The 2018 Proposals for Amendments of the ICSID Rules: ICSID Enters the Era of Trump, Populism, and State Sovereignty

On August 2, 2018, the International Centre for Settlement of Investment Disputes (ICSID) Secretariat released its "Proposals for Amendments of the ICSID Rules" (Proposals).[1]

These Proposals mark only the fifth round of amendments in the fifty-year history of the ICSID Regulations and Rules. Much has changed since the last modifications to the Rules in 2006. ICSID's caseload has increased from twenty-three pending cases in 2006 to fifty-three in 2017.[2] At the same time, thirteen new contracting states have joined the ICSID Convention (including Canada, Iraq, Mexico, and Qatar), while three have left (Bolivia, Ecuador, and Venezuela). 

Despite this success, the past twelve years have not been without challenges. Investor-state dispute settlement (ISDS) has come under increasing scrutiny (i) from those that complain that ISDS is not time and cost effective and (ii) from critics who advocate for greater respect for state sovereignty and increased public access to the process. 

As ICSID Secretary General Meg Kinnear has explained, the Proposals seek to address these twin concerns.[3] This Insight explains how they would do so. 

Efficiency

The Proposals include a number of suggestions that would memorialize some of the ICSID Secretariat's best practices.

Time-Limits: The Proposals would shorten anumber of time-limits in the Rules and encourage compliance with those time-limits. The Proposals would require tribunals and parties to "conduct the proceeding in an expeditious and cost-effective manner" (Rule 11(3)) and force tribunals to use their best efforts to meet deadlines (Rule 8(3)). The Proposals would also sanction a party's failure to meet a deadline. Rule 9(3) would require a tribunal to disregard any steps taken after the expiry of a time-limit unless the tribunal concludes that special circumstances exist. Moreover, under Rule 9(2), a tribunal could only extend a time-limit upon a party's reasoned application made prior to the expiry of the time-limit. At the very least, this provision should discourage inexpeditious conduct.

Interlocutory Procedural Motions: The Proposals seek to discourage the dilatory use of interlocutory procedural motions in two ways.First, the Proposals would require parties to file any preliminary objection to jurisdiction or defense that the claim is manifestly without legal merit as soon as possible (Rules 35 and 36). Second, a request to disqualify an arbitrator would not automatically suspend the arbitral proceedings (as the Rules currently provide) unless both parties so agree (Rule 29(3)). The Proposals would also set a time-limit of twenty days for any challenge—rather than impose a case-by-case review of timeliness as the previous version did[4] —and clarify that any challenge made immediately thereafter will be heard with the first challenge. 

Interestingly, the Proposals do not provide any guidance on the timing of a request for bifurcation or the standard applicable to such a request. While some states sought an automatic right to bifurcation[5] as in previous versions of the Rules, the Secretariat leaves these issues to the tribunal's discretion.

Expedited Arbitration: Responding to concerns about the length and cost of ICSID proceedings, the Proposals would allow parties to opt into an expedited arbitration procedure. The Proposals leave the applicability of such procedure to the parties—whether consent to such procedure is given ad hocor in a treaty or investment law that specifies that such procedure applies to certain categories of disputes and investors.

Legitimacy

As noted, the Proposals come at a time of increased opposition to ISDS and scrutiny of its ability to efficiently and fairly settle investor-state disputes. While substantive protections are beyond the remit of the ICSID Secretariat, the Proposals include a number of suggestions that address the procedural concerns of some ISDS critics.

Third-Party Funding: The Proposals would deal with the conflicts of interest that may arise from parties' increasing resort to third-party funding by requiring the disclosure of any such funding and the identity of the funder (Rule 21). This Rule stops short of mandating or authorizing production of the funding agreement itself or provisions of that agreement, a detail relevant to a security for costs application (see below), but not to conflicts of interest. 

Transparency: The Proposals would make it easier for ICSID to publish awards, orders, decisions, and other arbitration documents by deeming the parties' consent to publication after sixty days (Rule 44 and 45). Moreover, unless a party objects, the Proposals would allow tribunals to admit observers to hearings and even permit ICSID to publish hearing recordings and transcripts (Rule 47). 

The Proposals also clarify when a non-disputing party may offer submissions in an arbitration. Although no specific standard is provided, Rule 48 lays out factors that a tribunal should take into account when deciding whether to allow such participation. Furthermore, Rule 49 would give a party to a treaty that is not a party to a dispute the right to make written submissions on the application or interpretation of a treaty at issue in the dispute.[6] The Proposals, however, do not provide for a right of access to documents on file. Such access must be refused if one of the parties objects.

Provisional Measures: Rule 50 sets out the circumstances in which provisional measures may be recommended: (i) to prevent action that is likely to cause current or imminent harm or prejudice to the arbitral tribunal, (ii) to maintain or restore the status quopending determination of the dispute, and/or (iii) to preserve evidence.[7] This provision, however, gives no guidance as to what types of measures a tribunal may recommend, or the applicable standard. 

Security for Costs: Some critics have claimed that ISDS creates an asymmetry between states, which are often unable to collect on an award for costs, and investors, who may bring a claim without any real adverse risk.[8] Prior tribunals addressed security for costs as another provisional measure and applied the legal standard applicable to such measures. However, given that the harm from an unmet award for costs could occur long after the request for security is made, a moving party may struggle to show the urgency required to establish that a provisional measure is warranted.[9] Rule 51 would grant a tribunal the express authority to order security for costs, meaning tribunals would not be obliged to apply the legal standard applicable to provisional measures. 

While tribunals will now be able to apply an autonomous standard to applications for security for costs, the Proposals do not specify the applicable legal standard. As such, there may be some divergence between tribunals that apply a standard better equipped for commercial arbitration (looking to any change in circumstances from the date of the arbitration agreement)[10] and others that put great emphasis on proof of the solvency of the parties and the existence of any third-party funding arrangement.[11]

In any event, Rule 51 represents the most revolutionary modification in the Proposals because it allows a tribunal to "order" security for costs, rather than "recommend" such security, as is the case for provisional measures.[12] Moreover, Rule 51 allows a tribunal to suspend, and ultimately discontinue, the arbitration if the order is not complied with. In so doing, it adopts the approachof the RSM v. Santa Lucia tribunal, the only tribunal to have ordered security for costs under the ICSID Arbitration Rules. Contrary to an opinion expressed by the RSM tribunal,[13] however, the Proposals do not establish a hardline rule in favor of ordering security for costs where the non-moving party receives third party funding.

Disqualification of Arbitrators: Under Article 58 of the ICSID Convention, arbitrators must decide upon a challenge to their co-arbitrator except where such arbitrators are "equally divided," in which case the matter is referred to the Secretary General Critics, however, claim that co-arbitrators may be tainted with a perception of bias as a result of their working relationship with the challenged arbitrator. Doing away with this process would require an amendment to the Convention and cannot be done through a rule change by the Secretariat. Nonetheless, the Proposals give co-arbitrators greater freedom to defer decisions on disqualification to the ICSID Secretary General by adopting a broad understanding of the term "equally divided." According to Rule 30(2), this term not only refers to circumstances where the arbitrators are of different minds, but also where they are unable to decide on the challenge "for any reason." 

What's Next?

The Proposals are not a foregone conclusion. They will be subject to another round of comments before ICSID's governing body, the ICSID Administrative Council, will decide on their adoption in 2019 or 2020. Between now and then, the Proposals may evolve in ways that are difficult to foresee. 

What is clear is that the ICSID Rules will include significant modifications to some key provisions. However, the Proposals stop short of a complete overhaul of the ICSID system. The Secretariat has clearly rejected a number of the more radical suggestions—the inclusion of an emergency arbitrator provision, a summary procedure, or an outright ban on mass claims—and has declined to offer clarifications on the legal standards applicable to a number of key decisions, leaving those to the discretion of tribunals. 

While the Proposals will not satisfy the most stalwart of ISDS critics, they may appease the more cautious concerns of some critics. 

About the Author: Alexander G. Leventhal is a senior associate at Quinn Emanuel Urquhart & Sullivan LLP. The views expressed in this Insight are those of the author alone and do not reflect the opinions of Quinn Emanuel.