Proposed rule changes could speed up investor-state dispute arbitration

Lawyers say proposed changes to rules and regulations at the International Centre for the Settlement of Investment Disputes could result in faster and less costly resolution to investor-state disputes.

Proposed rule changes could speed up investor-state dispute arbitration
Robert Wisner says although arbitration is usually thought to be faster and more efficient than litigation, it's not always the case.

Lawyers say proposed changes to rules and regulations at the International Centre for the Settlement of Investment Disputes could result in faster and less costly resolution to investor-state disputes.

"The rules reflect a general concern that investor-state arbitrations take too long and are too expensive, and part of that can be addressed by these amendments to the ruels for some extent," says Robert Wisner, a partner at McMillan LLP in Toronto and co-chair of the firm's international practice group. "Ultimately, it's going to be up to the arbitrators and the parties themselves to ensure that arbitrations are handled efficiently and expeditiously."

According to the ICSID, this fourth update of the ICSID rules and regulations is the most extensive in the organization's history.

"The overarching goals are to modernize, simplify and streamline the rules, while also leveraging information technology to reduce the environmental impact of ICSID proceedings," the website says.

This current amendment process began in 2016, and in March the centre published its second working paper about proposed changes. Members discussed the paper in April, and the next proposal is expected in the summer. Amendments could be voted on in October, the working paper published in March says.

ICSID is a World Bank organization and provides arbitration and conciliation for international investment disputes. The centre was formed by the ICSID Convention signed in 1966. According to the centre's website, 154 countries have ratified the convention.

The convention "practically can't be amended," says Wisner, because of all the countries that are involved.

The convention has been in force for Canada since Dec. 1, 2013.

"Although arbitration is usually thought to be faster and more efficient than litigation, it's not always the case," says Wisner, noting arbitration in international commercial cases can be particularly time-consuming.

Myriam Seers, a senior associate at Torys LLP in Toronto who acts in investor-state disputes, says cases involving the ICSID rules can take three to five years to resolve.

"There's different mechanisms [for resolving investor-state disputes], but ICSID is probably the one used the most frequently," she says.

Typically, the disputes arise when a Canadian-owned company has a project, or investment, changed or cancelled in another country with which Canada has a treaty, often for political reasons. Seers says this is most often seen with oil and gas and mining companies, although it can also affect telecommunications and hospitality industries.

"Often the only available remedy for that investor is to bring a claim pursuant to investment protection treaties," she says.

"Fundamentally, an investor-state claim is a claim that a treaty has been breached. It's an international law breach of obligations pursuant to a treaty which is a different thing than breach of a contract," she adds. Companies may have contracts with governments that are affected when projects change or are cancelled. ICSID is meant to respond to disputes involving international treaties.

Claims are often in excess of $300 million, although those in the "billions are not rare," she says.

The proposed changes could speed up the dispute resolution process by strengthening timelines for various parts of the process. The proposals explicitly give the tribunal, or secretary-general, the authority to "fix time limits for the completion of each procedural step of the proceeding, other than time limits prescribed by the Convention or these Rules." The proposed rules further say, "The Tribunal shall use best efforts to meet all applicable time limits."

Iris Antonios, a partner at Blake Cassels & Graydon LLP in Toronto who practises in international investment cases, says these changes are an attempt to bring more clarity and discipline to the process.

"Parties can agree to extend or reduce time limits, and if there are time limits set by the tribunal, as opposed to the rules, a party can request at the tribunal that that time limit will be extended," she says, "but you have to make an application to do so."

The proposed rules also could reduce delays caused when parties object to which arbitrators are named to their cases. Right now, cases are automatically suspended when a party objects to the appointment of arbitrator. The first working paper on proposed changes suggested removing this suspension completely. This caused a great deal of debate, the second working paper, released in March, says. The proposed new rule "maintain(s) the automatic suspension on the filing of a challenge until a decision on the proposal has been made, but allows the parties to agree not to suspend portions of the arbitration, or the entire arbitration," the explanation in the working paper says.

Parties sometimes object to arbitrators for strategic reasons, says Wisner.

"One possible delay tactic is to wait and raise procedural objections fairly late in the process," he says. "Now, people are to raise these objections as soon as possible."

The proposal says parties must file objections within 21 days of an arbitration tribunal being formed, or within 21 days of the parties finding out there may be a reason for the disqualification of an arbitrator.

The proposals also include the creation of a new mediation process. Seers says she has not seen many investor-state disputes that lend themselves well to mediation. "These aren't the type of disputes where you see a lot of settlements," she says, noting she's not sure how much the process will be used.

Mediation has always been seen as consistent with the ICSID Convention, says the March working paper. "From the perspective of the ICSID framework, conducting conciliation or mediation in parallel with an arbitration is certainly possible," the paper says. "In fact, the drafters of the Convention envisioned that parties might agree to pursue another remedy alongside ICSID arbitration."

The proposals also mandate that parties disclose any third-party funding. Under the changes, parties must file written notices of any third party that is helping the parties pursue or defend the claim.   

This change helps prevent potential conflict of interest with arbitrators, says Wisner. It also follows trends in other treaties, he says.

"There's been a trend towards transparency for over 20 years in investor-state arbitration," says Wisner. "More and more treaties are providing that." 

This proposal also raised some concerns.

"I think there is a debate about whether a strict rule requiring every third-party funding case to be disclosed is a little too broad," says Wisner. "It's like saying when you have a piece of litigation, does a party have to disclose all of its lenders, or all of its shareholders? That's usually not the case. So why single out third-party funders that way? There's been a little bit of controversy about that."

Some proposals are almost guaranteed to simplify the dispute resolution process. The proposals assume all documents will be filed electronically. These disputes "can become quite document-heavy," says Antonios. "It seems like a small point, but making electronic filing the default in and of itself will save a lot of time."

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