Third-Party Funding in ICSID Arbitration: What
are the consequences resulting from non-disclosure
at the post-award stage?
Master Thesis
Xuanzhe Jia
Faculty of Law
University of Amsterdam
Thesis Supervisor
• Dr. Vid Prislan
Table of Contents
Abstract ... 3
List of Abbreviations ... 3
Introduction ... 4
Chapter 1 The ongoing amendment of ICSID rules about TPF ... 7
I. The mandatory feature of the disclosure ... 7
II. The flexible scope of the disclosure ... 8
III. The influences of TPF during the proceeding ... 9
IV. The lack of attention to the consequences at the post-award stage ... 11
Chapter 2 Direct consequences of non-disclosure of TPF at the post-award stage ... 12
I. The violation of the obligation to disclose TPF ... 13
II. Failure to avoid conflicts of interest ... 13
III. Losing the chance to exercise the discretion of Tribunal ... 14
IV. Losing the chance to disqualify the arbitrator ... 15
V. Losing the chance to request security for cost ... 16
VI. Failure to adjust the allocation of costs in the awards ... 17
Chapter 3 Indirect consequences of non-disclosure of TPF at the post-award stage ... 18
I. The Revision and Annulment in ICSID Convention ... 18
II. The adjustment of the cost in the award ... 29
Chapter 4 Further proposals to the amendment of ICSID rules ... 33
I. Enhancing the coherence of the ICSID regimes systematically ... 33
II. Establishing a neutral funding-raising platform ... 35
III. Empowering the annulment procedure with security for costs ... 36
Conclusion ... 37
Abstract
TPF has wide influences on international investment arbitration procedure. The latest ICSID Arbitration Rules contained in Working Paper #4 is a leap for the ICSID regime because the mandatory obligation for the financed party to disclose TPF is required in the ICSID Arbitration Rules (#4) Rule 14, and a flexible discretion to request necessary information of TPF is confirmed. Compared with previous ICSID tribunals, the future tribunals will have explicit rules to refer to. But the attention to the consequences of non-disclosure at the post-award stage is not adequate. Based on ICSID rules and case law, this thesis discusses 6 direct consequences and 2 indirect consequences derived from non-disclosure of TPF at the post-award stage. In the end, considering the deficiencies of the regulation of TPF, 3 proposals are provided to prompt the ICSID arbitration regime more coherent and effective.
Keywords
ICSID, Third-Party Funding, Non-Disclosure, Post-Award Stage, Consequences
List of Abbreviations
Current Current version of ICSID Arbitration
Rules
ICSID International Centre for Settlement of
Investment Disputes
IIA International investment agreements
ISDS Investor-state dispute settlement
TPF Third-party funding
WGIII UNCITRAL’s Working Group III
#1 Working Paper #1
#3 Working Paper #3
Introduction
In the context of international law, investment disputes arise from investments made by foreigners, i.e. nationals of States other than the host State.1 Specifically,
international investment dispute settlement between a State and a national of another State is called investor-state dispute settlement (ISDS).2 One of the institutions that provide services of ISDS is the International Centre for Settlement of Investment Disputes (ICSID). ICSID is a popular option for ISDS since according to the data in UNCTAD ISDS Navigator, 35 out of 55 ISDS cases was initiated at ICSID in 2019.3 Arbitration is a common choice in ICSID besides conciliation.4 Normally,
international investment agreements (IIA) grant investor to invoke international investment arbitration for ISDS.5
However, within ICSID arbitration, investor as the claimant may face financial issues to initiate and support the arbitral proceeding, meanwhile, the state as respondent may face similar financial issues as well. Third-party funding (TPF) is a possibility to deal with these issues. TPF can be understood as a financing mechanism, in which a third-party funder finances the costs of arbitral proceeding for a third-party in a dispute.6 In return, the funder receives a percentage of the awarded compensation (if the claim is successful) and is able to gain some degree of control over the case and/or client.7 The high costs and potentially high damages characteristics of ISDS cases have made it a new and highly attractive market for TPF.8 If the claim fails, the funder receives no compensation and will bear the liability for any fees due to the claimant’s legal team as agreed in the funding agreement.10
1 Christoph Schreuer, Max Planck Encyclopedias of International Law, Investment Disputes.
2 This is corresponded by ICSID Convention Article 25(1) “the jurisdiction of the Centre shall extend to any legal
dispute arising directly out of an investment, between a Contracting State […] and a national of another Contracting State[…]”.
3 UNCTAD, Investment Dispute Settlement Navigator, case index. 4 ICSID Convention Chapter III is Conciliation, Chapter IV is Arbitration.
5 For instance, the Austria-Kyrgyz BIT Article 14: the investor can seek resolution from ICSID.
6 Eric De Brabandere & Julia Lepeltak, Third Party Funding in International Investment Arbitration, Grotius Ctr.
Working Paper, No. 2012/1, 2012, p.5.
7 Ibid. pp.5-8. 8 Ibid. 10 Ibid. p.5.
The vast majority of TPF goes to claimants since financing claimants yields a greater “upside” (or profit) as compared to the funding of respondent states (which gain no financial award under the current BIT rules).15 While third-party funders generally prefer not to disclose their stake to the other parties in the dispute or to the
adjudicators, available evidence suggests an already significant involvement, with 39% of respondents having encountered third-party funding in practice.18
TPF proponents argue that it provides several benefits across a range of dispute settlement platforms, including promoting access to justice and filtering out
unmeritorious cases.19 On the contrary, the critics believe TPF takes advantage of the asymmetric structure of the investment regime for the benefit of speculative finance. It enhances the prevailing stance of the investors, who are the usual choice as the financed party, in comparison to the states who are usually in a passive status. These claims come at a significant cost to target countries and their citizens since these claims will ultimately be paid by a large underrepresented class of stakeholders: the public, who as taxpayers are the “residual risk-bearers” in the current system.20
In October 2016, the ICSID Secretariat announced its intention to amend its Rules. It released a list of topics for possible consideration.22 Among the list, the 15th topic is “Explore Possible Provisions on Third-Party Funding”, which gave birth to the ICSID Arbitration Rules (Working Paper #123) Rule 21 “Disclosure of Third-party Funding”. It provided a definition of third-party funding and also created an on-going obligation for the parties to the dispute to disclose the existence of third-party funding and the
15 Frank J. Garcia, The Case Against Third-Party Funding in Investment Arbitration, Investment Treaty News,
July 30, 2018.
18 James Egerton Vernon, Taming the “Mercantile Adventurers”: Third Party Funding and Investment Arbitration
- A Report from the 14th Annual ITA-ASIL Conference, Kluwer Arbitration Blog, April 21, 2017.
19 Frank J. Garcia, The Case Against Third-Party Funding in Investment Arbitration, Investment Treaty News,
July 30, 2018
20 Ibid.
22 The 15th topic of the List is “Explore Possible Provisions on Third Party Funding”.
23 ICSID Secretariat, Working Paper #1, Volume 3, Proposals for Amendment of the ICSID Rules, August 2,
identity of the third-party funder. Now in the latest Working Paper #424, this provision becomes ICSID Arbitration Rules (#4) Rule 14 “Notice of Third-Party Funding”. The disclosure of TPF is still a mandatory obligation for the financed party to fulfil.
Throughout four chapters of this thesis, it will study the consequences resulting from non-disclosure of TPF in ICSID arbitration at the post-award stage. In Chapter 1, the author will first examine the ongoing amendment of ICSID Arbitral Rules regarding TPF to see what changes may be brought to the regime of ICSID arbitration. This section is to update the currently applied rules to the possible future version and point out the deficiencies. Chapter 2 and Chapter 3 are the core sections in discussing the consequences resulting from the non-disclosure of TPF. In Chapter 2, the text focuses on the direct consequences of disclosure of TPF at the post-award stage. Those consequences are mainly the measures which could have been adopted if the
disclosure had been done promptly. Chapter 3 concerns the indirect consequences of disclosure of TPF at the post-award stage. Based on the situation of Chapter 2, the indirect consequences are the next-step measures which could be adopted by the opposing party to fix the non-disclosure issue at the post-award stage. The final section, Chapter 4, is devoted to giving advice on building coherent and effective regulation of TPF in the ICSID arbitration regime.
Chapter 1 The ongoing amendment of ICSID rules about TPF
The first chapter will display the ongoing amendment of ICSID Arbitration Rules regarding the feature, the discretion of the Tribunal, the influence of TPF and the regime deficiencies of TPF.I. The mandatory feature of the disclosure
The latest version of the Working Group III Report displays the possible amendment of the ICSID Arbitration Rules.25 As per Rule 14(1), which is about “Notice of Third-Party Funding”:
“A party shall file a written notice disclosing the name and address of any non-party from which the non-party, directly or indirectly, has received funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding (“third-party
funding”). ”26
This Rule indicates that the action to notify the existence of TPF is obligatory due to the expression of the term ‘shall’ in Rule 14(1). The contents to be disclosed
compulsorily include “the name and address” of third-party funders.
Additionally, the determination to achieve the disclosure can be summarized from the expression ‘directly or indirectly’ in ICSID Arbitration Rules (#4) Rule 14(1). This expression is to replace the term ‘its affiliate or its representative’ in Working Paper #3 Arbitration Rules Rule 14.27 This change “would capture funding provided to the party through affiliates or representatives as well as the ultimate beneficial owner”.28 (emphasis added) It covers the universal set of the types of third-party funders.
25 Ibid.
26 Ibid, Arbitral Rule 14(1).
27 ICSID Secretariat, Working Paper #3, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
Rules, Arbitral Rule 14(1), August 2019.
28 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, para.53,
The whole Rule 14 and other Arbitration Rules do not curb any exceptions to the obligation to disclose TPF. Therefore, without exception, the financed party must disclose TPF as well as the type of funder once the agreement is reached.
II. The flexible scope of the disclosure
As previously mentioned, ICSID Arbitration Rules (#4) Rule 14(1) requires that the disclosure should include the name and the address of the third-party funder. These two items of information are considered to be the compulsory disclosure. The scope of disclosure of TPF is more flexible than the compulsory one. Discretion has been reserved for the Tribunal to order disclosure of any information related to TPF if it becomes relevant to a question in dispute during the proceeding.30 This has been affirmed by the cases in which Tribunals invoked ICSID Convention Article 44 and ICSID Arbitration Rules (Current) Rules 33 and 34 to assert their inherent general authority.31
Besides those existing rules, ICSID Arbitration Rules (#4) Rule 14 has a new
paragraph, Rule 14(5), which did not show up in ICSID Arbitration Rules (#3). Rule 14(5), says “The Tribunal may order disclosure of further information regarding the funding agreement and the non-party providing funding pursuant to Rule 36(3) if it deems it necessary at any stage of the proceeding.”32 ICSID Arbitration Rules (#4) Rule 36(3) is a more general discretion to call upon documents or other evidence from the parties by the Tribunal. The new paragraph is the embodiment of Rule 36(3), which erases the uncertainty of whether the Tribunal has the capability to exercise its discretion on requesting information when it comes to TPF. The discretion could be regarded as an extension of the obligation to disclose, and the Tribunal can make its
30 See ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, para.54,
February 2020;
31 Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic, ICSID Case No. ARB/13/8, Procedural
Order No.5, May 27, 2014; Giovanna A Beccara and Others v. The Argentine Republic, ICSID Case No. ARB/07/05, Procedural Order No. 1, Feburary 16, 2015.
32 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitral Rule
own decision whether to exercise it and to what extent. Therefore, the scope of the disclosure is flexible as it depends on the need of the Tribunal.
III. The influences of TPF during the proceeding
There are three aspects where disclosure of TPF could be of relevance during the proceeding. The first aspect is with regard to potential conflicts of interest. The requirement of an impartial and independent tribunal is undoubtedly one of the most fundamental principles in international arbitration.33 There is potential for a conflict of interest when an undisclosed entity provides TPF to a party in the arbitration. The Working Paper #1 gave two examples: “(1) an arbitrator provides due diligence opinions at the request of a funder; or (2) an arbitrator serves on the board of a funder. Absent disclosure, parties and arbitrators may be unaware of such conflicts, which could affect the integrity of ISDS and could give rise to challenges that delay the proceedings.”34 ICSID Arbitration Rules (#4) Rule 14 which requires the financed party to disclose TPF, together with ICSID Arbitration Rules (#4) Rule 19 and Schedule 235, which require arbitrators to sign a declaration stating that they have no conflict of interest with a funder whose identity has been disclosed by a party, are trying to avoid the happening of conflicts of interest from both ends.
The second aspect is the security for costs. Security for costs is a provisional measure requested usually by the respondent to make sure the claimant has sufficient resources to cover respondent’s costs in the event that the claimant’s claims ultimately fail.36 When the third-party funder finances one of the parties, that party may not be able to cover the costs by itself. Before the envisaged amendment of ICSID Arbitration Rules, the grant of security for cost based on general ICSID rules and case law. For instance, in RSM Production Corporation v. Saint Lucia, the Tribunal granted
33 ICC Dossier, Third-Party Funding in International Arbitration, ICC, 2013, p.96.
34 ICSID Secretariat, Working Paper #1, Volume 3, Proposals for Amendment of the ICSID Rules, para.255,
August 2, 2018.
35 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, February 2020. 36 Jeffery Commission, Rahim Moloo, Procedural Issues in International Investment Arbitration, First ed., Oxford
security for costs request against a funded party because the claimant had a history in failing to honour costs awards rendered against it, to which formed a case law to refer.37 In Working Paper #4, ICSID Arbitral Rule 53 Security for Costs has a new paragraph 4. It specifies the relationship between TPF and the security for cost. Paragraph 4 is built upon Rule 53(3) which describes those relevant circumstances to be considered for whether to order a party to provide security for costs. Rule 53(4) makes it clear that TPF is to form part of the evidence in Rule 53(3) to consider security for costs and gives clear textual guidance for arbitrators to decide on this issue. The expression of “The existence of third-party funding […] is not by itself sufficient to justify an order for security for costs” also represents the trend of ISDS precedents.38
The third aspect is the allocation of costs of the proceeding. The ICCA-Queen Mary Task Force explained: “The fact that a party’s costs have been paid by a third-party funder should not generally be regarded as a relevant factor in determining whether or not costs are to be allocated based on the outcome of the case”.39 This view is
supported by the awards of Ron Fuchs v. Georgia tribunal40 and ATA Construction v.
Jordan tribunal41. But now, ICSID Arbitration Rules (#4) Rule 14 designed the
disclosure of TPF as a compulsory procedure. And ICSID Arbitration Rules (#4) Rule 52 requires the Tribunal, in allocating the costs of the proceeding, to “consider all relevant circumstances, including the conduct of the parties during the proceeding, including the extent to which they acted in an expeditious and cost-effective manner and complied with these Rules and the orders and decisions of the Tribunal”.42 If the
37 RSM Production Corporation v. Saint Lucia, ICSID, Case No. ARB/12/10, Decision on Saint Lucia’s Request
for Security for Costs, August 13, 2014.
38 For example, ICSID: RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on
Saint Lucia’s Request for Security for Costs, August 13, 2014; UNCITRAL: South American Silver Limited v. Plurinational State of Bolivia, UNCITRAL, PCA Case No. 2013/15, Procedural Order No.10, 11 January 2016.
39 Stavros Brekoulakis, The Impact of Third Party Funding on Allocation for Costs and Security for Costs
Applications: The ICCA-Queen Mary Task Force Report, Kluwer, 18 February 2016.
40 Ron Fuchs v. The Republic of Georgia, ICSID Case No. ARB/07/15, Award, 3 March 2010, para.691. 41 ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of Jordan, ICSID Case No.
ARB/08/2, Order Taking Note of the Discontinuance of the Proceeding, 11 July 2011, para.34.
42 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
financed party had not complied with its obligation to disclose TPF properly during the proceeding, this conduct of the financed party shall be considered and will influence the allocation of costs before rendering the award.
IV. The lack of attention to the consequences at the post-award stage
The envisaged amendment of ICSID Arbitration Rules does not give explicit consequences for the non-disclosure of TPF at the pre-award stage.
ICSID Arbitration Rules (#4) Rule 14 could be seen as a starting point to regulate TPF. Although it gives a clear indication that the disclosure of TPF is a compulsory obligation, there is no specific correspondent consequence towards the non-disclosure of TPF in ICSID Arbitration Rules (#4). Except ICSID, there are 7 treaties43, 5
arbitral institution policies, guidelines and rules45, 3 other recommendations46 available providing regulations or guidance on TPF. Among them, only Indonesia-Australia FTA gives a clear consequence for non-disclosure. Its Article 14.32(3) states that “If a disputing investor fails to disclose third party funding under this Article, the tribunal may order the suspension or termination of the proceedings.”47 This Article confirms the Tribunal’s power to apply the order of suspension or termination of the proceedings to the situation where non-disclosure of TPF happens. From Working Paper #1 to Working Paper #4,48 there is no version of Arbitration Rules containing a specific consequence for non-disclosure of TPF as what
Indonesia-43 EU-Singapore Investment Protection Agreement (signed 15 October 2018, but not in force), Chile-Canada FTA
(in force 5 February 2019), Chile-Argentina FTA (in force 1 May 2019), Indonesia-Australia FTA (signed 3 April 2019, but not in force), CETA (signed 30 October 2016, but investment chapter not in force), EU-Vietnam Investment Protection Agreement (signed 30 June 2019, but not in force), Argentina-United Arab Emirates Agreement for the Reciprocal Promotion and Protection of Investments (signed on 16 April 2018, but not in force)
45 SCC Policy “Disclosure of Third Parties with an interest in the Outcome of the Dispute” (2019), SIAC
Investment Arbitration Rules (2017), CIETAC International Investment Arbitration Rules (2017), CAM-CCBC “Ref.: Recomendações a respeito da existência de financiamento de terceiro em arbitragens administradas pelo CAMCCBC”, ICC Guidance Note on Conflict Disclosures by Arbitrators (2016)
46 Institut de Droit International Resolution on “Equality of Parties before International Investment Tribunals”
(2019), ICCA-Queen Mary Task Force Report on Third-Party Funding (2018), International Bar Association (IBA) Guidelines on Conflict of Interest in International Arbitration (2014)
47 Indonesia-Australia FTA (signed 3 April 2019, but not in force), Article 14.32(3).
48 ICSID Secretariat, Working Paper #1, Volume 3, Proposals for Amendment of the ICSID Rules, para.255,
August 2, 2018; ICSID Secretariat, Working Paper #2, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration Rules, March 2019; ICSID Secretariat, Working Paper #3, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration Rules, August 2019; ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, February 2020.
Australia FTA Article 14.32(3) did. The only way is to apply general Arbitral Rules to the specific TPF scenario.
Responding to non-disclosure is hard after the award is rendered. Making decisions by majority vote according to ICSID Arbitration Rules (#4) Rule 35 is the final step in the ICSID Arbitration Rules (#4) Chapter IV “Conduct of the Proceeding”. If a
Tribunal has rendered its award, it is functus officio and cannot exercise any further powers.49 This means at that moment, the potential consequences of suspension and discontinuance for non-disclosure of TPF are impossible because the proceeding has ended. If there is no new proceeding initiated, the discretion of the Tribunal to request more information, security for cost and allocation of costs etc. will also expire since they are designed for “the proceeding”.
In sum, the ICSID Arbitration Rules (#4) did not give clear consequences following the non-disclosure of TPF, and all newly added provisions related to TPF concentrate on the proceeding while ignoring the post-award stage.
Chapter 2 Direct consequences of non-disclosure of TPF at the
post-award stage
This Chapter will specifically focus on the direct consequences derived from non-disclosure of TPF at the post-award stage. These consequences are the situations the opposing party faces before taking any actions. They are the primary impacts of the arbitral proceeding. In general, the direct consequences include the violation of the obligation to disclose TPF, failure to avoid conflicts of interest, losing the chance to exercise the discretion of the Tribunal, losing the chance to disqualify the arbitrator, losing the chance to request security for cost and failure to adjust cost allocation in the awards.
49 Erwin B. Ellmann, Arbitrator Ethics and the Second Look—Functus Officio in the National Labor Policy,
I. The violation of the obligation to disclose TPF
According to the Working Paper #4, ICSID Arbitral Rule 14 poses an obligation of disclosure to the financed party. The disclosure will become a regular procedural requirement once the proposal forms the official amendment of ICSID Arbitration Rules which is approved and effective. ICSID Arbitration Rules (#4) makes the disclosure a continuous obligation. It provides two time-points for the financed party to disclose TPF. The first one is upon registration of the Request for arbitration and the second one is immediately upon concluding a third-party funding arrangement after registration.50
The first one refers to the situation that the TPF arrangement has been formed before the Request, i.e. before the proceeding. In such an occasion, it should be assumed that if the financed party doesn’t notify the existence of the TPF when registration, the obligation of the disclosure will be breached. The second situation is that the conclusion of the TPF arrangement is after the registration of the Request for arbitration. The time of the conclusion of the TPF agreement determines the time to disclose TPF.
So, if the conclusion of the TPF arrangement is at the pre-award stage and the financed party does not, or not immediately, disclose the existence of TPF, its behaviour should be recognized as breach of the obligation in ICSID Arbitration Rules (#4) Rule 14.
II. Failure to avoid conflicts of interest
The third-party funder is a non-party to the arbitral proceeding. At the same time, the involvement of third-party funder in the proceeding is inevitable because the funder
50 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitral Rule
holds a stake of the final award which determines whether the funder can make a profit from the investment in the arbitration or lose its money.51
ICSID Convention Article 14.1 says the person designated to serve on the Panels shall be relied upon to exercise independent judgement. This is supported by the Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement. The Code’s Article 3 to Article 9 reiterates that the code requires every adjudicator to be
independent and impartial and to avoid conflicts of interest by extensive disclosure.52 The third-party funder connected with the financed party may cause conflicts of interest with arbitrators because of their relationships. When a funding-related relationship is revealed in the course of the arbitral proceedings, the opposing party may file a challenge pursuant to the applicable challenge procedure against the arbitrator and argue that the arbitrator is now conflicted.53 However, when the TPF is not disclosed in the course of the arbitral proceedings, even if the arbitrator discloses all relevant information to ensure his/her independence and impartiality, the absence of the information of TPF will impede the review of the potential conflicts of interest. When the award has been rendered, the proceeding is finished, which means the conflicts of interest have been existing for the whole proceeding. The unknown impacts of the conflicts of interest could root in the awards. So, the non-disclosure of TPF may cause a failure to avoid conflicts of interest at the post-award stage.
III. Losing the chance to exercise the discretion of Tribunal
As explained in Chapter 1.II, the scope of the disclosure of TPF is flexible according to ICSID Arbitration Rules (#4) Rules 14(5) and 36(3). But, if non-disclosure happens during the proceeding, the Tribunal will lose the chance to exercise its discretion to further disclose necessary information. This is because the discretion is built upon the
51 Steinitz, Whose claim is this anyway? Third party litigation funding, Minnesota Law Review, Vol. 95, 2011. 52 The secretariats of ICSID and UNCITRAL, the Draft Code of Conduct for Adjudicators in Investor-State
Dispute Settlement, Introduction, May 1, 2020, Articles 3-9.
53 Jonas von Goeler, Third-Party Funding in International Arbitration and its Impact on Procedure, International
basic disclosure of TPF by the financed party. When the basic disclosure of the name and address of TPF is absent,54 the opposing party and the Tribunal may not notice the existence of TPF. At that time, there will be no assessment of conflicts of interest, no request for security for costs which may take place because of the awareness of TPF.
As a result, the necessity to order the financed party to disclose more information does not exist. As mentioned in Chapter 1, even if the opposing party and the Tribunal realize the existence of TPF at the post-award stage, unless a new procedure initiated, the Tribunal would have been functus officio and cannot exercise any further powers beyond the proceeding.56 Therefore, the non-disclosure of TPF causes the Tribunal to lose to the chance to exercise its discretion to call upon necessary information.
IV. Losing the chance to disqualify the arbitrator
According to ICSID Arbitration Rules (Current) Rule 9, a proposal to disqualify an arbitrator must be made promptly and, in any event, before the proceeding is declared closed.57 Failure to object promptly will result in the rejection of the proposal.58 This rule was replaced by Arbitral Rule 29 in the Working Paper #4. The new rule
eliminates the cut-off date to file a disqualification proposal, which is consistent with the delete of formal closure date of the proceeding59 and reflects the fact that
arbitrators must retain the qualities required by Art. 14(1) of the Convention until the Award is rendered.60 The ICSID Arbitration Rules (#4) Rule 60(2) “Rendering the
54 Ibid, Arbitral Rule 14(1).
56 Dr. Daphna Kapeliuk, Do post award remedies appropriately ensure conformity of the arbitral process with the
rule of law? A view from the Middle East, Goldfarb & Seligman Law Offices. It is also proved by email from Prof. Stephan W. Schill.
57 ICSID Arbitration Rules (Current) Rule 9.
58 ICSID, Disqualification of Arbitrators - ICSID Convention Arbitration.
59 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
Rules Chapter IX – The Award, February 2020
60 ICSID Secretariat, Working Paper #1, Volume 3, Proposals for Amendment of the ICSID Rules, para.325,
Award” indicates that “The Award shall be deemed to have been rendered on the date of dispatch of certified copies of the Award.”61
After that, the proceeding is over. At the post-award stage, there is no opportunity left for the opposing party, based on ICSID Convention Article 5762, to propose to
disqualify the arbitrator even if there is evidence of TPF indicating a manifest lack of the qualities required by paragraph (1) of ICSID Convention Article 14.
V. Losing the chance to request security for cost
Security for cost is a provisional measure that is normally requested by the
respondents in international investment arbitrations.63 The purpose of security for costs is, inter alia, to preserve the effectiveness of the award and the integrity of the proceeding by protecting the requesting party’s potential right to reimbursement of costs.64 The request of the order to provide security for costs shall be “upon request of a party”65 and the Tribunal “shall issue its decision on the request within 30 days after the latest of the last oral submission on the request”66. (emphasis added) It indicates that security for costs should be requested during the arbitral proceeding. This can also be proved by the corresponding measure of suspending the proceeding for failing to comply with an order to provide security for costs, which is only effective before the award has been rendered.67
When the TPF remains non-disclosed, although it will not interfere with the general request of security for costs, the opposing party will miss the hint that the financed
61 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
Rules, Arbitral Rule 60(2), February 2020
62 ICSID Convention Article 57: A party may propose to […] disqualif[y] any of [Tribunal’s] members on account
of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14.
63 Jeffery Commission, Rahim Moloo, Procedural Issues in International Investment Arbitration, First edition,
Oxford Press, 2018, p.38.
64 RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on security for costs of 13
August 2014, para. 65
65 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
Rules, Arbitral Rule 53(1), February 2020
66 Ibid, Arbitral Rule 53(2)(d)(iii). 67 Ibid, Arbitral Rule 53(6).
party may be pecuniary insufficient. The opposing party may miss the time to request security for costs during the proceeding if the non-disclosure of TPF leads to a lack of consideration of ICSID Arbitration Rules (#4) Rules 53(3) and 53(4), which
emphasizes how to deal with TPF in security for costs.
Therefore, the non-disclosure of TPF at the post-award stage may cause the right to request security for costs during the proceeding cannot function properly.
VI. Failure to adjust the allocation of costs in the awards
The decisions on costs are to be made before the post-award stage68. Although the ICSID Arbitration Rules (#4) Rule 52(3) states that the Tribunal may make an interim decision on costs at any time,69 the time is limited by ICSID Arbitration Rules (#4) Rule 52(4) because the paragraph 4 says “all decisions on costs […] form part of the Award”.70 It could be understood as those decisions on costs should be made before the render of the award so as to integrate them into the enforceable award.
The Tribunal is not able to detect the conducts of continuous non-disclosure of TPF during the arbitral proceeding and the breach of obligation of ICSID Arbitration Rules (#4) Rule 14 due to the non-disclosure. Then, the ignorance, when allocating the costs of the proceeding, will occur the Tribunal cannot consider these relevant
circumstances, which is actually required by ICSID Arbitration Rules (#4) Rule 52.71 Once the defective award has been rendered, the Tribunal’s power to allocate the costs of proceeding terminates and the award becomes an enforceable decision. The Tribunal lost the chance to adjust the allocation of costs during the proceeding. Even if the Tribunal realizes the existence of TPF at the post-award stage, it could not adjust the allocation of costs freely anymore.
68 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
Rules Chapter IV Conduct of the Proceeding, February 2020.
69 Ibid, Arbitral Rule 52(3). 70 Ibid, Arbitral Rule 52(4). 71 Ibid, Arbitral Rule 52(4).
Chapter 3 Indirect consequences of non-disclosure of TPF at the
post-award stage
This Chapter will specifically focus on the indirect consequences derived from non-disclosure of TPF at the post-award stage. These consequences are the situations the opposing party facing the direct consequences of non-disclosure of TPF. They are the secondary impacts of the arbitral proceeding. In general, the direct consequences include the revision and annulment of the award, the adjustment of the costs in the award.
I. The Revision and Annulment in ICSID Convention
ICSID Convention Article 50, 51 and 52 are three choices concerning the award which are exhibited in the Section 5 Interpretation, Revision and Annulment of the Award.72 Here, we will skip ICSID Convention Article 50 which talks about the interpretation of the award. Because it cannot change the substantial content of the award. Article 50 is to be sought only if there is a dispute that has arisen between the parties as to the meaning or scope of an award. We will now discuss the ICSID Convention Article 51 Revision and Article 52 Annulment below as the indirect consequences of non-disclosure of TPF at the post-award stage.
(i) Article 51 Revision
ICSID Convention Article 51 concerns the substantive alteration of the original award.73 Article 51 (1) reads as:
“Either party may request revision of the award by an application in writing addressed to the Secretary-General on the ground of discovery of some fact of
such a nature as decisively to affect the award, provided that when the award was
72 ICSID Convention Section 5.
73 UNCTAD, Dispute Settlement International Centre for Settlement of Investments Disputes, 2.8 Post-award
rendered that fact was unknown to the Tribunal and to the applicant and that the applicant’s ignorance of that fact was not due to negligence.”(emphasis added)
According to the text, the grounds of the revision are the newly discovered facts which have a decisive impact on the award. The discussion below starts with the prerequisites to initiating the revision. The prerequisites include the requirements of the time of application and the status of ignorance, as well as the body who will initiate the procedure of revision.74
The prerequisites to initiating revision related to the disclosure of TPF are basically the same as the usual requirements of revision. They have the same time requirement. ICSID Convention Article 51(2) demands the application of revision “within 90 days after the discovery of the TPF or within three years after the date on which the award was rendered”.(emphasis added)75 It actually provides an advantageous period during which the opposing party could wait for the self-disclosure of the TPF by the financed party and the third-party funder, or to detect the existence of TPF by itself.
Besides the time issue, the initiation here also requires the status of ignorance, which is slightly different from the general requirement. In accordance with ICSID
Convention Article 51(1), the ignorance of the fact of TPF’s existence should not be due to negligence. Article 51(1) corresponds with ICSID Arbitration Rules (#4) Rule 69(4)(c): The application of revision must contain evidence that “these facts were unknown to the applicant and […] that the applicant’s ignorance was not due to negligence”.76 Therefore, the decisive element is with regard to the ignorance of the party who applies. Ignorance of the other party is not relevant since the other party may have been aware of the decisive fact and may have withheld it deliberately.77
74 Mainly about ICSID Convention Article 51 75 ICSID Convention Article 51(2).
76 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
Rules, Arbitral Rule 69(4)(c), February 2020
In details, the ICSID Arbitration Rules (#4) Rule 14(1) has declared the disclosure of TPF is a compulsory obligation for the financed party to take. The ICSID Arbitration Rules (#4) Rule 14(4) further refers to the ICSID Arbitration Rules (#4) Rule
19(3)(b), which explains the obligation for the arbitrators to declare their independence and impartiality. So, in this framework, the accomplishment of
independence and integrity without the interference of TPF is under the responsibility of the arbitrators and the financed party. The norms do not set a positive obligation for the opposing party to detect the existence of TPF promptly. Unless the TPF has been presented in front of the opposing party directly and this fact is learnt by others, it is supposed to acquiesce that the opposing party, as the applicant of the revision, satisfies the requirement in ICSID Convention Article 51(1) and ICSID Arbitration Rules (#4) Rule 69(4)(c) that the ignorance of the TPF is not due to negligence.
The applicant of revision in the context of this thesis refers to the opposing party. As discussed above, the opposing party remains ignorant of the existence of TPF during the proceeding not due to negligence, which makes it be qualified to be the applicant. On the contrary, the financed party who is aware of the existence of TPF all the time during the proceeding is deprived of its right to request revision due to its deliberate suppression or non-presentation of evidence with regard to TPF.78 And according to the ICSID Arbitration Rules (#4) Rule 69(4)(c), it also demands that these facts were unknown to the tribunal. If the tribunal is aware of the TPF but remains silent during the proceeding which causes the non-disclosure of TPF, the severity of the issue may be outside the contour of the revision procedure, which may fall into the extent of ICSID Convention Article 52 “Annulment” due to arbitrator’s integrity etc.
The definition of “new fact” is wide. It is said the new element must be one of fact and not of law.79 And the “new fact” also refers to the legal consequences of new
78 ICSID, History of the ICSID Convention, Vol. II, 1968, p. 271.
79 See the Judgment of the International Court of Justice in Application for Revision of the Judgment of 11 July
1996 in the Case concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Yugoslavia v. Bosnia and Herzegovina), 2003 ICJ Reports 7.
facts which may impact upon an award.80 So first of all, the new fact could be the ignorant existence of TPF per se. Built on it, the breach of the mandatory obligation because of non-disclosure of the existence of TPF, which accounts to be a legal consequence, may be also regarded as a new fact applied in the revision procedure. But the ignorance of ICSID Arbitral Rules (#4) Rule14 cannot constitute a new fact.
The description of the new fact as “decisive” should be understood as containing such a nature that it would have led to a different decision had it been known to the
tribunal.82 There are several types of facts regarded as decisive. First, facts that would have led to a different outcome on the merits are clearly decisive.83 The disclosure of TPF will not make a difference on the merits. The mere fact of the existence and non-disclosure of TPF is not decisive in this category because they are procedural issues. Second, facts that affect the calculation of damages are also decisive. The existence of TPF is not a relevant factor in determining the allocation of costs in the awards. 84 It cannot influence the calculation of damages. The breach of the obligation to disclose TPF may affect the adjustment of allocation of costs but, as a procedural issue, it will not influence the calculation of damages as well. Third, a finding by an international court or tribunal that a violation of a legal obligation has occurred may constitute appropriate satisfaction in itself.85 When the non-disclosure of TPF happens in ICSID arbitration, the legal obligation set by ICSID Arbitration Rules (#4) Rule 14 is
violated. The fact of norm breaching may constitute a decisive fact in this circumstance.
The effect of the revision as an indirect consequence for the disclosure of TPF at the post-award stage is medium and mild. The fact which is relied on is the legal
consequence of the breach of the financed party’s procedural obligation to disclose
80 Geiss, R., Revision proceedings before the International Court of Justice. Zeitschrift für ausländisches
öffentliches Recht und Völkerrecht, Vol.63, 2003, pp. 167-194.
82 Ibid. 83 Ibid.
84 This has been proved in Chapter 1 III. by Stavros Brekoulakis’ statement and Ron Fuchs v. The Republic of
Georgia, ATA Construction v. Jordan.
the TPF under ICSID Arbitration Rules (#4) Rule 14. The revision is only designed to undo the negative influence emerging from the hidden facts. It does not seek to invalidate the rendered award. In combination with the allocation of costs and the long term to reveal the existence of TPF, the revision procedure is the optimal choice to prevent further re-submitted arbitration on the same merits.
(ii) Article 52 Annulment
ICSID Convention Article 52 is the last one of the three articles in Section 5 of the ICSID Convention’s Chapter IV. Requested by either party of the proceeding, by far annulment is the most drastic form of review. The result of a successful application for an annulment is the invalidation of the original decision.86 In this part of the discussion, the two principles of the review will be examined and weighted. Then the necessity of satisfaction of one or more grounds listed in ICSID Convention Article 51(1) for annulment and the requirement of reasonableness of the explanation will be emphasized. And the 5 grounds will be checked individually.
There are two potentially conflicting principles at work in the review process of annulment. One is the principle of finality; the other is the principle of correctness.87 The desire to see a dispute settled is regarded as more important than the substantive correctness of the decision.88 ICSID Convention Article 53 emphases the finality by excluding any appeal or other remedy “except those provided for in this
Convention”.89 ICSID Convention Article 52 constitutes a limited exception to the principle of the finality of awards embodied in ICSID Convention Article 53. Specifically, the annulment is designed to and only to provide emergency relief for egregious violations of a few basic principles while preserving the finality of the decision in most respects.90
86 Schreuer, Christoph, The ICSID Convention a Commentary, Cambridge University Press, 2nd ed., 2009, p.901 87 Ibid, p.899
88 Ibid, p.901
89 E.g., Maritime International Nominees Establishment v. Republic of Guinea, ICSID Case No. ARB/84/4,
Decision on Annulment, 22 December 1989, para.4.02.
90 David D. Caron, Reputation and Reality in the ICSID Annulment Process: Understanding the Distinction
Rather than substantive correctness, the annulment is only concerned with the legitimacy of the process of decision.91 Correspondingly, the issue of the disclosure of TPF deals with the procedural obligation which makes ad hoc committee possible to review this issue in the annulment procedure.
Combining TPF with annulment is new to ad hoc Committee. The attitude held by the
ad hoc Committee is to be predicted. Arguments on interpreting the grounds in ICSID
Convention Article 52(1) have ever been advanced in favour of a restrictive or extensive interpretation,93 but neither theory has been accepted. It is well established that the interpretation of the annulment grounds should be neither extensive nor restrictive, just reasonable.94 In the Klöckner I, the Committee found that in case of doubt or uncertainty as to the existence of the facts matching the grounds of
annulment, the question should be resolved “in favorem validitatis sententiae”.95 But the ad hoc Committee in Soufraki v. UAE stated that “[s]uch presumption…finds no basis in the text of Article 52 and has not been used by annulment committees”.96 Similar to the interpretation, there is no presumption, be it in favour or against annulment but reasonable.97
It is clear that a request for annulment is discretionary.98 If the opposing party wishes to challenge the issue of non-disclosure of TPF by the financed party, it will need to examine those 5 grounds listed in ICSID Convention Article 52(1) one by one. M. B., The Annulment Proceedings and the Finality of ICSID Arbitral Awards, 2 ICSID Review – FILJ vol.85, 1987; Jan Paulsson, ICSID's Achievements and Prospects, ICSID Review - Foreign Investment Law Journal, vol.6.
91 CDC Group plc v. Republic of Seychelles, ICSID Case No. ARB/02/14, Decision on Annulment, 29 June 2005,
para. 34; Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. The Republic of Peru, ICSID Case No. ARB/03/4, Decision on Annulment, 5 September 2007, para. 97; and Christoph Schreuer, ICSID Annulment Revisited, Legal Issue of Economic Integration, p. 104.
93 Berranger de, L'article 52 de la Convention de Washington du 18 mars 1965 et les premiers enseignements de sa
pratique, Revue de l'Arbitrage, pp. 103-104.
94 Gabrielle Kaufmann-Kohler, Annulment of ICSID Awards in contract and Treaty Arbitrations: Are There
Differences?, July, 2004.
95 Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des
Engrais, ICSID Case No. ARB/81/2, Decision on Annulment, 3 May 1985, para. 52(e).
96 Hussein Nuaman Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7, Decision on Annulment, 5
June 2007, para.22.
97 Gabrielle Kaufmann-Kohler, Annulment of ICSID Awards in contract and Treaty Arbitrations: Are There
Differences? July, 2004.
The first ground in ICSID Convention Article 52(1) is that “the Tribunal was not
properly constituted”99. Questions concerning the tribunal’s proper constitution might arise from dissatisfaction in the manner in which challenges to arbitrators and alleged conflicts of interest have been handled. ICSID Convention Article14(1) describes the qualifications of individuals who may be designated to serve on the Panel of
Arbitrators. The individuals must be persons of high moral character who may be relied upon to exercise their independent judgment.100 Under ICSID Convention Article 40(2) even the arbitrators appointed from outside the Panel of Arbitrators also must possess these qualities. Appointment of an arbitrator who manifestly does not possess these qualities may be put forward as a ground for annulment.101 The existence of TPF may build the connection between the third-party funder and the arbitrator. In such occasion, especially when the TPF was not disclosed during the proceeding and the discretion of the Tribunal to request more information was not exercised, the conflicts of interest may exist, and the independent judgement of arbitrators cannot be promised. This leads to a potential violation of ICSID
Convention Article 14(1) (and Article 40(2)), which constitutes the ground to annul the award.
Besides, it is aware that the ICSID Arbitral Rules (#4) Rule 28 Waver states: “If a party knows or should have known that an applicable rule […] has not been complied with, and does not object promptly, then that party shall be deemed to have waived its right to object to that non-compliance”.102 The financed party, the one who knows its possession of TPF and its obligation to disclose TPF under the ICSID Arbitral Rules (#4), is deemed as having waived its right to object its own non-compliance. Although
99 ICSID Convention Article 52(1)(a)
100 This is also supported by the Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement
Articles 3-9, ICSID Arbitration Rules (#4) Rule 19 and Schedule 2.
101 Schreuer, Christoph, The ICSID Convention a Commentary, Cambridge University Press, 2nd ed., 2009,
p.936; Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on the Argentine Republic’s Request for Annulment of the Award, 20 August 2007; Suez, Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on Annulment, May 5 2017.
102 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
there is an exception “unless the Tribunal decides that there are special circumstances justifying the failure to object promptly”103. As the initiator of the non-compliance, there is no justification for the financed party to make benefits on its own fault. In the context of this thesis, the opposing party did not notice the existence of TPF until the post-award stage, which means the opposing party does not know or should not have known the ICSID Arbitral Rules (#4) Rule 14 has not been complied with.
So, the failure to object the non-compliance by the financed party cannot obstruct the opportunity for the opposing party to initiate the annulment procedure. And the non-disclosure of TPF may satisfy the criterion of the first annulment ground if it creates conflicts of interest.
The second ground is that “the Tribunal has manifestly exceeded its powers”106. Article 52(1)(b) entails a dual requirement: there must be an excess of powers, and that excess must be “manifest”.107 But, the mere non-disclosure of TPF during the proceeding does not involve the powers of the tribunal. The Tribunal neither exceeds the limits of its jurisdiction nor fails to apply the applicable law. So, the second ground of annulment is not applicable to non-disclosure of TPF.
The third ground is that “there was corruption on the part of a member of the
Tribunal”111. The ICSID Arbitration Rules (Current) Rule 6 requires all arbitrators to sign a declaration to promise its independence and not to accept compensation with regard to the proceeding from any source except as provided in the ICSID
Convention.112 This ground has two factors to alert attention. One is the biased behaviour conducted by the arbitrator. Another is that the behaviour should be shown which has been caused by improper compensation which is not provided in the ICSID
103 Ibid.
106 ICSID Convention Article 52(1)(b).
107 CDC Group plc v. Republic of Seychelles, ICSID Case No. ARB/02/14, Decision on Annulment, 29 June
2005, para.39.
111 ICSID Convention Article 52(1)(c).
Convention. Mere bias without payment would not amount to corruption.113 TPF involves third-party funder. To make a profit from the investment in the ISDS, the funder might adopt improper methods e.g. bribing the arbitrators. Since the TPF in this thesis is assumed as non-disclosed during the proceeding, the existence of the third-party funder is invisible too. Therefore, the relationship between the third-party funder and the arbitrators is intangible. Even though the opposing party sensed the bias during the proceeding, if it cannot prove the hidden corruption, the opposing party is incapable to initiate the annulment with the third ground. But on the contrary, when the disclosure of TPF happens at the post-award stage and the bribe from the third-party funder to arbitrators is found, the third ground of annulment may be relied upon.
The fourth ground is that “there has been a serious departure from a fundamental
rule of procedure”114. In MINE, the ad hoc Committee said that: “… the text of Article 52(1)(d) makes [it] clear that not every departure from a rule of procedure justifies annulment; it requires that the departure be a serious one and that the rule of procedure be fundamental in order to constitute a ground for annulment”.115 It indicates that to satisfy this ground of annulment, those two factors, “serious” and “fundamental”, must be fulfilled simultaneously. This has also been confirmed by several other ad hoc committees.116
The usual allegations of the serious departure from the fundamental rule are as following: lack of impartiality, violation of the right to be heard, absence or abuse of deliberation among the arbitrators, violation of the rules of evidence, and violation of rules of representation.117 The non-disclosure of TPF during the proceeding is not in
113 Schreuer, Christoph, The ICSID Convention a Commentary, Cambridge University Press, 2nd ed., 2009,
p.978.
114 ICSID Convention Article 52(1)(d).
115 Maritime International Nominees Establishment v. Republic of Guinea, ICSID Case No. ARB/84/4, Decision
on Annulment, 22 December 1989, para.4.06.
116 Ibid; Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Decision on Annulment, 5
February 2002, para. 56; CDC Group plc v. Republic of Seychelles, ICSID Case No. ARB/02/14, Decision on Annulment, 29 June 2005, para. 48.
the list. But it does not exclude the possibility. The purposes of the disclosure are about the independence and integrity of arbitrators, and also bound with other procedural rules.118 After “the Notice of TPF”119 becomes an effective provision in ICSID Arbitration Rules, it deserves a fundamental rule position. Specifically, the departure of the ICSID Arbitration Rules (#4) Rule 14 is serious. In Wena Hotels v.
Egypt, the ad hoc Committee explained that a departure is serious where it is
“substantial and [is] such as to deprive a party of the benefit or protection which the rule was intended to provide”.120 Rule 14 aims to expose the existence of TPF as early as possible, at least before the award is rendered. In this way, the potential conflicts of interest could be examined, which is substantial to ensure a due process. If the TPF remains non-disclosed until the post-award stage, it could be said that this substantial protection for the opposing party is deprived.
The relationship between “fundamental” and “serious” is also dynamic. In the Decision of Annulment, the Klöckner I ad hoc Committee emphasized more on the element of “fundamental rule” rather than “serious departure”. It says “impartiality of an arbitrator is a fundamental and essential requirement. Any shortcoming in this regard, that is any sign of partiality, must be considered to constitute, within the meaning of Article 52(1)(d), a “serious departure from a fundamental rule of
procedure”.121 Although not pointed out, it could tell that if the rule was sufficiently fundamental, even the slightest departure from it would be serious.122 Conversely, for the issue of TPF, the disclosure of TPF is an obligation for the financed party to fulfil during the proceeding even before the start of the proceeding. ICSID Arbitration Rules (#4) Rule 3 also requires “the parties shall conduct the proceeding in good faith
118 For instance, the right to request security for costs, the right to replace the arbitrators etc.
119 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
Rules, Arbitral Rule 14, February 2020
120 Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Decision on Annulment, 5 February
2002, para.58.
121 Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des
Engrais, ICSID Case No. ARB/81/2, Decision on Annulment, 3 May 1985, para. 95.
122 Schreuer, Christoph, The ICSID Convention a Commentary, Cambridge University Press, 2nd ed., 2009,
and in an expeditious and cost-effective manner”.123 So, remaining non-disclosure of TPF by the financed party is a serious violation. The requirement of the rule to be “fundamental” would be easier to satisfy in the context of non-disclosure of TPF at the post-award stage because the add-up of the “seriousness” and “fundamental” of the rule is enough.
Therefore, the non-disclosure of TPF may attribute to the fourth ground. This view was also supported by a UNCITRAL report that: “A finding that there had been an agreement to provide third-party funding, or that third-party funding had been provided, in violation of Section 2(a) or 3(a) shall be deemed to establish that the award was issued in manifest contravention of a fundamental rule of procedure agreed by the parties”.124
The fifth, also the final ground is that “the award has failed to state the reasons on
which it is based”125. The TPF keeps non-disclosed, so the issue of TPF is not aware in the award. There is no issue to base on any reasons. So, the fifth ground of
annulment may not be adopted by the opposing party for the issue of non-disclosure of TPF. But when the opposing party requests the Tribunal to exercise its discretion during the proceeding under ICSID Convention Article 43 and ICSID Arbitration Rules (#4) Rule 36 but refused, the refusal may be not a departure from a fundamental rule of procedure because it is just an exercise of that rule of procedure. However, if the Tribunal fails to give reasons to the refusal, which is required by the obligation under ICSID Convention Article 48, it will be the ground for annulment under Article 52(1)(e) of the ICSID Convention.126
123 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
Rules, Arbitral Rule 3, February 2020
124 Brooke Guven, Lise Johnson, Draft Text Providing for Transparency and Prohibiting Certain Forms of
Third-Party Funding in Investor-State Dispute Settlement, 15 July 2019.
125 ICSID Convention Article 52(1)(e)
126 Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Decision on the Application for
II. The adjustment of the cost in the award
ICSID Convention Chapter VI is “Cost of Proceedings”. Specifically, its Article 61(2) states that: “In the case of arbitration proceedings the Tribunal shall, except as the parties otherwise agree, assess the expenses incurred by the parties in connection with the proceedings, and shall decide how and by whom those expenses, the fees and expenses of the members of the Tribunal and the charges for the use of the facilities of the Centre shall be paid. Such decision shall form part of the award.”127
Article 61(2) shows the way how to allocate the cost is not a fixed pattern but depends on the Tribunal unless the parties otherwise agree. For the tribunal, “neither the Convention nor the attendant Rules and Regulations offers substantive criteria for its decision on which party should bear the costs”.128
There are two points to pay attention to. One is when the award has been rendered, in which procedure the allocation of costs could happen because of the disclosure of TPF. Another one is how the tribunal would allocate the costs.
When the revision procedure or the annulment procedure is invoked, the re-allocation of costs could happen. A tribunal may revise its decision on costs if new facts
affecting the costs emerge that were unknown when the award was rendered.130 Then in such occasion, the allocation of cost is within the function of the activated tribunal who gives the decision of the revision procedure. Article 61(2) of the ICSID
Convention and ICSID Arbitration Rules (#4) Rule 59(1)(j)131 are the pivotal statements to support this view. At the same time, practices like the Decision (on Revison) of Victor Pey Casado v. Republic of Chile132 decided the allocation of cost
127 ICSID Convention Article 61(2)
128 Rubins, N.D., The Allocation of Costs and Attorney’s Fees in Investor-State Arbitration, ICSID Review -
Foreign Investment Law Journal, Vol.18, Issue 1, 2003, pp.126-129.
130 Schreuer, Christoph, The ICSID Convention a Commentary, Cambridge University Press, 2nd ed., 2009,
p.884.
131 “A statement of the costs of the proceeding, including the fees and expenses of each member of the Tribunal,
and a reasoned decision on the allocation of costs.”
132 Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2,
in the part of “DISPOSITIF”.133 So, the adjustment of the allocation is possible in the revision procedure.
When it comes to the annulment procedure, which is under the supervision of an ad
hoc committee, the allocation of cost is well-functioned. Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of Venezuela in its Annulment
stated that “according to Article 61(2) of the ICSID Convention and Arbitration Rule 47(1) (j), which are applicable mutatis mutandis to annulment proceedings (Article 52(4) of the ICSID Convention)”.134 ICSID Convention Article 61(2), as illustrated above, makes the allocation of cost an obligation for the Tribunal to decide whom and how to bear the fees. ICSID Arbitral Rules (Current) Rule 47(1)(j)135 makes sure the decision of the Tribunal regarding the cost of the proceeding will be contained in the award. So, as the discretion to decide the allocation of cost is not limited to the tribunal but also the ad hoc Committee who is in charge of the annulment procedure, “the Committee also has the discretion to determine “how and by whom” the costs and expenses of ICSID, the Committee and the Parties are borne”.136 This indicates that the adjustment of allocation is also possible in the annulment procedure.
After ensuring the possibility of the adjustment of the allocation of costs in revision and annulment, it turns to discuss how the adjustment works in those procedures. ICSID Convention Article 61(2) does not give a clear indication of how to assess and decide “how and by whom” those costs to pay. The ICSID Arbitral Rules (#4) Rule 52(1) lists 4 circumstances to consider:
133 Ibid. para.53.
134 Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of Venezuela, ICSID Case
No. ARB/10/5, Annulment, para.224.
135 Equal to ICSID Arbitration Rules (#4) Rule 59(1)(j).
136 Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of Venezuela, ICSID Case
Its first circumstance is the outcome of the proceeding or any part of it. The breach of the obligation to disclose TPF may alter a part of the outcome of the proceeding, which is supposed to be considered. This is disadvantageous for the financed party
Its second circumstance is the conduct of the parties during the proceeding. The conduct has two aspects to assess: whether it is expeditious and cost-effective and whether it complies with these Rules and the orders and decisions of the Tribunal.137 The financed party should notify the information of TPF as early as possible.138 As long as the disclosure is reluctant, it delays the assessment of the impacts of the TPF. The revision or the annulment could be evitable if the disclosure of TPF had
happened during the proceeding no matter how late it is. So, it cannot say the disclosure of TPF at the post-award stage is conduct which is expeditious and cost-effective.139 The non-disclosure of TPF is also against the requirement of disclosure in ICSID Arbitration Rules (#4) Rule 14 by conflicting with the obligation to disclose. If the tribunal ever ordered the financed party to disclose relevant information but the financed party chose not to disclose, the financed party’s conduct is contrary to the order of the Tribunal. Therefore, the second circumstance is evidently to be applied when adjusting the allocation of cost.
The third circumstance is the complexity of the issues. The issue of the disclosure might be straightforward. But the existence of the non-disclosure causes the increase of the complexity of the general issues. This factor is to be considered.
The fourth, and also the final circumstance is the reasonableness of the costs claimed. It relates to the attorney fee to present the non-disclosure issue, the notarization fee to prove the existence of TPF etc. In sum, all these four circumstances listed in the
137 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitration
Rules, Arbitral Rule 52(1)(b), February 2020
138 Ibid, Arbitral Rule 14(3).
139 ICSID Secretariat, Working Paper #4, Volume 1, Proposals for Amendment of the ICSID Rules, Arbitral Rule
ICSID Arbitral Rules (#4) Rule 52(1) should be considered and assessed when allocating the costs.
Beyond the circumstances, there are four common principles for the tribunals to choose.140 (a) in the absence of reasons to decide otherwise, each party should bear half of the costs of the arbitration and should pay for its own expenses in preparing and presenting its case; (b) if a party has completely or overwhelmingly prevailed on the merits, the losing party may have to bear a major part or all of the costs of the arbitration and part or all of the expenses of the winning party. These two principles may be adopted by the tribunal to give the original award before the disclosure of TPF at the post-award stage. (c) misconduct by a party during the proceedings should be reflected in the award on costs. When the disclosure of TPF happens at the post-award stage, the third principle should be referred. The misconduct was not discovered during the proceeding, so the consequence did not reflect in the award on costs. The revision and the annulment are to redress this ignorance. (d) a party that is responsible for a particular part of the proceeding should bear the resulting costs. As has
mentioned, the reason to invoke a new procedure of revision or annulment is due to the non-disclosure of TPF during the proceeding, which is to blame the financed party. So, when allocating costs at the post-award phase, the expenses should credit to the financed party.
In conclusion, when allocating the cost in the decision for revision or annulment, it should allocate bigger portion of the arbitration cost to the financed party than ever as a consequence of the non-disclosure of TPF during the proceeding. But the expenses of the opposing party do not have to be reimbursed by the financed party since the expenses were used to deal with other legal issues but not relate to the existence of TPF. At the post-award stage, in accordance with ICSID Administrative and Financial Regulation 14(3) (e), the Applicant was solely responsible for making the advance
140 Schreuer, Christoph, The ICSID Convention a Commentary, Cambridge University Press, 2nd ed., 2009,
