Leading innovation in investment dispute resolution

Foreign investment has long been recognized as a factor that catalyzes economic and social development. By bringing capital, technology and know-how across borders, foreign investment contributes to more productive and dynamic private sectors that create jobs and reduce poverty. 

The World Bank supports its client countries to attract and retain foreign investment by advising on policies to expand investment opportunities, unlock private sector-led growth, and connect foreign and domestic investors.  These efforts work in concert with the innovative financial products, political risk insurance and credit enhancement, and international dispute resolution services provided by the IFC, MIGA, and ICSID. Together, these institutions have served an extraordinary role in supporting a robust and engaged private sector in developing countries.  

This focus on the private sector is especially critical today as countries recover from the pandemic. While foreign direct investment rebounded strongly in 2021, flows to developing countries—and particularly the poorest countries—have been more modest.

Resolving Disputes Effectively and Impartially

The role of ICSID in facilitating foreign investment is unique—not just within the World Bank Group—but globally. ICSID is the only multilateral institution that is dedicated to resolving disputes between foreign investors and host states.  ICSID is woven into the fabric of international investment law as the go-to dispute resolution mechanism in international treaties, contracts, and foreign investment laws. At any point in time, ICSID administers over 300 cases.

Investors and states turn to ICSID for many reasons—from the expertise of its staff to its global network of facilities for hearings. They also value ICSID’s rules of procedure, which establish the procedural framework for ICSID cases. These rules are only available in disputes administered by ICSID and are the only rules that are tailored to the unique characteristics of international investment disputes.

A New Generation of ICSID Rules—And Why They Matter

On March 21, 2022, ICSID’s member states approved a comprehensive set of amendments to ICSID’s rules. These amendments represent a significant advance for ICSID—and for international dispute resolution more broadly.

The amended rules update case procedures with an eye to making arbitration and conciliation more efficient tools to resolve disputes arising out an international investment. For example, the rules require proactive case management by arbitrators and mandatory time frames for issuance of decisions and awards. A new ‘expedited’ version of the arbitration rules is also available to parties, which further shortens case timelines.

In addition to updating its existing rules for arbitration and conciliation, entirely new rules were written for mediation and fact-finding. This gives parties a fuller suite of options when considering how best to resolve their dispute.

ICSID also addressed several new issues that had been raised by its membership and the broader public. Transparency is illustrative of this point. The amended rules further enhance public access to awards and decisions rendered at ICSID, while also allowing for confidentiality when needed. Transparency is important for legal consistency—as adjudicators may assess previous decisions on similar points of law. It also supports public awareness and confidence in the international dispute resolution system. ICSID has consistently led the way in balancing transparency and confidentiality in investor-state dispute settlement—and the new rules continue this trend.    

Third-party funding is another topic that was discussed at length during consultations on the amendments, and now features in the ICSID rules for the first time. The financing of legal cases by third parties—i.e., those that are not involved in the dispute—has raised conflict of interest concerns; for example, where a relationship exists between a third-party funder and an arbitrator. The new ICSID rules respond by requiring full and ongoing disclosure by all parties of third-party funding arrangements.  

The amended ICSID rules feature many more innovations that parties will fully appreciate once they are put into practice. That will start on July 1, 2022, when the amended rules come into effect. They will no doubt serve investors and states well for many years to come.