THE AUTHOR: Ruihan Liu, Associate at Quinn Emanuel Urquhart & Sullivan
The procedural efficiency of arbitration proceedings has become an increasing concern to ISDS users. An average investment arbitration takes 3.46 years. An average party spends $3-5 million on legal representation. Although the complexity of ISDS contributes to the length and cost of the proceedings, it is recognised that procedural rules should, to the extent possible, facilitate the efficient resolution of investor-State disputes.
In 2016, the International Centre for Settlement of Investment Disputes (ICSID) started consulting on reforms to its Rules. After six years and six Working Papers, the new ICSID Rules and Regulations have been approved by the Member States and entered into force on 1 July 2022. The new Arbitration Rules introduce new time limits and a new expedited arbitration procedure, and reform existing rules on claims that are manifestly without legal merit, bifurcation, consolidation, and document production. A key driver of these reforms, as will be shown below, is procedural efficiency. In this article, we analyse these new Rules and present a tentative assessment of their impact.
A key reform to reduce the length of the proceedings is the new option for expedited arbitration in Chapter XII of the Arbitration Rules. To opt into expedited arbitration, both parties must consent (Rule 75). This is different from expedited arbitration under some institutional rules, where the expedited procedure is automatically triggered in a “small claim”, i.e., when the monetary value of the dispute falls below a certain threshold (e.g., ICC Arbitration Rules 2021, Article 30), or where one party may apply for expedited arbitration under certain circumstances absent the other’s consent (e.g., HKIAC Administered Arbitration Rules 2018, Rule 42.1).
Expedited arbitration drastically shortens the timeline of ICSID arbitration proceedings. First, the time taken to constitute the Tribunal is shortened. The parties are required to notify the Secretary-General of their election of a three-member tribunal or a sole arbitrator within 30 days of consenting to expedited arbitration (Rule 76(2)), and to appoint their respective co-arbitrators, or jointly appoint a sole arbitrator, 20 days thereafter (Rule 77(1), Rule 78(1)). Secondly, a first session on procedural issues must be held within 30 days of the constitution of the Tribunal (as opposed to 60 days in non-expedited proceedings). Rule 81 sets out a procedural schedule for the filing of written submissions, complete with time limits and page limits. The Tribunal is also required to render an award within 120 days of the hearing (Rule 81(1)(i)).
A key feature of expedited arbitration is that all procedural matters are “heard in a single proceeding before the Tribunal without any bifurcation” [Working Paper 1, p. 915]. Any jurisdictional objection will need to be presented in the counter-memorial and heard jointly with the other issues. This does not necessarily have a negative impact on efficiency: ICSID estimated that a bifurcated proceeding leading to the Tribunal declining jurisdiction under the Arbitration Rules 2006 still takes much longer than proceedings that follow the new expedited arbitration procedure [Working Paper 1, p. 915], not to mention those bifurcated proceedings that did not result in the Tribunal declining jurisdiction.
Dismissal Of Claims That Are Manifestly Without Legal Merit
Under Rule 41(5) of the ICSID Arbitration Rules 2006, the respondent may file an objection that a claim is manifestly without legal merit. The 2022 amendments expand on the procedure in the new Rule 41. Drawing on case law on the old Rule 41(5), the new Rule 41 clarified that the objection may relate not only to the merits of the claim but also to “the jurisdiction of the Centre, or the competence of the Tribunal”. The new Rule also specified the procedure to be followed when an objection is raised. The Tribunal is required to render a decision on the objection within 60 days of the later of the constitution of the Tribunal, or the last submission of the objection (Rule 41(2)(e)). The rest of the procedure, however, is flexible: the Tribunal and the parties may decide whether a hearing is necessary and the number of submissions required.
The Arbitration Rules 2022 extend the time limit for the respondent to file a manifest lack of legal merit objection from 30 days after the constitution of the Tribunal, under the old Rule 41(5), to 45 days. In practice, however, “because the average time to reach the stage of tribunal constitution is approximately 5-6 months, the party wishing to object to a claim on these grounds has sufficient time to prepare the submission” [Working Paper 3, p. 320].
New Bifurcation Rules
Bifurcation is one of the factors that has the most impact on the length of the proceedings. According to ICSID’s own study of 63 decisions, “[w]here jurisdiction was upheld in bifurcated proceedings and there was an Award on the merits, the proceedings were over 550 days longer than the general average. Where the bifurcated proceeding led to an award declining jurisdiction, it was almost 600 days shorter than the average” [Working Paper 1, p. 902].
Under the Arbitration Rules 2006, the Tribunal’s power to bifurcate is contained in Rule 41(4), which allows the Tribunal to deal with jurisdictional objections “as a preliminary question or to join it to the merits of the dispute.” The factors to take into account when deciding whether to bifurcate, the procedure, and timing of such decisions are left to the discretion of the Tribunal.
The Arbitration Rules 2022 clarify this procedure and limit the discretion of the Tribunal. The new Rule 42 deals with bifurcation where there is no preliminary objection. Rule 42(4), drawing on existing decisions on bifurcation, lays down the criteria the Tribunal should consider in deciding whether to bifurcate. While tribunals constituted under the Arbitration Rules 2006 have already applied these criteria in deciding whether to bifurcate (See, Emmis v. Hungary, ICSID Case No. ARB/12/2), the new Rules put these criteria on a mandatory footing. Rule 42 also sets out time limits on when the Tribunal should issue its decision (i.e., 30 days after the last submission), but leaves the Tribunal with discretion to deal with other procedural issues.
Rule 44 deals with bifurcation where there is a preliminary objection. Under the old Rule 41(3), the Tribunal has the “discretion” to suspend the proceedings on merits after an objection is raised. The new Rule 44(1)(c) prescribes that unless the parties agree otherwise, the proceedings on the merits “shall be suspended” until the Tribunal decides whether to bifurcate. In addition, the Tribunal must render its award on the preliminary objection within 180 days after the last submission (Rule 44(3)(c)).
New Consolidation Rules
There is currently no express provision for the consolidation of ICSID proceedings. It has been suggested that the Tribunal may order the consolidation of multiple proceedings under Article 44 of the ICSID Convention and Rule 19 of the Arbitration Rules through their procedural discretion concerning matters not otherwise covered by relevant arbitral rules agreed by the parties.
The Arbitration Rules 2022 expressly allow consolidation: the parties may agree to “consolidate or coordinate these arbitrations” (Rule 46). The coordination mechanism makes the new Rules wider than most rules on consolidation, allowing the parties to align some, if not all, aspects of the dispute resolution processes in multiple proceedings.
New Rules On Document Production
ISDS practitioners will be well aware of the time and costs associated with document production exercises. The ICSID Arbitration Rules 2006 address the production of documents in Rules 33 and 34, where the Tribunal is given the discretion to determine “the admissibility of any evidence adduced and of its probative value” (Rule 34(1)) and to call upon the parties to produce documents (Rule 34(2)). While the Rules left the exact procedure and timing open to the discretion of the Tribunal, in practice, the parties often agree on the document production procedure at the start of the proceedings and schedule the exchange of document production requests after exchanging statements of claim and defence.
The amended Rules tighten up the process by setting out detailed guidance on the production procedure. The stated aim is to avoid delays caused by unanticipated document production requests [Working Paper 1, p. 173]. First, the Rules now expressly require the Tribunal to address the issue of document production early in the proceedings. At the first session, the Tribunal is expected to address:
(1) whether there is to be a production of documents at all, and
(2) the timing, scope, and procedure for document production (Rule 29(4)(g)).
The new Rule 37 also provides a set of criteria that the Tribunal should apply to address disputes arising from document production. It remains to be seen how this new Rule interacts with the IBA Rules of Evidence 2020, which many tribunals apply in practice to objections to document production requests.
Mandatory Time Limits
Another key reform of the amended Rules is time limits. The amended Rules set out various time limits that the Tribunal should comply with, albeit on a “best efforts” basis (Rule 12(1)). For example, the Tribunal is now required to render the award as soon as possible. Apart from the time limits for rendering an award for an objection of manifest lack of legal merits (60 days) and a preliminary objection in bifurcated proceedings (180 days), in all other cases, the Tribunal is required to render its decision within 240 days of the last submission (Rule 58(1)(c)). The Arbitration Rules 2006 require the Tribunal to render the award within 120 days of the “closure” of the proceedings (Rule 46). In practice, however, the closure of the proceedings usually happens after the award is drafted and ready to be rendered (Working Paper 1, p. 255). Therefore, the “last submission” wording in the amended Rules is intended to provide a clear procedural step that starts the clock running.
In addition, for the disqualification of arbitrators, the proposal must be filed within 21 days after the constitution of the Tribunal or the date on which the party proposing the disqualification knew or should have known the facts on which the proposal was based (Rule 22(1)). In contrast, no such time limit is specified under the Arbitration Rules 2006.
The amendments seek to balance the imperative of procedural efficiency with the complexity of ISDS proceedings and the attendant need for flexibility. At a first glance, some amendments are more likely to create procedural efficiency than others: for example, the time limits imposed by the new Rules and the new expedited procedure have the potential to introduce significantly shorter procedural timetables. Other proposals, such as the more elaborate Rules on disclosure, consolidation, bifurcation, and manifestly without merits objection, codify and elaborate on existing practices of tribunals. Nevertheless, whether the parties are willing to take up new procedural devices, such as expedited arbitration, and how often tribunals fail to comply with time limits despite their best efforts are practical factors that will affect procedural efficiency.
ABOUT THE AUTHOR
Ruihan Liu is an associate at Quinn Emanuel Urquhart & Sullivan. Her practice focuses on complex commercial litigation and international arbitration. She has acted in cases in the English High Court, and in ICC, LMAA and LCIA arbitrations.