World Bank dispute arbitration mechanism publishes proposed rule changes

6 December 2018

In August, the International Centre for Settlement of Investment Disputes (ICSID, the World Bank arm for investor-state dispute arbitration), has published proposed changes to its rules for resolving disputes between states and foreign investors (see Update 66). It launched the current amendment process in October 2016 and invited member states and the public to comment over the subsequent two years, until 28 December 2018.

It will now propose a package of amendments for further consideration and potential adoption in 2019 or 2020.

The proposed changes include amendments to the ICSID arbitration rules regarding third party funding, publishing awards, ordering security for costs and disqualification of arbitrators.

In recent years, ICSID has faced several controversies relating to its role in undermining a state’s ‘right to regulate’ its own policy space in the face of bilateral investment treaty (BIT) negotiations (see Observer Winter 2013). In November 2017, ICSID ruled in favour of Canadian mining company Bear Creek in a dispute with the Peruvian government, ordering the latter to pay $31 million in damages to the company for breaching the Canada–Peru Free Trade Agreement. This followed the government’s move to block the company’s operation in the wake of protests from the Aymara community, who raised concerns about the environmental impact of Bear Creek’s proposed mines. This year, ICSID also rejected Zimbabwe’s bid to annul a $195 million award to the von Pezold family, after ICSID granted the award to the family in 2015, on the grounds that Zimbabwe had breached its bilateral investment treaties with Germany and Switzerland by expropriating their property during its land reform programme.

ICSID has long been subject to questions over its legitimacy by both member states and civil society organisations (see Observer Summer 2014). It has faced accusations of corporate bias for failing to account for the broader social and environmental impacts of investments (see Observer Autumn 2015). This is particularly pertinent in Latin America, where Bolivia, Venezuela and Ecuador have withdrawn from the mechanism (see Update 56), and there is speculation that Argentina may follow suit. Others remain concerned that hostility towards ICSID will hamper their creditworthiness, particularly for World Bank loans and grants.