Recent Developments at ICSID: The 2006 Amendments of the Arbitration Rules

01 November 2006

DECLARATION OF THE ARBITRATORS

ICSID arbitration rule 6 provides inter alia that all arbitrators shall make a declaration upon their appointment to the effect that the arbitrator shall judge fairly as between the parties, according to the applicable law, and shall not accept any instruction or compensation with regard to the proceeding from any source except as provided in the ICSID Convention and in the Centre’s regulations and rules. Arbitrators must also attach a statement to the declaration regarding their past and present professional, business and other relationships, if any, with the parties.

According to the amended rule 6, arbitrators must also include in the statement any circumstances likely to give rise to doubts as to their reliability for independent judgment. Pursuant to the ICSID Convention, the reliability of a person to exercise independent judgment is one of the requisites for appointment as an ICSID arbitrator and is an obligation that continues for the duration of a proceeding. Indeed, lack of reliability is one of the main grounds for the proposal of disqualification of arbitrators. Under article 9 of the ICC rules, each arbitrator must submit an unqualified or qualified statement of independence before the arbitrator’s confirmation by the secretary general of the ICC Court. Under article 9 of the UNCITRAL rules, prospective arbitrators shall disclose to those who approach them in connection with their possible appointment any circumstances likely to give rise to justifiable doubts as to their impartiality or independence. Once appointed, arbitrators have a continuous obligation to inform the parties of any such circumstances if they arise.

Although the three sets of rules pursue the same objective, the criteria and terms used are specific to each set of rules. It is also worth noting that disclosure in the ICSID context is only made to the parties to the arbitration once the tribunal has been constituted; in the UNCITRAL and the ICC systems, this takes place before the constitution of the tribunal. This is one of the specific features of the ICSID rules.

ISSUE OF TRANSPARENCY

The new ICSID rules contain three provisions specially designed to increase the transparency of ICSID arbitral proceedings.

ICSID rule 32 on the oral procedure now permits, unless either party objects, the tribunal, after consultation with the secretary general, to allow other persons, besides the parties, their agents, counsel and advocates, witnesses and experts during their testimony, and tribunal officers, to attend or observe all or part of the hearings, subject to appropriate logistical arrangements. This provision answers specific needs that arise in the context of investor–state arbitration and the increasing demand for transparency in proceedings that could involve important issues of public interest. A provision of this type is quite uncommon in arbitration. Under the ICC rules, the privacy of the hearing is protected and article 21(3) provides that, save with the approval of the tribunal and the parties, persons not involved in the proceedings shall not be admitted to hearing. However, it must be said that article 21(3) concerns more whether witnesses shall retire from the hearing room than the matter of opening hearings to members of the public.

Similarly to hearings conducted under the ICC rules, hearings conducted pursuant to the article 25(4) of the UNCITRAL rules are held in camera. However, the parties may agree to the presence of persons other than the parties and their representatives. In the case of Methanex Corporation v the United States of America (which was conducted under chapter 11 of the North American Free Trade Agreement pursuant to the UNCITRAL Arbitration Rules), the tribunal insisted on the privacy of oral hearings when a nongovernmental organisation requested in 2000 to attend hearings, taking into account that the claimant objected at the time to such a presence. Ultimately, the parties agreed to make the 2004 final hearing open to the public.

The issue of the privacy of hearings is intimately related to the question of whether a general duty of confidentiality exists in arbitral proceedings and is connected with the discussion regarding participation by non-parties.

Participation of non-disputing parties is discussed in ICSID rule 37, which deals in particular with submissions by nondisputing parties and officially introduces the mechanism of amicus curiae into the ICSID system. This rule, in fact, codifies an already accepted practice. Indeed, some ICSID tribunals have accepted the principle of entertaining legal briefs from interested civil society groups in cases potentially involving matters of public interest, including human rights considerations, and concerning basic public services. In deciding whether to grant such authorisation, tribunals decided that they would assess the bona fides and expertise of the applicants and determine whether they should be given leave to submit a legal submission in the case. ICSID tribunals have accepted amicus submissions from persons that established to the tribunal’s satisfaction that they had the expertise, experience and independence to be of assistance in the case. This was also the approach of the above-mentioned Methanex tribunal, which decided that it could accept amicus curiae briefs. However, such participation is closely regulated. As rule 37(2) specifies:

In determining whether to allow such a filing, the Tribunal shall consider, among other things, the extent to which:

(a) the nondisputing party submission would assist the Tribunal in the determination of a factual or legal issue related to the proceeding by bringing a perspective, particular knowledge or insight that is different from that of the disputing parties;

(b) the non-disputing party submission would address a matter within the scope of the dispute;

This is in line with the current practice of arbitral tribunals and with the 1991 interpretation by the NAFTA Free Trade Commission of non-disputing party participation. One might point out that the significant interest of the non-disputing party is a standard that should be irrelevant in commercial arbitration. In principle, arbitrators should consider the resolution of the dispute as their only objective and should seek the guidance of non-disputing parties in this objective only. That this standard is included in rule 37 illustrates once more the specific nature of ICSID arbitration.

In the same vein of increasing transparency in ICSID proceedings, rule 48 concerning the publication of awards was slightly modified. Article 48(5) of the ICSID Convention and the first sentence of rule 48(4) preclude ICSID from publishing a Convention award without the consent of the parties. To facilitate the prompt release of excerpts of awards, the 2006 amendment makes their early publication mandatory. Rule 48(4) now reads: “The Centre shall not publish the award without the consent of the parties. The Centre shall, however, promptly include in its publications excerpts of the legal reasoning of the Tribunal.” Publication of awards will be limited to the legal reasoning of the tribunal but should nevertheless assist in developing international law and transparency. This rule is specific to the ICSID system. Indeed, article 32(5) of the UNCITRAL rules provides that an award may be published only with the consent of both parties and the ICC rules contain no provisions to this effect.

PROVISIONAL MEASURES

The mechanism of provisional measures is not unknown in the ICSID system. Under rule 39, at any time after the initiation of the proceeding, a party may request that provisional measures for the preservation of its rights be recommended by the tribunal. Under the old rules, however, the parties had to await the constitution of the tribunal to present such a demand. The new amendment offers the parties an expedited process that allows the request to be examined by a tribunal as soon as the tribunal is constituted, with each party having an opportunity to present its observations while the tribunal was being constituted.

The request might therefore be presented to ICSID and be dealt with by the tribunal once it is constituted. Expedited procedure for provisional measures is necessarily excluded from the ad hoc UNCITRAL arbitration. In ICC proceedings, however, as soon as a file has been transmitted to the tribunal, the tribunal may, upon the request of a party, order any interim measures it deems appropriate. The parties do not need to wait until the drafting of the terms of reference to make such a request. In addition, there has been a progressive emergence of a pre-arbitral referee in ICC proceedings. This, as well as the expedited procedure for request for provisional measures under the ICSID and ICC rules, evidences the ever increasing need for provisional measures in investment and commercial arbitration. This is especially welcome in the ICSID context as, contrarily to UNCITRAL and ICC arbitrations, the parties have no access to municipal courts for provisional measures unless they have expressly agreed otherwise in the agreement recording their consent to ICSID jurisdiction.

PRELIMINARY OBJECTIONS

The most debated amendment to the ICSID rules has been the introduction in rule 41 of an expedited preliminary objection. The new arbitration rule 41(5) reads:

Unless the parties have agreed to another expedited procedure for making preliminary objections, a party may, no later than 30 days after the constitution of the Tribunal, and in any event before the first session of the Tribunal, file an objection that a claim is manifestly without legal merit. The party shall specify as precisely as possible the basis for the objection. The Tribunal, after giving the parties the opportunity to present their observations on the objection, shall, at its first session or promptly thereafter, notify the parties of its decision on the objection. The decision of the Tribunal shall be without prejudice to right of a party to file an objection pursuant to paragraph (1) or to object, in the course of the proceeding, that a claim lacks legal merit.

The rationale behind the new paragraph (5) in rule 41 is to offer the respondent state the possibility of raising an objection that the entire case manifestly lacks legal merit, something it may not do during the registration process since registration of a request is done on the basis of information contained in the request. The expedited objection can focus on jurisdiction, the merits, or both. A tribunal shall either dismiss the entire case and render an award to that effect or decide to continue to hear the entire case. It is, in fact, not envisaged that a tribunal would render a partial award nor decide a case summarily, since the ICSID framework does not recognise such concepts. In any event, rule 41(5) shall not preclude a party from raising other objections throughout the remainder of the proceeding. No such expedited mechanism is known in the UNCITRAL or ICC rules.

One might wonder how in practice this mechanism will work, especially since its time frame is very tight. A party may present a preliminary objection no later than 30 days after the constitution of the tribunal, and in any event before its first session. The parties’ observations, therefore, would be exchanged before the first session, which is supposed to be held within 60 days of the constitution of the tribunal unless the parties agree otherwise.

The 2006 ICSID Arbitration rules have been influenced to a certain extent by provisions contained in other sets of rules, including, for example, considerations regarding the arbitrators’ continuous disclosure obligation. The new rules also appear to have been influenced by the statements and declarations of the NAFTA Free Trade Commission. Nevertheless, as discussed above, they do contain distinctive provisions that underline once more ICSID’s uniqueness and its status in investor– state arbitration.

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