The United Nations Commission on International Trade Law’s (“UNCITRAL“) Working Group III (Investor-State Dispute Settlement Reform) (“WGIII”)​ has recently published two draft working papers for comment (the “Working Papers”). The Working Papers address the possible reform of investor-state dispute settlement (“ISDS“), focusing on (i) an appellate mechanism and enforcement issues and (ii) the selection and appointment of ISDS tribunal members, respectively. The Working Papers were prepared by the UNCITRAL Secretariat, which WGIII requested to undertake further preparatory work following discussions on these issues during WGIII’s resumed 38th session held in January this year. The Working Papers aim to provide information to WGIII but do not express a view on the possible reform options, which remains a matter for WGIII.

Background

UNCITRAL has been considering the possible reform of ISDS through the work of WGIII, which has been given a broad mandate to consider issues regarding ISDS procedure, and develop relevant solutions to be recommended to the main UNCITRAL body. While WGIII enjoys broad discretion in discharging its mandate, any solutions devised will take into account the ongoing work of relevant international organisations, and each State may decide the extent to which it chooses to adopt the proposed solutions. For further information about WGIII’s previous work on ISDS reform, please see our extensive coverage of this topic here: PIL Notes posts of April 2018January 2019February 2019November 2019 and February 2020.

  1. Working Paper on appellate mechanism and enforcement issues

This Working Paper addresses the main elements of a possible appellate mechanism, potential enforcement issues, and possible draft provisions for establishing such a mechanism. This includes consideration of the following areas:

  • Scope and standard of appeal: the Working Paper considers the scope of review on appeal, including errors of law and errors of fact. The draft provisions highlight the possibility of allowing appeals on the basis of the existing grounds for annulment and set-aside under the ICSID Convention and the New York Convention.
  • Appealable decisions: the draft provisions note that decisions on both merits and procedural matters may be subject to appeal, while certain other decisions (such as decisions on challenge of ISDS tribunal members and decisions on interim measures) may be excluded from the scope of appeal. Members of WGIII previously expressed doubts as to whether decisions on jurisdiction should fall under the scope of the appellate mechanism. The draft provisions consider that decisions on jurisdiction may be appealable, and while such appeals are pending, the first-tier tribunal may continue the proceedings and make an award.
  • Effect of appeals: the draft provisions suggest that where a disputing party lodges an appeal, this temporarily suspends the effect of the first tier-decision, provided that the appeal is issued within a certain number of (yet to be determined) days following the initial decision.
  • Manageable caseload: the Working Paper notes that it will be important to ensure a manageable caseload and to avoid systematic appeals by disputing parties. Security for costs, cost allocation and early dismissal are mentioned as possible means to address this.
  • Enforcement: the Working Paper notes that the instrument establishing the appellate mechanism could specifically include its own enforcement provisions. Further, a provision could be included indicating that the New York Convention would be deemed to apply to decisions rendered by the appellate body. The Working Paper acknowledges difficulties with the ICSID Convention due to the express wording of Article 53 that ICSID Awards should “not be subject to any appeal or to any other remedy except those provided for in the Convention”. The Working Paper discusses two possible solutions to this: amendment (which requires the consent of all States party) or inter se modification (which would only change the treaty provisions for those endorsing the modification).
  • Issues for further consideration: the Working Paper highlights a number of issues for further consideration, including the possibility that States party to an investment treaty could be given the opportunity to express their views on treaty interpretation during the appellate procedure; and the interpretative effect of a decision rendered by an appellate tribunal, including whether to establish a system of precedent.
  1. Working Paper on the selection and appointment of ISDS tribunal members

Qualifications and other requirements

The Working Paper notes that the draft code of conduct for ISDS adjudicators prepared jointly with ICSID (“Draft Code”) addresses certain qualifications and requirements of ISDS tribunal members, including: independence and impartiality; availability, diligence and efficiency; repeat appointments and “double-hatting” (the practice of acting as both counsel and arbitrator). The Draft Code is discussed in our earlier blog post here.

The Working Paper considers whether also to develop possible substantive qualification requirements for ISDS tribunal members (not currently addressed in the Draft Code), such as requirements to:

  • be cognisant of public international law, international trade and investment law, as well as private international law;
  • have an understanding of the different policies underlying investment, issues of sustainable development, how to handle ISDS cases and how governments operate; and
  • have specific knowledge relevant to the dispute at hand, for example, industry-specific knowledge, knowledge of the relevant domestic legal system and calculation of damages.

Diversity and balanced representation

The Working Paper notes that WGIII has previously indicated that diversity – geographical, gender, linguistic, and different legal systems and cultures – must be “of essence in the ISDS system”. The Working Paper notes that pursuing the objective of inclusiveness, rather than diversity, may help ensure that no type of diversity would be viewed as exclusionary. In this regard, the Working Paper mentions several existing statutes of international courts that refer to “equitable geographical representation” or “distribution” for the selection of adjudicators, and notes that similar language could be adopted in ISDS arbitrations.

Implementation

The Working Paper considers that core qualifications and requirements could be implemented through the adoption of a code of conduct, which could be: (i) incorporated into investment treaties (ii) agreed to by disputing parties at the inception of each case; (iii) appended to the disclosure declaration that adjudicators must file upon acceptance of nomination; (iv) incorporated into applicable procedural rules or statutes of a permanent body; or (v) made part of a multilateral instrument on ISDS reform.

The Working Paper highlights that the specific features of the reform options will largely depend on the broader design of ISDS, including whether the ad hoc nature will be preserved, or whether a standing mechanism will be established.

Next steps

The Working Papers are open for comment until 15 December 2020 and WGIII will then go on to consider the proposals, before meeting for the 40th session in the first half of 2021.

We will continue to follow and update on the deliberations pending WGIII’s final recommendations on ISDS reform.

For more information, please contact Andrew Cannon, Partner, Caitlin Eaton, Associate, or your usual Herbert Smith Freehills Contact.

Andrew Cannon

Andrew Cannon
Partner
+44 20 7466 2852

Caitlin Eaton

Caitlin Eaton
Associate
+44 20 7466 2662