REUTERS | John Kolesidis

A binding code of conduct for adjudicators in investor-state disputes: a step forward?

Earlier this month, the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL) jointly published a draft code of conduct for adjudicators in investor-state dispute settlement. The draft code is designed to address important issues in relation to the conduct of adjudicators in investor-state dispute settlement (ISDS). It is part of the wider effort of UNCITRAL’s Working Group III (WG III) to introduce ISDS reforms and of ICSID’s amendment of its rules of procedure.

General overview

The draft code contains 12 articles with commentary explaining the rationale behind each article and points for further discussion. It addresses, among other things, pre- and post-appointment obligations of adjudicators, issues such as repeat appointments, double-hatting and issue conflicts, and strategies for the implementation and enforcement of its underlying rules.

The draft code is not the first instrument designed to regulate adjudicators’ conduct. Indeed, some arbitration rules, investment agreements, and soft law guidelines already set forth standards, albeit of varying levels of substance and specificity. But the draft code is the first comprehensive code of conduct applying exclusively to all ISDS disputes, as a binding set of rules. Several justifications have been advanced in support of this initiative, namely the different role and impact of adjudicators in ISDS, questions of democratic accountability, and an aversion to pro-investor or pro-state bias.

The draft code, as its title suggests, is a work in progress that identifies some of the issues and concerns frequently raised by ISDS critics. It is a product of policy discussions among member states in WG III, analyses by ICSID and UNCITRAL secretariats, and a comparative review of existing codes.

Broad scope of application

A striking but helpful feature of the draft code is its broad scope of application. It is proposed to regulate the conduct of “all adjudicators” involved in ISDS, including arbitrators, members of annulment committees, members of a potential appeal mechanism, or judges on a multilateral standing body. It also requires adjudicators to ensure that their “assistants” comply with the rules, thereby addressing questions about the participation of tribunal secretaries in international arbitration.

The draft code’s broad scope also covers the conduct of “candidates” for an adjudicator position. This is not new, as certain codes of conduct in investment agreements impose obligations on candidates, such as the North American Free Trade Agreement and the Investment Protection Agreement between the EU and Singapore. The draft code, however, provides for additional regulation of “pre-appointment interviews” that counsel often conduct with candidates to ascertain availability and absence of conflict.

Article 10 specifically prohibits candidates from discussing substantive matters with counsel at such pre-appointment stage and requires that all interview records be disclosed to parties upon appointment. Such regulation could be helpful in levelling the playing field and ensuring that minimum ethical standards are observed during pre-appointment interviews. Yet, at that stage, it is counsel who holds substantive information about the dispute. Although counsel is not subject to article 10, this provision requires that candidates stop counsel from engaging in substantive discussions. While guidance on such discussions may be welcome, the further requirement that candidates create and disclose all pre-appointment interview records once selected could be of dubious utility.

Issues of particular relevance in ISDS reform discussions

The draft code considers three extensively debated issues: repeat appointments, issue conflicts, and double-hatting.

Article 5(2)(c) requires candidates and adjudicators to disclose all ISDS cases in which they are or have been involved in any capacity, without indicating any time limit. This is meant to allow parties to assess meaningfully, on a case-by-case basis, “the relationship between adjudicators and each actor involved in the proceedings”, and evaluate conflicts of interest. The draft code, therefore, rejects stringent measures towards repeat appointments, such as a complete ban that could risk creating unnecessary constraints on the pool of adjudicators available to the parties. Although this measured approach might effectively address conflicts of interest, it does not deal with repeat appointments’ side effects, namely lack of diversity and barriers to entry for new adjudicators. How the draft code might help address those side effects is a question that deserves additional reflection.

Article 5(2)(d) requires candidates and adjudicators to disclose “a list of all publications” and “relevant public speeches.” Although this may help parties identify bias or prejudgment of relevant issues, one might question the value of such disclosure, as challenges based on issue conflicts rarely prevail in practice. Besides, even if article 5(2)(d) could expedite the due diligence conducted by counsel, this perceived advantage needs to be balanced against the burden that such a request would impose on candidates and adjudicators, as acknowledged by the draft code.

Article 6 requires adjudicators to limit double-hatting, a practice whereby an adjudicator simultaneously assumes multiple roles in separate ISDS proceedings, be it as counsel, expert, or adjudicator. Critics argue that double-hatting may create bias or suspicion that cases will be decided as a result of intra-community relations or influences. Some find such concerns to be particularly acute in ISDS because it involves the interpretation and application of similar legal instruments. While the draft code recognises these concerns, it also discusses the dangers of extreme measures. An outright ban can affect party autonomy and restrict entry of new entrants or adjudicators that bring gender and regional diversity. Given these competing considerations, the draft code has not yet offered a clear solution; the issue will likely be subject of further discussions during the next WG III session.

Implementation and enforcement

WG III discussions of the draft code reveal that several member states pushed for a binding code of conduct and sanctions in case of violations. One wonders why these stakeholders desire binding rules when soft law instruments such as the IBA Guidelines on Conflicts of Interest are quite regularly and effectively applied in the ISDS setting, while leaving sufficient scope for case-by-case exceptions. It also remains to be seen why sanctions would be desirable and how the draft code, once approved, will fit in the current body of hard and soft rules. For instance, would it replace the existing codes of conduct in specific investment agreements? Which rules would prevail in the event of a conflict among applicable rules? To what extent would monetary, disciplinary or reputational sanctions add value to the ISDS system? We can expect greater clarity on these and other questions after WG III’s next round of discussions.

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