The International Centre for Settlement of Investment Disputes (“ICSID“) recently published its Annual Report for FY2021 (available here), concluding a financial year with multiple record achievements amid the Covid-19 pandemic, including a record number of cases registered and the largest number of cases ever administered at ICSID in a single fiscal year.  We have summarised the key highlights contained in the report below.

As ICSID optimises its services and facilities for future, the report also confirms that a major update to the ICSID rules and regulations can be expected in early 2022.

Another record number of cases registered

A record 70 new cases were registered at ICSID in FY2021, which represents a 75% increase from the 40 cases registered in 2020. Sixty-seven of these were registered under the ICSID Convention Arbitration Rules, while two cases were commenced under the ICSID Additional Facility Rules and one under the ICSID Convention Conciliation Rules. In addition, ICSID provided full administrative services in 19 cases governed by non-ICSID rules in FY2021, 14 of which were cases applying the United Nations Commission on International Trade (“UNCITRAL“) Arbitration Rules.

Like previous years, the majority of new cases were brought under bilateral investment treaties (63%), while 7% were brought under investment contracts between an investor and a host state, and 3% were commenced under the investment law of the host state. Cases brought under the Energy Charter Treaty remain significant, making up 8% of ICSID’s new caseload. Multilateral free trade agreements continue to make up ICSID’s increasing caseload, with cases commenced under the North American Free Trade Agreement and US-Mexico-Canada Agreement each contributing 4% to ICSID’s caseload, and around 3% from other multilateral free trade agreements.

Record number of cases administered and heard despite zero in-person sessions

Against the backdrop of electronic filing becoming default and ICSID going completely paperless last year, a total of 332 ICSID cases were administered in FY2021 compared to 303 in the previous fiscal year. This is equivalent to 40% of ICSID’s total caseload since 1966 (which stands at 838 cases under the ICSID Convention and Additional Facility Rules), marking the largest number of cases ever administered at ICSID in a single financial year.

A record 253 sessions and hearings (procedural and merits) were held in the cases administered by ICSID in the fiscal year, representing a 53% increase over the number of hearings and sessions held in FY2020. Despite the record number of hearings, no in-person hearings or sessions were held in ICSID cases in FY2021, owing to the need to hold sessions and hearings remotely in response to the pandemic. Hybrid models, in which hearing participants are grouped in different locations (some virtual and some in person), are expected to be increasingly favoured moving forward.

What kind of disputes are heard at ICSID?

Consistent with ICSID’s overall caseload since 2016, new cases in FY2021 mainly involved state parties from Eastern Europe and Central Asia (30%), South America (14%) and Sub-Saharan Africa (14%). Peru continues to be the most frequently recurring respondent state to new cases with six new cases in FY2021 (and six in FY2020), followed by Egypt, Mexico, Tanzania, and Turkmenistan as state parties to three cases each.

In terms of sector spread, cases from oil, gas and mining (29%) and construction (16%) continue to form a significant share of new cases in FY2021, followed by electric power and other energy (14%), and information and communication (11%). This remains consistent with ICSID’s historic statistical average, where energy sectors dominate (24% and 17% for the oil, gas & mining and electric power respectively).  The latest figures maintain the trend towards more investor-State disputes in the construction and IT sectors in recent years. There remains a notable number of disputes concerning the other economic sectors that ICSID cases typically involve, including transportation, finance, tourism, services and trade, water, sanitation & flood protection, and agriculture, fishing and forestry.

Arbitrator appointments – achieving gender parity in first-time appointees

As with previous years, arbitrators from Western Europe were heavily represented (43%), followed by North America (18%) and South America (14%).

As with FY2020, nationals of 44 countries were appointed in ICSID cases in FY2021. Of the 228 appointments made to ICSID tribunals, commissions and ad hoc committees, 11% were appointed for the first time to an ICSID case compared to 15% in FY2020. Significantly, gender parity was achieved for first-time appointees in FY2021, and 27% involved nationals of low or middle-income economies; an 8% increase for each category from FY2020.

Overall, female appointees accounted for 31% of appointments made to ICSID cases in FY2021, a marked improvement from 14% in FY2020 and 24% in FY2019. There is also an increase in female appointments made by parties and co-arbitrators: where ICSID previously appointed 53% of female appointees in FY2020, it only appointed 37% in FY2021. Compared to non-ICSID led female appointments in FY2020, respondents appointed 23% (down from 34%), claimants appointed 13% (up from 3%), parties jointly appointed 21% (up from 10%) and the remaining 6% were made by co-arbitrators (up from nil).

This set of figures shows that initiatives undertaken to raise awareness and encourage progress in diversity and inclusivity over the years is bearing fruit, though further efforts are required to increase the share of appointments of more diverse candidates in ICSID arbitrations.

Spotlight on investor-State mediation

The Annual Report devoted a section to investor-State mediation, emphasising ICSID’s heightened focus on raising awareness of mediation as one of a range of dispute settlement mechanisms available to States and investors. The highlights for FY2021 include:

  • In February 2021, ICSID and the Energy Charter Secretariat entered into a new cooperation agreement with a special emphasis on cooperation on mediation.
  • In March 2021, ICSID and the Singapore International Mediation Centre entered into a cooperation agreement, the first for ICSID with a centre that is exclusively focused on mediation.
  • In April 2021, ICSID offered its first program focused on the role of State representatives in an investor-State mediation, jointly with the International Energy Charter and the Centre of Effective Dispute Resolution.
  • In July 2021, following requests from States made under the auspices of UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), ICSID published a Background Paper on Investment Mediation, which provides an overview of mediation in an investor-State context, and an Overview of Investment Treaty Clauses on Mediation, which reviews existing treaty mechanisms that address investor-state mediation and other amicable dispute resolution mechanisms.
  • ICSID’s current rules amendment process will soon culminate in the first institutional mediation rules designed specifically for investment disputes, complementing ICSID’s existing rules for arbitration, conciliation and fact-finding, which may be used independently of, or in conjunction with, ICSID’s arbitration and conciliation rules (see our blog post on the latest version of the revised proposed mediation rules here).

New suite of ICSID Rules in 2022 and updated Code of Conduct for Adjudicators in International Investment Disputes

Finally, ICSID’s rules amendment process has proceeded robustly in FY2021 despite the pandemic, with the Secretariat publishing its Fifth Working Paper on Proposals for Amendment of the ICSID Rules in June 2021 (see our blog post on the Fifth Working Paper here). On 12 November 2021, the Secretariat released its Sixth Working Paper which “marks the culmination of a five-year consultative process on updating the ICSID rules” in the most comprehensive process of modernising the ICSID rules and regulations in its 55-year history.

Having prepared six Working Papers, the rules amendment process spearheaded by the Secretariat is expected to:

  • encourage greater transparency in the conduct and outcome of proceedings through increased publication of awards, decisions and orders;
  • require disclosure by parties of third-party funding;
  • provide investors and States the option to fast-track proceedings through the use of ICSID’s new expedited arbitration rules;
  • enable broader access to ICSID dispute resolution procedures, for example by permitting Regional Economic Integration Organisations – including the European Union – to utilise ICSID’s Additional Facility Rules for Arbitration and Conciliation; and
  • introduce state-of-the-art Mediation Rules that are available to all investors and States based on their consent.

The complete set of the proposed amended rules, published in English, French and Spanish, are expected to be tabled before the Administrative Council for a vote by early 2022. A two-thirds majority from the Administrative Council is required to approve the amendments, with at least one vote from a representative of each Member State.

The Secretariats of ICSID and UNCITRAL have also released two updates to the first draft Code of Conduct for Adjudicators in International Investment Disputes (see our blog post on the first draft here) on 19 April 2021 and 22 September 2021 respectively, reflecting extensive input and consultation with State delegates and other interested stakeholders on the original draft. The Code is intended to provide applicable principles and provisions to address matters concerning independence and impartiality, and the duty to conduct proceedings with integrity, fairness, efficiency and civility. The ICSID Secretariat prepared three background papers on the topics of issue conflict, double hatting, and repeat appointments in March 2021 to inform the consultation process.

For further information, please contact Andrew Cannon, Partner, Christian Leathley, Partner, Daniel Chua, Associate, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852
Christian Leathley
Christian Leathley
Partner
+1 917 542 7812
Daniel Chua
Daniel Chua
Associate
+60 3-2777 5101

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