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Headquarters for The World Bank's International Center for Settlement of Investment Disputes  in Washington, DC. (Photo: ICSID)
Thursday, August 4, 2022

ICSID: Faster, More Transparent Arbitrations?

New rules expedite arbitration process and increase transparency.

Inter-American Dialogue

The amended Regulations and Rules of the World Bank’s Centre for Settlement of Investment Disputes, or ICSID, took effect on July 1. The long-anticipated changes relate to transparency, such as disclosure of third-party funding for the pursuit or defense of cases, as well as efficiency and timelines related to cases and entities’ access to arbitration through ICSID. What are the most significant changes to the ICSID rules for Latin American countries and investors in the region? Who will benefit most from the rule changes, and do the changes have any drawbacks? What are the biggest trends to expect in Latin American and Caribbean dispute settlements in the years ahead?

Marco Molina, partner at BakerHostetler: It is no secret there are barriers to entry in investment arbitration in Latin America. Arbitrations take years to resolve. Submissions can run thousands of pages long. Parties submitting in Spanish may be required to translate their pleadings into English because of the lack of arbitrators fluent in Spanish. In the end, a claimant could rack up $10 million to $20 million prosecuting an investment arbitration claim, with no guarantee it will get back any of those costs should it prevail. The cost-prohibitive nature of investment arbitration forces would-be claimants in Latin America to walk away from meritorious claims or seek cheap stopgap remedies under local laws that do little, if anything, to make them whole. States also feel the financial crunch. Many Latin American states hire counsel under extremely restrictive budgets that make it difficult, if not impossible, to provide a comprehensive defense. The International Centre for Settlement of Investment Disputes (ICSID) attempted to address these issues with its revised arbitration rules, which took effect this month. Among other things, these revisions: allow for ‘Expedited Arbitration’ proceedings; encourage tribunals to issue awards promptly; and allow tribunals to streamline the scope of the disputes through intermittent ‘management conferences.’ While these revisions are promising, their application, in many cases, appears to be contingent on the tribunal’s discretion or the parties’ consent, neither of which can be assured. We will know more once ICSID publishes its long-awaited guidance on these revisions in the coming weeks. But at least ICSID is addressing the elephant in the arbitration room.

María Paz Lestido, associate, and Juan Pedro Pomés, senior associate, at Freshfields Bruckhaus Deringer: The 2022 ICSID rules introduce various innovations and significant changes to the ICSID arbitration process, mostly aimed at increasing efficiency and transparency. In terms of transparency, the rules now require ICSID to publish all awards, orders and other decisions, and contain disclosure requirements regarding third-party funders (TPFs). The regulation of TPFs and, in particular, how to avoid conflicts of interest, was thoroughly discussed during the public consultations leading to the amendments to the ICSID rules. One notable innovation is an expedited arbitration process that, through shorter time limits, aims at resolving disputes in less time and at a lower cost. Disputing parties must expressly consent to apply the expedited procedure. Whether states will accept, with any frequency, the resolution of investment disputes on an expedited timetable remains to be seen. ICSID also rolled out amendments to its ‘Additional Facility’ rules. These are ICSID-run arbitrations that are not governed by the ICSID Convention. Previously, at least one of the parties had to have the nationality of a state party to the ICSID Convention. This requirement has been removed, making it easier to use the Additional Facility in cases involving states that have not ratified the ICSID Convention, such as Brazil. This could significantly increase ICSID’s caseload in the future. In terms of future trends, post-pandemic economic recovery policies, as well as environmental measures, being adopted by Latin American governments are likely to have significant impacts on foreign investment, which may well give rise to new waves of disputes.

Carlos José Valderrama, independent practitioner and arbitrator: Rule 14—Notice of Third-Party Funding—is a well-celebrated amendment to the arbitration rules. This is of key importance as it adds another layer to the assessment performed in order to clear potential conflicts in relation to members of the tribunal. A member may be a shareholder of the funding financial company. However, it may be troublesome if states incorporate such a rule into their defense by seeking to represent before the tribunal that the claimant actually represents interests different from its own, by representing the interests of the funder, and therefore bringing jurisdictional defenses based on that information. It is a mistake to allege that in order to secure a favorable award the funder may try to impose its interests over the claimant’s. The funding company may not have that leverage in the arbitration. The funding company makes an assessment of the risk of losing the case and, if it appears to be a winning case, it will fund the claimant’s case. In my experience, an attorney who is being paid if the arbitration comes to life is much better positioned to influence in the investor’s decision, regardless of whether it is a winning case or not. The lawyer makes a profit out of the mere existence of the case. I witnessed attorneys recommending that their clients not accept proposals made during the consultation period, because they ‘will have better chances with the arbitration,’ and then they lose the case.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor



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