Private Sector


“Watered-down” changes to arbitration

21 December 2006

versión en español

A package of seven amendments to the rules and regulations of the Washington-based International Centre for the Settlement of Investment Disputes (ICSID) – the most popular venue for investment treaty arbitration – have been approved by an overwhelming majority of the Centre’s member governments.

According to sources, the ICSID Administrative Council – consisting of representatives from each of the 143 states which have ratified the ICSID Convention – has voted in favour of the amendments by an overwhelming margin.

The deadline for votes passed on February 24.

The amended rules, seen by Investment Treaty News, have been reworked several times since the ICSID Secretariat first floated the idea of procedural reform in October of 2004, in a paper titled “Possible Improvements of the Framework for ICSID Arbitration.” Following consultations with a range of member-governments, as well as stakeholders in the business, legal and civil society community (including the publishers of Investment Treaty News), a revised series of proposals were released in May of 2005.

Most notably, an earlier proposal for a centralized appeals facility, which would have had the authority to review investment arbitration awards, was discarded. In an explanatory note, ICSID officials noted that many commentators viewed the proposal for an international appeals facility as “premature”

The revised proposals were presented for further public comments, after which a second series of revisions were to be made to the proposals before they would be tendered to ICSID member-governments for approval.

Voting on the proposals took place in late 2005 and early 2006, however the text being voted upon was not released to the public at this time.

Recently, Investment Treaty News obtained a copy of the proposals which were distributed to all ICSID member-governments. The final proposals differed in some key respects from the last version of reforms which had been tendered for public comment in May of 2005.

Notably, a proposed amendment to open up arbitration hearings has been watered down significantly.

In 2005, a proposed amendment to ICSID arbitration rule 32 would have handed the tribunal greater discretion to open hearings to the public. The proposed rule read as follows at that time:

“After consultation with the Secretary General, and with the parties as far as possible, the tribunal may allow other persons … to observe all or part of the hearings ….”

However, following further public consultations, the proposal which was presented to member-governments for a final vote read as follows:

“Unless either party objects, the Tribunal, after consultation with the Secretary-General, may allow other persons … to observe all or part of the hearings.”

Prof. Christoph Schreuer, a professor of international law at the University of Vienna, and an expert on the ICSID system, observes that the new rule continues to provide parties with an effective veto over the opening of arbitral proceedings to non-parties. By contrast, the original proposal championed by the ICSID Secretariat – but nixed during consultations with the public and member-governments – would have removed such a veto.

As a result, the final change appears to do little to alter the actual substance of the current Rule 32 of the arbitration rules, which provides that hearings may be opened to the public, subject to the consent of the parties to an arbitration.

The change between the old rule and the revised one is “hardly a big difference,” says Prof. Schreuer of the University of Vienna. Under the existing approach, the parties’ consent is needed before third parties can gain attend oral hearings. In future, each party continues to enjoy a right to veto such open hearings.

Apart from the changes to the ICSID rules on open hearings, the new ICSID rules introduce other changes to the ICSID arbitration process, including a requirement that the Centre promptly publish excerpts of the legal reasoning of its arbitral tribunals.

While this rule-change does not give the Centre the unilateral right to publish arbitral awards in their entirety, it does bide ICSID to move swiftly to publish the relevant portions of such awards. As before, the consent of both parties to the arbitration is needed before the award can be published by ICSID in its entirety. This obstacle does not preclude a single party from publishing an award on its own, for example on the World Wide Web or through a legal reporting service.

The new ICSID rules also introduce a requirement that any requests by arbitrators for a fee higher than the rate agreed at the outset of an arbitration, should be tendered to the Secretary-General of ICSID, rather than to the parties to that arbitration.

This change is designed to alleviate the pressure which some parties may feel when confronted with requests from the presiding arbitrators for a hike in their fees. Investment Treaty News is aware of an ongoing ICSID arbitration where a respondent government has made clear to the Centre that it felt pressured into accepting a demand made by an arbitrator for a higher fee.

The new rules, which have yet to be made public – but which have been seen by ICSID member-governments – are expected to come into effect by mid-year.