Those that follow news in the world of ISDS (investor state dispute resolution) will not have missed the recent announcement by the International Centre for Settlement of Investment Disputes (“ICSID”) that it hopes to approve extensive changes to its rules and regulations by 21 March 2022.

The proposed changes to ICSID’s rules are a culmination of a consultation process with stakeholders that began in November 2016 and, since then, six working papers have been issued. Published with the last of these in November 2021 (Working Paper #6) was a complete set of amended rules.

So, what is the rationale behind the changes and what can we expect if the new rules are approved next month? ICSID has described the overarching goals of the amendments as those that are necessary to “modernise, simplify and streamline” the rules based on case experience, whilst at the same time “leveraging information technology to reduce the environmental footprint of ICSID proceedings”.

The new rules attempt to reduce the cost and environmental impact of proceedings by mandating electronic filing of documents, unless there are particular reasons for filing hard copies, bringing the ICSID rules in line with similar provisions found in commercial arbitration institutional rules. The timescale for the tribunal to render its final award has also been set at 240 days from the date of the last submission in an effort to allay common concerns about the length of investor state disputes.

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Transparency

One of the main categories of changes relate to increased transparency in the conduct and outcome of disputes. These amendments are likely to be a response to criticism about a perceived lack of accountability of tribunals in investor state disputes. Critics of ISDS have long argued that there is a public interest in disclosure where the involvement of states in disputes may result in tribunal awards of substantial damages that have to be paid to private companies from public funds.

Under the ICSID rules currently in force, the parties are required to consent to the publication of awards, but under the new Arbitration Rules, awards and other orders will be published automatically unless a party makes a clear objection within 60 days of the award or order. Objections appear to be limited to redactions as agreed between the parties. Where agreement cannot be reached on the extent or nature of redactions, the tribunal decides the dispute. Inevitably, it seems that these changes are unlikely to quell criticism of the process on transparency grounds because the parties retain a right to insist on redactions. Further, the tribunal is not permitted to disclose information that is confidential or “protected information”, which is very broadly defined.

" …The clarifications around transparency and third-party participation represent an important step in favour of allowing stakeholders access to proceedings and information relevant to pressing issues such as climate change, environment and sustainability. "

Another feature of the new amendments is the need for parties to disclose the identity of third-party funders. Under the new rules, parties are obliged to disclose the name and address of any non-party from which funds are obtained to pursue or defend a claim. This disclosure obligation extends to the names of any entities that control the funder. The tribunal also has the power to order disclosure of further information regarding the funding agreement. There has been an increase in the use of third-party funding in investor state disputes and these changes are seen as way of addressing potential conflicts of interest of arbitrators.

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Third party participation

The new rules allow third parties to a dispute to make written or oral submissions with the consent of the tribunal. The tribunal can also give a third party with such consent access to documents filed in the proceedings, provided that the other parties do not object.

It is often argued that the rights of third parties are affected by large infrastructure and energy projects that qualify as investments. Third parties who, for example, may wish to raise environmental concerns, do not usually have standing to bring their own claims under investment treaties. These changes represent an attempt by ICSID to allow legitimate stakeholders to participate in proceedings that may directly affect their rights.

The value of these changes in the context of this issue is, however, debateable. Participation depends on interested third parties being aware of a pending or ongoing case relevant to the rights. That awareness depends on the nature of disclosure permitted under the increased transparency provisions, which is not necessarily guaranteed. The increased participation of third parties also needs to be weighed against the possibility of it being potentially disruptive to the process and outcome of the main dispute and, for this reason, the tribunal retains a wide discretion in this regard.

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Award of costs

Under the current ICSID rules, when making an award for costs, tribunals are not expressly obliged to consider factors such as the outcome of the proceedings, the conduct of the parties, the complexity of the issues in dispute and the reasonableness of the costs claimed. Tribunals often required parties to simply bear their own costs. The new proposed rules make clear that these factors are considered.

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Access to the Additional Facility Rules

The current Additional Facility Rules allow for arbitration of investment disputes between a state and a foreign national, one of which is not an ICSID Contracting State or a national of an ICSID Contracting State. Proposed changes to the Additional Facility Rules mean that disputes under those rules can be brought in circumstances where both parties are not Contracting States or members of Contracting States under the ICSID Convention. In practical terms, this will allow groups of states like the European Union to settle their disputes under the Additional Facility Rules.  

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A step in the right direction?

The five-year consultation process and the set of amendments produced are a commendable effort by ICSID and the wider ISDS community to address common criticisms by the public and stakeholders of investment arbitration. The clarifications around transparency and third-party participation represent an important step in favour of allowing stakeholders access to proceedings and information relevant to pressing issues such as climate change, environment and sustainability. It will be interesting to see how these provisions are used in circumstances where national governments are increasingly being taken to court for breaching environmental laws.  

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If approved, the new rules will come into force on 1 July 2022.

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