The UNCITRAL Working Group III, tasked with examining potential reforms of investor-state dispute settlement (ISDS), recently released its report on the outcome of its resumed 38th session, which took place in Vienna from 20 to 24 January 2020.
During this session, the Working Group III explored three reform options for ISDS:
- A standalone review or appellate mechanism.
- A standing multilateral investment court.
- A review of the process for the selection and appointment of arbitrators and adjudicators.
This contribution will focus on the Working Group III’s discussion regarding a potential appeal mechanism and present the main takeaways from the discussion.
The Working Group III focused on the nature and scope of a potential appeal mechanism, as well as on the effects of such an appeal mechanism. The main objective of any such mechanism was stated to “increase the correctness, consistency, predictability and coherence of ISDS decisions and hence the legitimacy of ISDS.” Some participants expressed concerns that, while coherence could be achieved by allowing an appellate body to render decisions regarding multiple treaties, this could result in said body having overly broad interpretive powers.
Importantly, in relation to the perceived lack of coherence and consistency, the Working Group III emphasised that:
“… seeking to achieve consistency should not be to the detriment of the correctness of decisions, and that predictability and correctness should be the objective rather than uniformity.”
Views also differed as to whether costs and duration would increase or decrease as a result of the possible introduction of an appeal mechanism. While some contended that, as a result of increased certainty and predictability, costs would decrease in the long run, others considered that significant increases in costs and duration were inevitable, no matter how the appellate mechanism would be designed.
As some pointed out, the costs of the proceedings would be largely influenced by the scope and standard of review: the broader the grounds of appeal, the more likely parties would systematically appeal against any adverse decision. Taking the existing annulment procedure under the ICSID Convention as an example, some suggested adding certain limits to the scope of review.
There is no doubt that any such limitations would face many difficulties. For instance, if the grounds of appeal include errors in the interpretation or application of the law, it will be necessary to clarify the meaning and the scope of the term “law” in ISDS. Would it be limited to investment treaties and notions of public international law, or would it also encompass the domestic laws of the respondent state and any other law potentially applicable to the dispute? Also, would any kind of errors constitute a ground to appeal, or would it be necessary that the error be “serious” or “manifest”? If so, would serious or manifest errors in the fact finding process or in the computation of damages be immune from such appeal mechanism?
The extent to which procedural decisions could be appealed is less straightforward. Some underlined that the more procedural decisions could be appealed (for example, decisions on document production), the higher the risk that the appellate body would be overburdened (thus decreasing the efficiency and manageability of the mechanism). Others pointed out the risk that an appeal mechanism could duplicate existing mechanisms (in particular before domestic courts). It was also unclear whether decisions on jurisdiction and interim measures could be appealed.
Regarding the effects of an appeal, there appears to have been a broad consensus that the appellate body should be able to affirm, reverse or modify the decision of the first tribunal and render a final decision based on the facts before it. However, diverging views were expressed as to the appellate body’s ability to remand a case to the first tribunal. Furthermore, it was suggested that the appeal should temporarily suspend the effect of the first instance decision pending the appellate body’s decision.
After the discussions, the Working Group III tasked the UNCITRAL secretariat with conducting preparatory work regarding the introduction of an appeal mechanism, and provided some guidance to the secretariat in this regard. For instance, the secretariat was asked to clarify the meaning of the phrases “errors of law” and “errors of fact”. The secretariat’s preparatory work “could aim at preparing draft provisions regarding those matters as well as providing information on any other identified questions.” The secretariat’s preparatory work will no doubt provide interesting insight as to the shape any potential reform will take.
Even though the report does not contain, at this stage, any firm views or decisions by the Working Group III, it provides a clear and detailed presentation of the many questions and challenges that arise in the context of the envisaged reform of ISDS. In our future contributions, we will examine the main issues identified by UNCITRAL in relation to a potential standing multilateral investment court, and possible reforms to the appointment and selection of arbitrators.