REUTERS | Brendan McDermid

States of exception: UNCITRAL Working Group III releases its latest report

As mentioned in our previous contribution, in its report on the outcome of its 38th session in Vienna, the UNCITRAL Working Group III explored areas of potential reforms to the current system of investor-state dispute settlement (ISDS). We have already explored the report’s main findings related to the potential adoption of a standalone appellate mechanism. In this post, we examine the main takeaways of the report in relation to the two other issues discussed therein, namely the adoption of a standing multilateral investment court, and potential reforms to the process for the selection and appointment of arbitrators and adjudicators.

The main point of focus in relation to a potential standing body (be it a standing first tier body or a permanent appellate mechanism) was the enforcement regime applicable to the decision that said body would render. The Working Group III noted that “enforcement was a key feature of any system of justice and essential to ensure its effectiveness.”

Although awards rendered by ISDS tribunals were generally enforceable through the New York Convention, the same would not necessarily hold true for the decisions made by a permanent body. Indeed, depending on how said body is set up, such decisions may not qualify as “arbitral awards” within the meaning of the New York Convention, although Article I(2) of the New York Convention provides that “[t]he term ‘arbitral awards’ shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted.”

It was therefore suggested that the founding convention of any permanent body should include an internal enforcement mechanism for all participating states, based on, for example, Article 54 of the ICSID Convention, and provisions of recent bilateral or multilateral investment treaties. However, it was pointed out that potential conflicts might arise between this internal enforcement mechanism and existing enforcement regimes. It was agreed that the imbrication of the various enforcement systems “would deserve in depth-analysis and research.”

With regard to non-participating states, the question arose as to whether the New York Convention and the ICSID Convention would provide for a sufficient legal framework for enforcement purposes. It was notably pointed out that domestic courts applying the New York Convention might render divergent decisions as to whether it applies to the decisions of the permanent body.

The financing of a potential permanent body led to interesting discussions. While some argued that the state parties to the founding convention should be responsible for funding the body (so as to ensure more sustainable operations), others submitted that the current practice, according to which the disputing parties pay the costs of ISDS, should be preserved. It was argued that the user-pay system ensures accountability and could deter systematic appeals and frivolous claims. Furthermore, it was suggested that this would allow for more scalability and flexibility in the operation of a permanent body, depending on whether the caseload increased or decreased. This would also help dissipate the impression that the disputing parties would not directly be remunerating the adjudicators. Another view was that the financing of the permanent body should consist in a hybrid mechanism, based on contributions from participating states as well as disputing parties.

As to the tribunal members, the Working Group III then considered different options for their selection and appointment. While some in the working group intended to preserve the broad autonomy enjoyed by the disputing parties under the current regime, others considered that there was a need to revisit the party appointment mechanism and to limit the involvement of the disputing parties. According to this view, party autonomy “need not be a key component of ISDS.”

Accordingly, some suggested establishing a list (or roster) of arbitrators. Different models were discussed, including a pre-established list of arbitrators, which could be open (as is now the case in ICSID arbitration) or closed, so as to restrict the choice of the disputing parties (similarly to what prevails in sports disputes before the Court of Arbitration for Sport).

In view of establishing a permanent body, the Working Group III discussed whether the participating states would be represented in the body itself. It was suggested that the candidates could be either nominated by participating states, by an independent entity established within the permanent body, or by the interested individuals themselves.

As to the selection process, it was suggested that the candidates could be either elected by the participating states (either through a vote or by consensus), or selected by a committee (possibly under the auspices of a body within the United Nations system).

It was noted that the nomination and selection process, as well as the applicable criteria, could differ for members of the first instance tribunal and those of the appellate body.

As we noted previously, the Working Group III did not take any firm views in its report. That being said, the considerations outlined in the report suggest that the UNCITRAL Working Group III is considering very fundamental changes to the current ISDS system. In particular, the reforms envisaged by the working group indicate a shift towards a system where state actors get to play a more significant role in the adjudicating process. As was observed, this would lead to a corresponding decrease in party autonomy in ISDS.

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