Over the past few years, leading international arbitration administrators have made a concerted effort to minimize delay and expense by updating their rules and procedures. Starting in early 2017, several administrators — including the International Chamber of Commerce (ICC), the Hong Kong International Arbitration Centre (HKIAC) and the German Institution of Arbitration (DIS) — released draft revisions to their rules aimed at furthering transparency, particularly related to third-party funding, as well as additional provisions regarding multiparty and multicontract questions. Likewise, nations ranging from Australia to Argentina are considering amendments to their domestic arbitration laws to address some of these same issues.
This drive to streamline arbitrations began a decade ago when administrators like the Singapore International Arbitration Centre (SIAC) created expedited procedures for certain categories of cases. These efforts seem to have paid off. Recent statistics reflect that the average duration for arbitrations administered by HKIAC and the London Court of International Arbitration (LCIA) has dropped to 16 months, while cases administered by SIAC and the Stockholm Chamber of Commerce (SCC) averaged only one year. Costs were also down, as the LCIA, SCC and SIAC reported a range of $80,000–$200,000 (for three-arbitrator cases).
ICSID Overdue in Taking Steps to Streamline Arbitrations
One arbitral institution, however, could not boast such efficiency. The International Centre for Settlement of Investment Disputes (ICSID), the most utilized administrator for disputes between private investors and foreign governments, has long sought to alleviate its users’ concerns over the duration and cost of ICSID proceedings. One study showed that ICSID cases on average took three years or more to complete, and five-year arbitrations are not uncommon. ICSID costs typically surpass those of other institutions, starting with a filing fee of $25,000, plus advance payments of up to $150,000 per party to cover the costs of proceedings. The complexity of most investor-State matters often drives the amount of arbitrator fees and expenses. Also impacting both costs and delays are lengthy challenges to arbitrators and issues regarding third-party funding.
Proposed Amendments to Reduce Issues Plaguing Investor-State Arbitration
On Aug. 3, 2018, ICSID released a proposal for comprehensive changes to its rules. These proposed amendments, the first in over a decade, are the most far-reaching changes to ICSID’s rules since they were first adopted over 50 years ago. The stated purpose of these proposed amendments is to “modernize” the resolution of disputes between States and foreign investors by updating ICSID’s existing arbitration, conciliation and fact-finding rules, as well as introducing a new set of mediation rules.
Among the most significant proposed changes are the following:
- A new rule requiring disclosure of third-party funding. Third-party funding is rampant in international arbitration, as evidenced by an upsurge in third-party funders, funded cases, law firms working with third-party funders and reported cases involving issues relating to funding. (See, e.g., Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, April 2018.) In some instances, cases have been halted for months as parties fight over whether a party is obligated to be more transparent about such funding.
Under the proposed rules, and subject to certain requirements, a party may be obligated to disclose such funding, the name of the funder and any changes to the funding arrangement after the initial disclosure. Of course, individual States can still choose to prohibit third-party funding in their investment instruments, though a Working Paper prepared by ICSID’s Secretariat reflects that many States have not sought to do so.
- A revised process for challenging arbitrators. To streamline the arbitrator challenge process and to circumvent gamesmanship and delay tactics, ICSID proposed an expedited schedule for parties to file challenges to arbitrators, providing specified time limits and creating greater clarity as to when parties must raise such challenges. The current rules offer vague parameters, requiring challenges be made “promptly … before the proceeding is declared closed.”
The proposed rules require challenges to be filed within 20 days after the later of the constitution of the tribunal or the date on which the party first knew or should have known of the facts on which the challenge is based. The proposed rules also eliminate the automatic suspension of proceedings upon the filing of a challenge, instead providing that proceedings continue while the challenge is pending unless the parties agree on suspension. If the challenge is successful, a party may request reconsideration by the new tribunal of any order issued by the prior tribunal while the challenge was pending.
- A new stand-alone rule on security for costs. Presently, parties seeking security for costs must prove the existence of exceptional circumstances that make the provisional measure necessary. This is a difficult factual and legal standard to meet, with only one reported decision granting an application for security for costs.
The proposed rules clarify the approach for both counsel and the arbitrators. A tribunal need only look to the party’s ability to comply with an adverse decision on costs and other relevant circumstances. Tribunals are granted authority to suspend, and even discontinue, proceedings if the required security is not provided.
Until Rules Are Adopted, Experienced Counsel Can Ease the Pain
The proposed rules may not come into force for some time, if ever. Their adoption requires the approval of two-thirds of ICSID Member States (currently, 102 members), and a vote may not occur until 2020. In the meantime, investors with potential or existing ICSID arbitrations should confer with experienced counsel to ensure that steps are taken for as efficient an arbitration as possible. While some costs and delays are inevitable in ultra-complex investor-State disputes, experienced investor-State arbitration lawyers can devise strategies to limit these problems for a faster result.
Members of the McGuireWoods international arbitration team have been involved in some of the most important investor-State arbitrations. Please contact any of the authors to discuss the rules or other matters related to ICSID or investor-State arbitration.