more efficient. These include:

• An express requirement on both, the Tribunal and the parties, to conduct the proceedings “in good faith and in an expeditious and cost-effective manner” (Rule 3.1);
• A requirement for the Tribunal or the Secretary-General to establish mandatory time limits for the completion for each procedural step in the proceeding (Rule 10.1);
• An obligation on the Tribunal to render the award within a specific time limit (Rule 58). The Tribunal is required to use best efforts to meet pre-established time-limits to render orders, decisions and the award. If it is unable to do so, it must “advise the parties of the special circumstances justifying the delay and the date when it anticipates rendering the order, decision or Award” (Rule 12);
• The introduction of time limits for filing proposals to disqualify one or more arbitrators by the parties (Rule 22);
• The introduction of a new, more robust procedure for dismissing claims that are manifestly without legal merit (Rule 41);
• An express provision governing the procedure for consolidation or coordination of multiple arbitrations (Rule 46);
• New rules to help the Tribunal deal more efficiently with disputes that arise during document disclosure (Rule 37), and rules covering the use of witness and expert evidence (Rules 38 and 39);
• New set of rules on annulment, including an express provision allowing a party to request a stay of enforcement of all or part of the award at any point before the Tribunal or a Committee decides on the application (Rule 73). That same Rule 73 also allows the parties to file their request before the Tribunal/Committee is established and sets out key time limits for different steps of the procedure.

Bifurcation

For the first time, the new rules include specific provisions governing the procedure for bifurcation that allow parties to request that a question be addressed in a separate phase of the proceeding (Rule 42). They also set out separate rules for general bifurcation requests (Rule 42), and bifurcated requests relating to a preliminary objection (Rules 43 and 44). Each of these rules contain different time limits, circumstances that the Tribunal has to consider and steps that the Tribunal has to take if it decides to grant the request.

Expedited Procedure

In response to concerns about the length of proceedings, the new rules introduce specific provisions that allow an arbitration to be expedited with the consent of the parties. The parties may expedite the arbitration at any time, even if the proceedings were commenced under the “normal” rules (Rule 75). The expedited rules aim to shorten proceedings by, for example:

• Reducing the amount of time for the appointment of the Tribunal (Rule 76);
• Imposing strict time limits on procedural issues; or
• Limiting the length of memorials which cannot extend 200 pages (Rule 81).

While the new rules on expedited arbitration are a welcome development, they are ultimately subject to the parties’ consent. It will be up to the parties to decide whether they may want to use them, and by consequence, turn them into a regular feature of the investor-State arbitration practice.

Costs

The cost of investment arbitration has been a source of concern, notably from respondent States. Some awards have attracted criticism for poor reasoning on the recoverability of costs, and Member States also expressed about the reluctance of many Tribunals to award security for costs. The new rules have been designed to make the consideration of costs both more transparent and more rigorous. The changes include:

• A broad definition of the meaning of “costs” (Rule 50);
• A formal requirement on the parties to file a statement of the costs and a written submission on the allocation of costs (Rule 51);
• Detailed criteria that Tribunals have to consider when allocating costs of the proceedings (Rule 52); and
• A new express power for the Tribunal to order security for costs (Rule 53).

Third-party funding

Despite the incremental increase in third-party funding in investor-State arbitration in recent years, the practice has remained largely unregulated. This has been criticised by a number of States, some of which have concluded bilateral investment treaties that impose mandatory disclosure requirements or ban the practice altogether. The new ICSID rules seek to regulate the practice of third-party funding by:

• Requiring a party to file a written notice disclosing any third-party funder, and the identity of any persons and entities that own and control the third-party funder (Rule 14.1);
• Granting the Tribunal an express power to order disclosure of further information regarding the funding agreement and the third-party funder (Rule 14.4); and
• Giving the Tribunal authority to consider the existence of a third-party funder for the purpose of determining an application for security for costs (Rule 53.4).

Transparency

The perceived lack of transparency over the proceedings has been one of the most prevalent criticisms of the investor-State arbitration. Progress has been made in recent years with the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration that applies to treaties concluded after 1 April 2014, and the Mauritius Convention (the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration) that governs the application of the UNCITRAL Transparency Rules. ICSID has now adopted new provisions included under Chapter X on “Publication, Access to Proceedings and Non-Disputing Party Submissions” which include:

• An obligation to publish every award, supplementary decision, rectification, interpretation and revision of an award, or decision on annulment, subject to the consent of the parties. Unless the parties object to publications within 60 days after the dispatch of the document, their consent to publish is implied (Rule 62);
• An obligation to publish any other orders and decisions within 60 days after the order or decision is issued, subject to the parties’ redactions (Rule 63);
• An obligation to publish any written submissions or supporting documents filed by either of the parties, subject to the consent of the parties. However, the Tribunal has an obligation to ensure that the publication of the documents does not disclose any confidential or protected information (Rule 64);
• Ability for third-parties to attend and observe hearings, and publishing of recordings and transcripts of hearings, unless any of the parties object (Rule 65);
• Ability for third-parties to submit written submissions in the proceedings, subject to observations of the parties on whether such written submissions should be allowed made by the parties (Rule 67); and
• Ability for non-disputing third-parties to make a submission on the interpretation of the treaty at issue in the dispute (Rule 68).

In addition, Rule 66 provides a detailed definition of confidential or protected information, which is protected from public disclosure under any of the provisions discussed above. Whilst the language used in the provisions included in Chapter X makes it clear that, in many instances, the parties will have the final say with respect to the publication of the relevant information, the new provisions on transparency are a significant development that goes well beyond any rules that were previously applicable to ICSID arbitrations.

The New Additional Facility Rules, New Mediation Rules and New Fact-finding Rules

Finally, the 2022 amendments introduce some notable changes that apply to other procedures supported by ICSID. For example, the new Additional Facility Rules modify the jurisdictional requirements previously in place and provide broader access to the parties even if they are not an ICSID Contracting State (such as Brazil, for example). In addition, Regional Economic Integration Organizations, including the European Union (EU) may also become a party to proceedings under the new Additional Facility Rules.

New Mediation Rules offer a process to support a negotiated resolution of a dispute between parties, and the new Fact-finding Rules allow for an impartial and targeted assessment of facts related to an investment. The parties may use these rules either as a stand-alone procedure or alongside their arbitration proceeding.

Conclusion

Increased efficiency and transparency are at the heart of these amendments, which respond in large part to the concerns raised by Member States during the consultation process. ICSID has indicated that in the coming months, it will publish guidance notes to assist users in applying the updated rules in practice.

Please get in touch if you would like further information or a bespoke training session on the new rules.