EJIL: Talk! | 27 November 2025
Reassessing consent in counterclaims: rebalancing investment protection and public interest under the UNCITRAL ISDS reform
by Li Yi
In mid-2025, the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WGIII) released a new set of Draft Provisions on Procedural and Cross-Cutting Issues, as part of its ongoing reform of investor-state dispute settlement (ISDS), which aims at addressing long-standing concerns about the fairness, balance, and effectiveness of the current system. One of the most notable proposals identifies an investor’s initiation of arbitration as implied consent to a tribunal’s jurisdiction over counterclaims. Counterclaims have increasingly been seen as a potential tool for host States to raise public interest concerns deriving from foreign investment. The proposed implied consent rule addresses a crucial question: how ‘consent’ should function when a State seeks to bring a counterclaim against an investor.
In the 2016 case of Kappes v. Guatemala, the Guatemalan government suspended the mining licenses of the U.S. company Kappes, Cassidy & Associates, following protests alleging environmental harm on indigenous lands. The investor responded by initiating arbitration, claiming that Guatemala had failed to protect its investment. In turn, Guatemala filed a public interest counterclaim against the company. However, the investor argued that, under the Dominican Republic-Central America Free Trade Agreement, there is no consent by the investor to the tribunal’s jurisdiction over a counterclaim and therefore the counterclaim could not proceed beyond the jurisdictional stage. This case exposes that the absence of clear consent rules for counterclaims remains a significant procedural challenge for host States and shows a continuing imbalance within the ISDS framework that the ongoing UNCITRAL reform seeks to address.
WGIII’s Draft Provisions introduce an “implied consent” mechanism to overcome this obstacle. Draft Provision 10 provides that an investor’s submission of a claim constitutes consent to the tribunal’s jurisdiction over a counterclaim. In other words, once arbitration is initiated, the investor is deemed to have accepted the entire procedural framework, including jurisdiction over counterclaims.
For public interest counterclaims, this new mechanism demonstrates that the consent element is no longer a strict jurisdictional prerequisite, but rather a reciprocal procedural tool, enabling host States to bring counterclaims while maintaining procedural fairness.
In this post, I will assess WGIII’s proposed implied consent solution in its latest Draft Provisions and discuss the implications for balancing investor protection and public interests.
The Core Problem: Consent as a Jurisdictional Obstacle
The central difficulty in undertaking counterclaims lies in the absence of clear consent from investors. Consent is the cornerstone of arbitral tribunals’ jurisdiction. Without the parties’ consent, no arbitration can proceed to the merits. In the current ISDS system, international investment agreements often contain only the host State’s consent to arbitration initiated by investors. For counterclaims, treaty provisions are often silent, vague, or completely absent on both the scope of counterclaims and the standards for determining whether the investor has consented. This lack of express provisions about consent gives investors room to argue, based on party autonomy, that a tribunal lacks jurisdiction unless their consent to counterclaims is expressly stated in the treaty text.
In Kappes v. Guatemala, the investor argued that, under the applicable treaty, only claims submitted by investors were covered by the State’s consent to arbitration, but not vice versa. Hence, Guatemala’s public interest counterclaim should be rejected. The case remains pending, but it typifies the jurisdictional obstacles host States face when attempting to bring counterclaims for public interest purposes.
The Existing Framework: ICSID Article 46 and its Limits
Within the current ISDS system, Article 46 of the International Centre for Settlement of Investment Disputes (ICSID) Convention sets out the basic rule on counterclaims, and its application in practice shows how difficult it has been to establish consent in this area. Although Article 46 does not serve as the specific target of UNCITRAL’s reform, it illustrates the broader procedural asymmetry that the reform seeks to address.
Under Article 46 of the ICSID Convention, parties’ consent is a jurisdictional precondition for tribunals to decide on counterclaims. Since most international investment agreements only record the host State’s consent to arbitration initiated by investors, tribunals tend to find that the investor’s consent to counterclaims cannot be presumed. As a result, counterclaims are often dismissed at the jurisdictional stage.
This persistent deadlock exemplifies how the design of ISDS continues to favour investor protection while limiting the procedural avenues available to host States. While WGIII operates under a separate institutional mandate, the experience under ICSID practice, especially the recurring difficulty of establishing consent for host State counterclaims under Article 46, provided an important background and rationale for its current reform efforts. The limits of Article 46 created pressure for a more codified and balanced solution under UNCITRAL’s mandate.
The Reform: WGIII’s Reassessment of Consent
The UNCITRAL draft proposes an implied consent rule that would shift how tribunals assess jurisdiction over counterclaims by making clear when parties’ consent is taken to exist.
In the latest draft of the procedural reform, Draft Provision 10 provides that: “The submission of a claim by the claimant constitutes its consent to the submission of any counterclaim by the respondent in accordance with paragraph 1.” This indicates that once an investor initiates arbitration, such submission is deemed implied consent to the filing of a counterclaim by the host State.
Allowing host States to bring counterclaims has always been central to the UNCITRAL reform’s rationale. The proposed rule marks a shift from the system’s historical tilt toward investors and moves toward a more even allocation of procedural rights. The draft’s proposal of the implied consent rule attempts to overcome the long-standing jurisdictional barrier reflected in Article 46 of the ICSID Convention, enabling tribunals to examine counterclaims brought by host States even when relevant investment agreements contain no specific provisions regarding investors’ consent to counterclaims.
However, this does not mean that counterclaims would be admitted by the tribunals without limits. Draft Provision 10 also lays down admissibility requirements to ensure that counterclaims remain properly circumscribed. It requires that a counterclaim arise directly from, or be closely linked to, the factual or legal basis of the investor’s claim. It can proceed only where the investor is alleged to have breached obligations under the treaty, domestic law, applicable investment contracts, or other binding instruments.
Hence, WGIII’s decision to provide a clearer rule on the consent issue, to strengthen the procedural basis for counterclaims as a tool for public interest protection, is not only a procedural revision but also a shift in how consent is understood and applied in ISDS. This change suggests that the ISDS mechanism is moving from investor privilege toward mutual accountability.
Implications: The Balance between Investment and Public Interest
Indeed, the counterclaim, as an endogenous tool within the ISDS system, was not originally designed exclusively for public interest protection. However, as public interest has become a crucial concern in the context of foreign direct investment, the counterclaim has gradually turned into a potential solution from within the system.
Similar to the Kappes v. Guatemala case, counterclaims have become a vehicle for challenging investors’ activities that produce adverse impacts on the public interest of host States (see further examples such as Urbaser v. Argentina; Legacy Vulcan v. Mexico; Lopez-Goyne v. Nicaragua; Aven v. Costa Rica; Burlington v. Ecuador). The State may adopt domestic regulatory measures to address the harm; the investor then initiates arbitration against the State; and finally, the State may consider suing the investor back through a counterclaim.
This dynamic shows that counterclaims have developed from a procedural possibility into a practical tool for host States to defend their public interests within the ISDS framework, showing a structural shift in how ISDS can address public interest concerns without departing from its own legal system. If this reform on the consent requirement is effectively implemented, it may incentivize investors to consider their social responsibilities before engaging in investment activities.
Legal Innovation and Political Compromise
The change in how consent is established is both a legal innovation and a political compromise. At its core, the reform aims to address the structural asymmetry between investors and host States by preventing counterclaims from being dismissed at the outset simply because explicit consent is missing. In this sense, “consent” should be understood not merely as a procedural gateway but as a concept with substantive implications, shaping the State’s ability to bring counterclaims that engage public interest concerns.
The WGIII proposal has not been free from criticism. Some States, including Saudi Arabia, worry that deeming consent through the initiation of arbitration stretches the consensual foundation of ISDS too far. Yet when read in context, the draft shows that WGIII is attempting to establish a more reciprocal mechanism for the consent requirement, one that applies equally to investors and States. Seen this way, the draft provision forms part of a wider move toward a more balanced distribution of procedural rights within the ISDS system and a redistribution of power and voice in making decisions (see Ladan Mehranvar’s post). For ISDS to regain legitimacy, the reform process must take into account not only doctrinal legal questions but also the real public interest concerns that have emerged after decades of foreign direct investment practice.
