By: Alexander A. Witt
Following a consultation process that lasted more than five years and produced six working papers reflecting the development of the draft provisions, the 2022 ICSID Arbitration Rules (the “2022 Rules”) came into force on 1 July 2022. The 2022 Rules are a complete overhaul of their predecessor, the 2006 ICSID Arbitration Rules (the “2006 Rules”). The 2022 Rules were adopted with the goal of modernising ICSID arbitration and offering its users a more efficient and cost-effective platform to resolve their investment disputes.
Experienced counsel in ICSID arbitration will recall that Rule 34(3) of the 2006 Rules provided that the tribunal could take formal note of a party’s failure to produce evidence and the reasons provided for such failure. This rule expressly gave parties the opportunity to request the tribunal to draw adverse inferences from the other party’s failure to produce evidence which the tribunal ordered to be produced. By adverse inferences it is understood that the tribunal would infer from the party’s failure to produce the evidence that said party decided not to produce such evidence because it is adverse to its case or favourable to the other party’s case.
Interestingly, the language of Rule 34(3) of the 2006 Rules was omitted from the 2022 Rules. Such wording did not feature at all in any of the working papers published by the ICSID Secretariat showing the draft rules pertaining to evidentiary matters. Likewise, none of the working papers discussed adverse inferences as part of the general principles of evidence (Rule 36) or disputes arising from document production requests (Rule 37). The omission of the adverse inference language from the 2022 Rules is particularly curious because Rule 34(3) of the 2006 Rules had been invoked in a number of ICSID cases. The parties’ use of that rule to request a tribunal to draw adverse inferences suggests it was an effective tool to address evidentiary disputes.
For example, in Metal-Tech v. Uzbekistan, the respondent alleged that certain payments from the claimant to consultants for purported lobbying activities were channelled to lawmakers to facilitate the claimant’s investment. The tribunal’s award shows that the testimony of one of the claimant’s witnesses at the hearing gave rise to suspicions over the legitimacy of the claimant’s payment to the consultants. The tribunal exercised its ex officio powers to request the claimant to produce evidence that detailed the services that the consultants provided, the amounts the claimant paid to the consultants, and the timing of such payments. Despite the tribunal giving the claimant ample opportunity to produce evidence that would demonstrate the legitimacy of the payments for the purported consulting services, the claimant failed to produce documentary evidence and witness testimony. The claimant alleged (among other reasons) that most communication between the claimant and the consultants did not take place over email and that the consultants were concerned about their well-being and potential repercussions from testifying against the State. The tribunal did not consider any of the claimant’s reasons satisfactory. Consequently, and in accordance with Rule 34(3) of the 2006 Rules, the tribunal took formal note of the claimant’s failure to produce evidence that would substantiate the legitimacy of the consulting services and the tribunal inferred that the claimant’s payments to the consultants were not made in exchange for legitimate services. In that particular case, the inference was critical to the tribunal’s determination that it lacked jurisdiction as a result of the claimant’s corruption.
Conversely, in the Decision on the Corruption Claim in Niko Resources v. Petrobangla and Bapex, the tribunal refused to draw adverse inferences from the absence of certain documents even though it was of the view that such documents existed and should have been in the possession, custody or control of the parties. Specifically, the tribunal noted that “it is indeed surprising that there are no or only very few records of communications in the circumstances on which the Respondents’ three requests are based – just as it is surprising that Respondents failed to produce a number of documents relevant to the case”.
In Ipek v. Turkey, in the context of an application for provisional measures to preserve certain documentary evidence that Turkey seized, the tribunal warned the parties that it was “mandated under Rule 34(3) to take note of the Party’s failure to comply with its obligations [to produce evidence]”. While the tribunal did not expressly refer to adverse inferences, it is fair to assume (given the context), that it was alluding to such consequence if a party failed to produce evidence. The tribunal’s position could be interpreted as a warning against any future non-compliance of the parties and also as a way to encourage efficiency in the document production stage of the arbitration.
In Churchill Mining and Planet Mining v. Indonesia, the claimants requested the tribunal to draw adverse inferences from Indonesia’s: (i) failure to produce certain documents it was ordered to produce; and (ii) failure to present certain key witnesses at the hearing. Indonesia likewise requested the tribunal to draw adverse inferences from the claimants’ failure to present a witness at the hearing. The tribunal concluded that a party’s failure to produce evidence does not necessarily require a tribunal to draw adverse inferences. In that case, the tribunal was satisfied by the reasons given for the failure of the respective parties to produce the evidence and refused to draw adverse inferences.
This is a cautionary tale for counsel who will no longer be able to point at the 2022 Rules and request the tribunal to draw adverse inferences from a party’s failure to produce evidence. However, if the omission of the adverse inference language from the 2022 Rules catches someone by surprise, there may be a silver lining. Article 9(7) of the 2020 International Bar Association Rules on the Taking of Evidence in International Arbitration (the “IBA Rules”) provides that if a party fails, without satisfactory explanation, to produce evidence ordered to be produced by the tribunal, the tribunal may infer that such evidence is adverse to the interests of the recalcitrant party.
However, relying solely on the IBA Rules as a ground for requesting the tribunal to draw adverse inferences is far from advisable. In the author’s experience, tribunals generally note in the first procedural order that they will be guided – but not bound by – the IBA Rules. This dilutes the extent to which the tribunal may be willing to draw such inference – even if requested by a party. Instead, counsel would be prudent to specify expressly in the first procedural order that the tribunal has the power to draw adverse inferences from a party’s failure to produce evidence and even to detail under which circumstances a tribunal may do so.
The ICSID Secretariat’s decision to omit the language that parties invoked to request the tribunal to draw adverse inferences from the failure to produce evidence is curious indeed. The process for revising the ICSID arbitration rules was particularly extensive and detailed. It included the input from ICSID, States, practitioners, and academics. The provision on evidence (and document production in particular) received significant commentary from stakeholders. Such omission could hardly be an oversight. But likewise no explanation was proffered to support its deliberate omission. And it would seem contrary to ICSID’s reform objectives to remove a provision that had been used by parties in ICSID cases rather effectively. Perhaps the omission of the adverse inference language is an implicit recognition of the (almost universal) use of the IBA Rules in ICSID Arbitration. Perhaps the ICSID Secretariat has recognised that, since the IBA Rules are so commonplace, it was unnecessary to retain the adverse inference language in the 2022 Rules. However, this was not explained at all during the reform process and it certainly does not justify the omission of the adverse inference language from the 2022 Rules. As explained above, some tribunals may only use the IBA Rules as a non-binding reference for evidentiary matters.
At the time of writing, no known cases under the 2022 Rules have dealt with an adverse inference request. However, if a party makes such request, the opposing party could argue that such request is impermissible under the 2022 Rules. The 2006 Rules expressly included the possibility for the tribunal to draw adverse inferences from the lack of evidence. The omission of such possibility under the 2022 Rules could be seen as a deliberate decision from ICSID’s Administrative Council to prevent a tribunal from drawing adverse inferences and there is now no basis on which the tribunal could draw adverse inferences.
In any event, counsel should be aware that the 2022 Rules do not contain an equivalent provision to Rule 34(3) of the 2006 Rules and take the necessary steps to address this absence in the first procedural order of the case. In the author’s experience, the possibility of a party requesting the tribunal to draw adverse inferences is a powerful deterrent against non-compliance with evidence production orders. Moreover, provisions that encourage compliance with evidence production at the earliest opportunity promote the goals of efficient and cost-effective ICSID arbitration.
Managing Associate, Orrick, Herrington & Sutcliffe (UK) LLP. This blog post reflects the author’s personal views, which shall not be attributed to Orrick, Herrington & Sutcliffe (UK) LLP or any of the past, present or future clients of the author or of Orrick, Herrington & Sutcliffe (UK) LLP. ↑