Key changes in the new ICSID Arbitration Rules 2022

i. Introduction:

The Administrative Council of the International Centre for Settlement of Investment Disputes[1] (“ICSID”) recently ended the process for the review and consideration of proposed amendments to the ICSID Rules and Regulations, approving an integral set of amendments that includes the 2022 new Arbitration Rules, with the stated aim of modernizing Investment arbitration.

According to the ICSID, it was proposed to “simplify its procedural rules, with a view to achieving a more effective and accessible process for the resolution of controversies”[2].

Hence, after an extensive process of review, consultation and work that took more than five years, on May 21, 2022 the ICSID informed the approval [3] of its new procedural regulations to begin procedures (“2022 Institution Rules”), the new settlement rules (“2022 Settlement Rules”), the new ICSID arbitration rules CIADI (“2022 ICSID Arbitration Rules”), the new Additional Facility Rules (“2022 Additional Facility Rules”, and together with the foregoing, the so-called “ICSID Rules and Regulations”), and the Mediation Regulations before the ICSID.

In addition, a new version of the Administrative and Financial Regulations of the ICSID was approved (“2022 Administrative and Financial Regulations”), related to its internal organization.

ii. Background Information:

The ICSID Rules and Regulations were initially adopted in 1967, to be effective on January 1st, 1968, while the Additional Facility Rules was adopted in 1978.

Since its adoption, there have been three rounds of amendments to the Arbitration Rules[4], and the last one was effective in April 2006.

The recently ended amendment process began in October 2016, by means of an invitation to the Member States and, subsequently, to the public in general, for them to send their proposals on issues or matters that deserved to be considered. As a result of said process, since then and up to November 2021 six work papers were published on the proposals of amendments to the rules.

The ICSID’s intent was to modernize the rules based on the experience acquired in the processes that it manages, by adding and encoding in some cases arbitral practices that the Arbitral Tribunals were already applying in the procedures administered under the ICSID, or otherwise, by introducing news with the purpose of speeding up the processes and making them more effective and transparent, among other aspects in which special focus was made.

iii. Key changes to the ICSID 2022 Arbitration Rules:

Next, the most relevant changes and news that the 2022 ICSID Arbitration Rules provide are analyzed.

1. Obligation to Disclose Third Parties’ Financing.

With the aim of strengthening the transparency of the process and the Independence of arbitrators, Rule 14 sets forth the parties’ obligation to disclose the name and address of any third party from which they received funds, either directly or indirectly, for the filing of, or defense in a procedure through a gift or subvention, or a change of a remuneration depending on the result of the procedure.

If the third party that grants financing is a legal person, the duty to inform in charge of the party includes disclosing the names of the persons and entities that own and control said legal person.

The name of an involved financer must be disclosed and supplied at the time the application for arbitration is registered or, as applicable, immediately after concluding the financing agreement if it happens after the registration, and shall be transmitted to the parties and to any arbitrator proposed for appointment or appointed in the procedure, so as to avoid unintentional conflicts of interests.

Therefore, the obligation to disclose is applied during the whole procedure; and the Arbitral Tribunal is empowered to require additional information with respect to the financing agreement and the third party funding by virtue of Rule 36(3).

The duty to disclose the identity of the third party funding that is now included in Rule 14 reflects a practice that had already been applied at times by different Arbitral Tribunals ICSID[5].

The main convenience of this provision is that the parties may assist the proposed and/or appointed arbitrators with their obligation to declare to the General Secretary its independence, impartiality and availability for appointment (pursuant to Rule 19.3.b).

Trying to avoid unintentional conflicts of interests, the new rule reduces the possibilities of objecting to awards at the stage of enforcement for conflicts of interests in the arbitration procedure and that may have been related to the third party funding.

In this aspect, the reform is in line with the criterion adopted by other arbitral institutions when updating their respective arbitration rules[6].

2. Challenge of Arbitrators.

Rule 22(1) sets forth that a party may apply for the challenge of one or more arbitrators within 21 days following the constitution of the Arbitral Tribunal or as from the date on which the reason of the challenge should be known by said party (AR22).

Rule 22(2) adds the powers of the parties to agree upon non-suspending the procedure in whole, or in part, while the decision of the challenging proposal is pending, allowing to minimize the delay caused by said application.

Otherwise, the procedure shall be suspended as from the presentation of the challenge proposal until after a decision is issued on it, as provided for by Rule 9(6) of the Arbitration Rules ICSID 2006.

Rule 23(3) sets forth as a change that the decision on challenging shall be resolved, to the extent possible, within 30 days following the compliance with the procedure fixed in Rules 22 and 23.The arbitrators who are not challenged shall decide the challenge, subject to the provisions of Rule 23.

3. Distribution of Legal Costs.

Rule 52(1) provides that, when exercising its discretion to order the payment of the legal costs, the Arbitral Tribunals must consider: (a) the result of the procedure or a part thereof; (b) the conduct of the parties, including how they acted in an expedited and efficient manner with respect to costs and compliance with the rules, orders and decisions; (c) the complexity of the matters; and (d) the reasonableness of the claimed costs.

In turn, Rule 52(2) sets forth that if an award is issued declaring that a claim is manifestly unfounded pursuant to Rule 41(3), the reasonable costs shall be granted to the winning party, unless the Arbitral Tribunal determines that there existed special circumstances justifying a different distribution of legal costs.

Finally, and in line with the standard of transparency and substantiation that seeks to strengthen itself with the ICSID 2022 Arbitration Rules, Rule 52(4) sets forth that the Arbitral Tribunal shall ensure that all the decisions on costs be motivated and make-up the award.

4. Bond or indemnities for Costs.

Rule 53 sets forth the power that, in certain circumstances, and upon the petition of any of the parties, the Arbitral Tribunal may order any of the parties that has filed a complaint or counterclaim, that it shall grant an indemnity for costs.

To resolve this issue, the Tribunal shall consider all the relevant circumstances, including[7]:

• said party’s capacity to perform an adverse decision regarding costs;
• said party’s will to perform an adverse decision regarding costs;
• the effect that the granting of said indemnity may have on said party’s capacity to move on with its complaint or counterclaim;
• the parties’ conduct;
• the existence of third party’s financing.

Hence, a practice set forth in the arbitral procedures managed under the ICSID is encoded, which in the past decided or granted indemnities for costs raised as provisional measures[8].

5. Transparency of the procedure.

It is clear that the level of confidentiality or transparency within the framework of the ICSID arbitration depends to a great extent on the parties’ agreement, on the applicable treaty of the decisions of the Arbitral Tribunal.

However, within the changes included by the 2022 ICSID Arbitration Rules, there are a set of regulations intended to promote the transparency of the arbitral procedure, in balance with the duty of confidentiality:

–     Publication of Awards: The ICSID Convention requires the parties’ consent to publish an award, a rule that is still in force, since the ICSID Convention has not been reformed.

However, the new provision included in Rule 62 of the 2022 ICSID Arbitration Rules, considers that it is assumed that a party has consented to published every award, a supplementary decision on an award, for the rectification, clarification, and review of an award and every decision on annulment, unless it objects in writing to its publication within 60 days following the remittance of the document.

If one of the parties objects to its publication, then the ICSID shall publish extracts of the award -or of the documents mentioned above -, subject to the consultation process with the parties and within the term set forth to do it in Rule 62(4).

Publications shall be made by suppressing the text agreed upon by the parties or as resolved in case of dispute (Rules 63 and 64), and shall not comprise confidential or protected information for publishing purposes (Rule 66).

–     Open hearings: Hearings shall be open unless any of the parties objects to it (Rule 65).

In the event that open hearings are held, the Arbitral Tribunal shall provide for the proceedings to avoid the disclosure of confidential or protected information (as defined in Rule 66 of the 2022 ICSID Arbitration Rules).

Likewise, upon one party’s request, the ICSID shall publish recordings or transcriptions of the hearings, unless the other party objects to it and always protecting non-disclosure of confidential or protected information.

–     Participation of non-disputing Parties: The criteria to admit the presentation of writings to non-disputing parties are modified (Rule 67).

To resolve their admission, in addition to the parties’ observations, the Arbitral Tribunal shall consider all the relevant circumstances, including:

(a) if the writing would refer to an issue within the scope of difference;

(b) how would the writing help the Tribunal in the determination of fact or of law related to the procedure on bringing a particular perspective, knowledge or vision other than those of the parties;

(c) if the non-disputing party has a significant interest in the procedure;

(d) the identity, activities, organization and owners of the non-disputing party, including all the direct or indirect membership between the non-disputing party, a party or a non-disputing party to the treaty; and

(e) if any person or entity shall supply the non-disputing party with financial assistance or other type of assistance to file the writing.

–     Participation of non-disputing Parties to the Treaty: Rule 68 sets forth the criteria to admit the presentation of writings to non-disputing parties of the treaties.

6. Encoding of arbitral practices and procedural modifications.

With the aim at speeding up and making the arbitral procedures more efficient, the 2022 ICSID Arbitration Rules encode different established practices that occasionally were already applied by the Arbitral Tribunals, while it sets forth some procedural news, among which  the following stand out:

• All the presentations shall have an electronic format, unless, in special circumstances, the Arbitral Tribunal orders its paper-based presentation (Rule 4, “Presentation Method”).

• The term for the parties to reach an agreement on the uneven number of arbitrators that shall constitute the Arbitral Tribunal and the appointment method is shortened: from 60 to 45 days (Rule 15, “Method of Constitution of the Tribunal”).

• It is provided that the First Session shall be held within 60 days following the constitution of the Arbitral Tribunal -or within any other term agreed upon by the parties-, and the first procedural resolution shall be issued within 15 days following the session. In turn, it is provided that the first sessions may be held in person or remotely, and that the parties shall discuss if the hearing should be held in person or remotely. If a first session cannot be called within 60 days following the constitution, the Tribunal may hold the First Session among the parties and the President of the Tribunal, or only among the members of the Tribunal based on the parties’ written presentations (Rule 29, “First Session”).

• The term to file the process of termination of the procedure due to the abandonment of action is shortened: from six months to 150 consecutive days (Rule 57, “Discontinuation for the Parties’ Inaction”).

• The plea related to the evident lack of legal merits is considered independently from a claim that the Defendant may file at the latest 45 days after the constitution of the Arbitral Tribunal, and that may be referred to the merits of the claim, the ICSID’s jurisdiction or the Tribunal’s jurisdiction (Rule 41, “Evident Lack of Legal Merits”). This proceeding will coexist with the classic preliminary pleas, related to jurisdiction and authority issues (now, Rule 43, “Preliminary Pleas”).

• Also, the application for bifurcation is specifically regulated (Rules 42-45).

Bifurcation requires that the Tribunal consider all the relevant circumstances, including the degree in which bifurcation would materially reduce time and cost of the proceedings, it would resolve the whole or a substantial part of the dispute and may address issues practically in separate phases.

It is provided that, if the Tribunal orders bifurcation by virtue of this rule, it shall suspend the procedure regarding the issues that should be addressed in a subsequent phase, unless otherwise agreed upon by the parties. (Rule 42, “Bifurcation”).

• The parties may agree to consolidate or coordinate related procedures (Rule 46, “Joinder or Coordination of Arbitration”).

• It is added that provisional measures require that the Arbitral Tribunal consider the urgency and need and the effect that the measures would have in both parties (Rule 47 (3) ).

• It is set forth that, unless otherwise agreed upon by the parties, any of them may file an incidental or additional complaint or counterclaim (“subordinate complaint”), directly related to the purpose of the difference provided that the subordinate complaint , is within the scope of the parties’ consent and the ICID’s jurisdiction. (Rule 48).

Every incidental or additional complaint shall be filed in the replication at the latest, and every counterclaim shall be filed no later than in the reply memorial, unless the Tribunal decides otherwise.

• Even though it reflects the existing practice, it is specified now that the orders and decisions shall state the reasons on which they are based, and that they may be signed by the President in the name of the Tribunal (Rule 27, “Resolutions and Decisions’”).

• The Arbitral Tribunal is empowered -unless otherwise agreed upon by the Parties, and after the consultation thereof – to appoint independent expert witnesses to inform it (Rule 39 (1) ).

• The term to render the award is specified, according to the following (Rule 58, “Terms for the Award”):

(a) 60 days after the constitution of the Tribunal, or the last presentation, if the award is rendered by virtue of Rule 41(3) whichever is later;

(b) 180 days after the last presentation, if the award is rendered by virtue of Rule 44(3)(c); or

(c) 240 days after the last presentation in all the other cases.

• It is decided that, in case of non-compliance with its terms, the Arbitral Court shall be obligated to notify the parties on the special circumstances that justify the delay and the date the rendering of the resolution, decision or award is expected (Rule 12, “Terms Applicable to the Tribunal”).

7. Expedited Arbitration.

One of the main news of the 2022 ICSID’s Arbitration Rules is the creation of the “Expedited Arbitration”, as an accelerated or express proceeding, that the parties may join at any time, with reduced terms and less procedural proceedings.

The ICSID points out that accelerated rules “may be particularly useful to provide access to investment arbitration for small and medium enterprises, and it is expected that the consent to apply for the accelerated process be included in contracts and treaties”[9].

Expedite Arbitration is applicable if the parties so agree upon. Their main features are the following:

• A specific method is provided to constitute the Arbitral Tribunal, which may be in charge of a Single Arbitrator, or of three members;
• The First Session shall be held within 30 days following the constitution of the Arbitral Tribunal, which will be carried out remotely, unless the parties and the Tribunal agree to hold it in person;
• neither the evident lack of legal merits, nor the application for bifurcation is contemplated, therefore the issues on jurisdiction, merits and quantum would be considered in a single arbitration phase;
• the joinder or coordination of Arbitrations is not contemplated;
• shorter terms, the award should be rendered within 120 days following the hearing;
• unlimited length of writings;
• limited procedural appeals, and accelerated annulment procedures.

In turn, it is set forth that the parties may at any time stop expedite arbitration by jointly notifying in writing their agreement to the Arbitral Tribunal and to the General Secretary; or otherwise, that, upon one of the parties’ request, the Tribunal may decide that an arbitration should not be pending expeditiously[10].

At this stage, it is observed that the ICSID did not want to impose the obligatoriness of this type of procedure on the basis of the amount of the dispute subject to arbitration, at the parties’ option and, naturally, to the analysis made in each case with respect to its eventual advisability.

v. Effectiveness:

It is set forth that the 2022 ICSID Arbitration Rules shall be effective on July 1^st, 2022, and shall apply the arbitration procedures to be filed in which the parties had given their consent to arbitration as from said date.

The provisions of article 44 of the ICSID Convention are applicable to arbitrations at present pending. Said provisions set forth the following:

“Every arbitration proceeding shall be handled according to the provisions of this Section and, unless otherwise agreed upon by the parties, in accordance with the Arbitration Rules in force on the date on which the parties consented to arbitration. Any procedural issue not provided for in this Section, in the Arbitration Rules or in the other rules agreed upon the parties, shall be resolved by the Tribunal.” (Emphasis added)[11]

That is the reason why, the 2022 ICSID Arbitration Rules do not displace the arbitration rules at present in force or applicable to ongoing arbitrations, but they will coexist with the same.

vi. Which other news are included in the proceedings before the ICSID?:

As mentioned in the introduction, the 2022 Institution Rules, the 2022 Settlement Rules, the 2022 Additional Facility Rules, and the ICSID Mediation Rules were approved also.

Even though the analysis thereof exceeds this article, among the relevant news added to the new Rules and Regulations of the ICSID, the following stand out:

• 2022 Additional Facility Rules[12]:

The ICSID Additional Facility Rules are modified to extend its jurisdiction, allowing them to submit to its jurisdiction in arbitration and settlement procedures, in which cases neither the Member State in the dispute nor the State of origin of the investor prove to be Contracting States of the ICSID’s Agreement, as well as those cases in which a Regional Organization of Economic Integration is a party to the dispute.

• 2022 Settlement Rules[13]:

The Settlement Rules are reviewed and updated, reducing proceedings and terms, and reinforcing key aspects like confidentiality (the use of the information exchanged within the framework of other proceedings, Rule 10 is regulated, and transparency (the duty to disclose the existence of a third party funding is likewise added, Rule 12).

• 2022 Fact finding Rules[14]:

The investigation and fact finding procedure that may be used, both by States or foreign investing citizens, for objective fact finding related to an investment that could resolve a legal dispute between the parties that is subject to the ICSID.

It may be filed as an autonomous procedure, or in aid of arbitration.

• ICSID Mediation Rules[15].

The ICSID has developed also new and independent mediation rules, which allow the parties to seek a mediated resolution of all, or part, of a dispute with the assistance of one or two mediators.

The same may be filed as an autonomous procedure, or in combination with an arbitration proceeding.

vii. Final comment:

The recently approved amendments, which are included in the 2022 ICSID Arbitration Rules, represent important changes with respect to the rules in force, even when they mainly gather the arbitral experience and practice already established by the Arbitral Tribunals managed by the ICSID.

These changes are, partly, necessary to keep the arbitral process before the ICSID updated, to harmonize criteria and provide clear procedural rules, filing more efficient, flexible and transparent arbitral proceedings, in line with the interests declared by the ICSID and focused in modernizing investment arbitration.

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[1] The ICSID is established by the Convention on Settlement of Investment Disputes between States and Nationals of Other States (“Convention”). The Convention was effective on October 14, 1966, when it was ratified by 20 countries. At present, more than 150 countries have ratified the Convention to become Member States. In accordance with the provisions of the Convention, the ICSID provides services for the settlement and arbitration of investment disputes between Contracting States and nationals of other Contracting States.

[2] ICSID’s Communiqué dated 01.22.2022, in El CIADI somete a votación del Consejo Administrativo enmiendas a sus Reglas y Reglamentos

[3] ICSID’s Communiqué dated 03.21.2022, in ICSID Administrative Council Approves Amendment of ICSID Rules

[4] The first amendment was approved and effective on 09.26.1984; the second one was approved on 09.29.2002 and effective on 01.01.2003, and the third one was approved in year 2006 and effective on 04.10.2006.

[5] Among others the following stand out, “EUROGAS INC. and BELMONT RESOURCES INC. vs. SLOVAK REPUBLIC”, ICSID Case No. ARB/14/14, in which the Arbitral Tribunal ordered the plaintiff to disclose the identity of the third party funding, and that the third party funding had the normal confidentiality obligations, and at the same time required the presentation of different documents (see transcription of the hearing on provisional measures dated 03.17.2015, page 145, http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C3604/DC6411_En.pdf; and §  108 and 109 of the award dated August 18, 2017, http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C3604/DC11035_En.pdf ); “Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. vs Turkmenistan”, ICSID Case No. ARB/12/6, Procedural Order Nº 3, in which it was resolved that: “8. The Tribunal has decided that Claimants should disclose whether their claims in this arbitration are being funded by a third-party/parties, and, if so, the names and details of the third-party funding(s) and the terms of that funding. The Tribunal’s decision is based on the following factors.- 9. First, the importance of ensuring the integrity of the proceedings and to determine whether any of the arbitrators are affected by the existence of a third-party funding. In this respect the Tribunal considers that transparency as to the existence of a third-party funding is important in cases like this. 10. Second, although it has not yet done so, Respondent has indicated that it will be making an application for security for costs. (…)” 

[6] On this respect, the ICC 2021 Arbitration Rules included paragraph 7) o article 11, that sets forth each party’s obligation to  inform the ICC’s Secretariat, the arbitral tribunal and the other parties, on the existence and identity of any third party with which said party has executed an agreement with the purpose of paying the cost of the arbitration claims or defenses (third party funding), and based on them said third party has an interest in the arbitration outcome (see article 11(7) of  the ICC 2021 Rules).

[7] Rule 53(3) and (4).

[8] See among others, “RSM Production Corporation vs. Santa Lucía”, ICSID Case, Nº ARB/12/10, Decision on application for payment guarantee of Santa Lucía, August 12, 2014.

[9] ICSID, “Updated Backgrounder on Proposals for Amendment of the ICSID Rules”, June 15, 2021, page 5: “The expedited rules may be particularly helpful in providing access to investment arbitration for small and medium sized companies, and it is hoped that consent to apply the expedited process will be included in contracts and in treaties.”

[10] On deciding said request, the Tribunal shall consider the complexity of the issues, the stage of the procedure and all the other relevant circumstances (Rule 86 (2) ).

[11] In the event of claims under investment protection treaties, the reading of Pérez Pacheco, Yaritza, “State Consent to the ICSID’s Arbitration”, Lessons and Essays, Nro. 91, 2013, School of Law, University of Buenos Aires, pages 19-57 is suggested.

[12] Proposals For Amendment of the ICSID Additional Facility Rules

[13] Proposals For Amendment Of The Icsid Rules

[14] Proposed Regulations And Rules For Icsid Fact-Finding Proceedings

[15] Proposed Regulations And Rules For Icsid Mediation Proceedings