ICSID RELEASES FOURTH WORKING PAPER ON ICSID RULES REVISION: INCREASING CONSENSUS, BUT NOTABLE DEVELOPMENTS

On 28 February 2020, the International Centre for Settlement of Investment Disputes ("ICSID") Secretariat (the “Secretariat”) released its Fourth Working Paper on Proposals for Amendment of the ICSID Rules (“WP4”), the latest iteration of proposals for amended rules for investor-state dispute settlement ("ISDS"). The proposals build upon the proposed amended ICSID rules in Working Paper 3 (“WP3”), and address issues such as transparency, costs and confidentiality.

Background

ICSID's overarching goal in its reform efforts is "to modernize, simplify, and streamline the rules, while also leveraging information technology to reduce the environmental footprint of ICSID proceedings". This large-scale drafting process draws on the lessons learned from hundreds of ICSID cases.

As noted in our previous related PIL Notes post, ICSID's proposed changes are wide-ranging. The amended ICSID rules comprise the Administrative and Financial Regulations under the ICSID Convention and Additional Facility, the Institution Rules, the Arbitration and Conciliation Rules under the ICSID Convention and Additional Facility, the Fact Finding Rules and the Mediation Rules (together, the "ICSID Rules").

Given the increased consensus amongst the consulted parties, WP4 has resulted in fewer changes than previous working papers. However, WP4 introduces a number of significant amendments throughout the ICSID Rules. For the purpose of this post, we will address the key amendments proposed in relation to the Institution Rules and Arbitration Rules.

Commencement of arbitral process

Recommended additional information for inclusion in the request for arbitration

WP4 expands the scope of recommended additional information that requesting parties are encouraged to provide when making their request for arbitration ("RFA"). This information now includes any procedural proposals or agreements reached by the parties, including with respect to the procedural language (Institution Rule 3(a)).

First session

WP4 proposes that, when the President of the tribunal cannot convene the parties and the other tribunal members within 60 days after the constitution of the tribunal, the tribunal can decide whether to hold the first session between the President of the tribunal and the parties, or solely among the tribunal members based on the parties’ written submissions (Arbitration Rule 29(3)). This differs from the approach in WP3, which envisaged the tribunal holding the first session without the parties in such circumstances.

Transparency and conflicts of interest

Disclosure of corporate structure

The proposed changes to the Institution Rules in WP4 include the recommendation that, where the requesting party is a juridical person, the party disclose the names of the persons and entities that own or control it at the point of making its RFA (Institution Rule 3(b)). This provision is designed to facilitate the identification of any potential tribunal members' conflicts of interest at the earliest opportunity.

Arbitrators' code of conduct

During the consultation period, States suggested that the amended Arbitration Rules contain a commitment to apply the arbitrators' code of conduct to be produced by the UNCITRAL Working Group III ("WGIII"), or that the Arbitration Rules themselves reflect general principles contained in this upcoming code of conduct. These suggestions were not implemented in WP4 because Arbitration Rule 19(3) allows for incorporation by reference of a code of conduct in the arbitrator declaration. As such, once WGIII develops its proposed code of conduct, the Secretariat will invite states to consider whether this should be included in the Arbitration Rules by way of an arbitrator declaration. For more information on WGIII's current work, please see our previous PIL Notes posts of April 2018, January 2019, February 2019, November 2019 and February 2020).

Disclosure of third party funders

The Arbitration Rules in WP4 retain the requirements included in the previous working papers that parties disclose the details of third party funders. However, Arbitration Rule 19 contains more detailed provisions, and now requires parties to disclose information about non-parties providing funds whether directly or indirectly, including their names and addresses. WP4 also proposes that the tribunal may order disclosure of further information relating to third party funders if it deems it necessary.

Costs

WP4 contains various proposals concerning decisions on costs and security for costs. With regard to general decisions on costs, where a party objects under Arbitration Rule 41 that a claim is manifestly without legal merit, there is now a presumption that the prevailing party will be awarded its costs (Arbitration Rule 52(2)).

In addition, WP4 clarifies the relevance of third party funding to security for costs applications. Arbitration Rule 53(4) has been amended slightly to emphasise that, whilst the presence of third party finding is not itself sufficient to justify an order for security for costs, third party funding may be evidence of the circumstances that the tribunal must take into consideration when deciding such applications.

Confidentiality

Publication of Documents Filed in Proceedings

The proposed rules in WP4 continue to provide for the publication of documents filed in the proceedings. However, WP4 proposes a number of key changes. Both parties must now consent to publication of the documents and agree on any redactions (Arbitration Rule 64(1)). Only disputes regarding the redaction of submissions can be referred to the tribunal (Arbitration Rule 64(2)). In contrast to the approach in WP3, disputes about the redaction of other documents must now be resolved between the parties.

Observation of Hearings

Under the proposed provisions in WP3, the tribunal would have had to consult with the parties with respect to allowing non-parties to observe hearings, but would have had the power to make the final decision. The amended Arbitration Rule 65(1) in WP4 now provides that the tribunal shall allow non-parties to observe hearings unless either party objects to this.

 Next Steps

The ICSID Secretary-General has stated that ICSID's goal is to place the proposed amended ICSID Rules before the Administrative Council for a vote in the latter half of 2020. If adopted, these ICSID Rules could be in place by early 2021. Any proposed amendments to the ICSID Rules must achieve a two-thirds majority approval by the Administrative Council, comprising one representative from each Member State. Should this vote be successful, this would be only the fourth time ICSID will have amended its rules.

Fore more information please contact Andrew Cannon, Partner, Christian Leathley, Partner, Helin Laufer, Associate, or your usual Herbert Smith Freehills contact.