2022 ICSID Arbitration Rules—views on key changes

On the 1^st of July 2022, the new International Centre for Settlement of Investment Disputes (ICSID) Regulations and Rules came into force. The amended arbitration rules (2022 ICSID Arbitration Rules) were submitted to ICSID’s Administrative Council in January 2022 following half a decade of sustained work which included the publication of working papers and consultations with Member States and other stakeholders. Among the amendments brought by the new 2022 ICSID Arbitration Rules, four key areas can be highlighted: procedural efficiency, costs, third-party funding, and the promotion of transparency. The British Institute of International and Comparative Law (BIICL) held an event on the 15^th September 2022 dedicated to these principal changes where discussions focused on the aspects of (1) efficiency, and (2) costs.

The panel included Martina Polasek, Deputy Secretary-General at the ICSID Secretariat, Guglielmo Verdirame KC, Barrister at Twenty Essex, and Dr Anthony Sinclair, Partner at Quinn Emanuel Urquhart & Sullivan, and was chaired by Professor Yarik Kryvoi for the BIICL, and Kate Cervantes-Knox, Senior Counsel at DLA Piper and Visiting Professor at the University of Law. The event was sponsored by DLA Piper.

Introduction to the 2022 ICSID Regulations and Rules

Polasek comprehensibly presented the process behind the 2022 ICSID Arbitration Rules. The work undertaken by the ICSID Secretariat began in 2017 with important consultations with various stakeholders such as Member States, law firms, or bar associations. Polasek highlighted that the aim of the ICSID Secretariat was not necessary to achieve a perfect consensus, but to ensure a balance of interests between claimants and respondents so both parties could have confidence into the process. Contemporary issues such as the enhanced scrutiny of the public for investor-state disputes settlement (ISDS), the increased use of technologies in recent years, or the growth interest for mediation were concerns shared by various stakeholders.

Aside from the key changes to the ICSID Arbitration Rules (the Rules), Polasek pointed out that it was no longer required for at least one party to be a Member-State in order to use the ICSID Additional Facility Rules and that the ICSID Fact-Finding Rules no longer had a nationality requirement for parties, which means that a Regional Economic Integration Organisation such as the European Union could be a party to an ICSID procedure.

Bringing further efficiency

The 2022 ICSID Arbitration Rules include several rules which aim to ensure that the arbitration proceedings are conducted in the most efficient manner. Polasek first introduced some of them.

As part of the general provisions, Rule 3 includes the general duties of all participants to the arbitration proceedings. The claimant, the respondent and the tribunal must ‘conduct the proceeding in good faith and in an expeditious and cost-effective manner’. Polasek commented that as the tribunal was specifically included in this provision, the ICSID Secretariat expected the arbitrators to certify that they had sufficient availability to respect the anticipated timelines when accepting an appointment as an arbitrator. In the same vein, tribunals are encouraged to identify uncontested facts and clarify and narrow the issues in dispute as part of the case management conferences (Rule 31).

Various time limits (and  extension(s)) for parties have been clarified following comments received amid the consultative process on updating the Rules. For example, regarding preliminary objections with a request for bifurcation, if there is no agreement between the parties, the default position is that the request for bifurcation shall be filed within 45 days after filing the memorial on the merits (Rule 44). Rule 12 concerning time limits applicable to the tribunal, also provides that the tribunal shall use ‘best efforts’ to meet time limits to render orders, decisions and the award. If it is not possible, it shall provide to the parties special circumstances which justify the delays. Polasek commented that efforts were requested from all participants including the tribunal and that arbitrators therefore had to deal with potential difficulties upfront so they could manage their own obligations within the time limits.

Another highly important amendment pointed out by Polasek was the introduction of the rules for expedited arbitration. The overall arbitration proceeding aims to be ‘expedited’ when opting for an expedited arbitration. This is notably characterised by stricter deadlines applied to the main steps of the proceeding, including the selection and appointment of the members of the tribunal, the first session, the procedural schedule, and the rendering of the tribunal’s award. Polasek reiterated that parties to an arbitration could consent at any time to expedite the arbitration (Rule 75), but may also opt out of an expedited arbitration at any time (Rule 86) since consent remained the central element of arbitration proceedings. Following a question from Cervantes-Knox who sought clarification on the interplay of Rule 3 (shared responsibility from participants to conduct procedure efficiently) with expedited procedures, Polasek confirmed that Rule 3 was separate from the expedited chapter. She further added that the tribunal could also look at the behaviour of parties during the proceedings when allocating costs.

Comments from the panel

Verdirame KC highlighted that the timelines were quite ambitious and that even if the expedited procedure had been thoughtfully elaborated, he remained sceptical about the willingness of parties, particularly respondents, to opt in at the beginning of the procedure. He pointed out that even if the 200-page limit for the memorial and counter-memorial (Rule 81) was objectively fine, respondents would probably be reluctant to agree to expedite at the outset and rather wait to receive the claimant’s memorial before committing to an expedited proceeding in order to assess the claimant’s evidence, the number of witnesses and experts, etc. He further added that considering time and resource management, respondents would probably wait after their counter-memorial to opt for the expedited procedure as they would prefer to use the maximum period and not be constrained by a 60-day time limit.

Verdirame KC further added that habits from all participants would also need to change. He highlighted that arbitrators were often much more indulgent when counsels were ‘losing time’ then judges in common law jurisdictions such as in English courts. According to Verdirame KC, the best time to hold a case management conference is after the first round of pleadings.

Sinclair also pointed out that it usually takes a lot of time to constitute the tribunal. He highlighted poor practice used by some parties like filing late requests of appointment when tribunals had not been constituted within 90 days after notice of registration of the request for. He also shared an example of an instance where an arbitrator resigned when realising that a party had challenged their nomination as a strategy to suspend the arbitration procedure and render the other party’s request for provisional measures moot once the procedure would resume. Polasek responded that parties’ agreements for the establishment of the tribunal were getting more sophisticated by highlighting that some parties were opting for a method where each party would designate four potential arbitrators and request the ICSID Secretariat to also designate four individuals, both parties were therefore unaware of whether an individual had been suggested by ICSID or by the other party. Still, Polasek pointed out that this method was time-consuming as at least 12 people needed to be contacted to be included in the list.

Costs involved in ICSID arbitration proceedings

The 2022 ICSID Arbitration Rules include rules which address different aspects of costs including third-party funding (Rule 14), decisions on costs (Rule 52), and the security for costs (Rule 53). Polasek indicated that the notice of third-party funding (Rule 14) required a party to file a written notice disclosing the name and address of any non-party from which the party receives funds for the pursuit or defense of the proceeding, including (in her view) attorney’s contingency fees.

Furthermore, as mentioned earlier, the tribunal shall consider all relevant circumstances in allocating costs, including the conduct of the parties during the proceeding (Rule 52). Other circumstances include the outcome of the proceeding, the complexity of the issues, and the reasonableness of the costs claimed. Tribunals are also encouraged to make interim decisions on costs, either on their own initiative or upon a party’s request.

Finally, the power of the tribunal or the ad hoc committee to rule on security for costs has been established in the rules and is no longer a recommendation (Rule 53). As it is now considered an order of the tribunal, it could lead to the discontinuance of the proceeding if a party does not comply with the tribunal’s order. Polasek mentioned that the mere existence of third-party funding was not sufficient for security for costs, but the tribunal had discretion for the weight to be given to the existence of third-party funding.

Comments from the panel

Sinclair mentioned that an earlier draft of Rule 14 included specifically law firms acting in contingency fees, but this part had been taking out following an intense debate. Sinclair mentioned that whether a law firm acting on contingency was a non-party would be a contested area. Sinclair further added that even if a law firm in contingency felt within Rule 14, the new rule did not capture the largest category which was portfolio funding of law firms. Rule 14 brings some uncertainties, while confirming that third-party funding is party of the ICSID rules, and that it ‘exists and is here to stay’.

Regarding the allocation of costs of the proceeding (Rule 52), Sinclair mentioned that too many tribunals were trying to minimise the award by allocating costs to the winning party. He criticised this practice, suggesting that costs should reflect the award unless there are special circumstances.

Sinclair also commented on the security for costs (Rule 53). He predicted that there would be many more applications as in the past security for costs were ‘forced’ as a provisional measure. He highlighted the reference made to the existence of third-party funding, reiterating that this was a contentious issue. He added that there were many reasons why third-party funding should not be disclosed, including false first impressions. However, he expected further orders requesting parties to stipulate the content of the third-party funding agreement. Polasek responded that she did not think there would be many more requests for security as the threshold was set very high for exceptional circumstances. She further added that the ICSID Secretariat did not address the legal standard and that tribunals needed to be sensitive to the fact that the provision of security for costs itself was expensive.

Conclusion

There are a few areas of contingency as highlighted by the panellists, but the 2022 ICSID Arbitration Rules have been well received by the arbitration community all things considered. The process undertaken by the ICSID Secretariat enabled them to introduce new rules which were expected by stakeholders. It should also be highlighted that the ICSID Secretariat has invested a lot of time in introducing the new rules and clarifying the key changes through their participation at events like this one.

Note: this is a summary of the discussions and does not purport to be a full account of the event. While I have only briefly shared some highlights of the discussions, I wish to thank all panellists for their time and enlightening thoughts.