Mondaq | 2 May 2023
by Christina G. Hioureas , Diana Tsutieva , Sudhanshu Roy , Diem Huong Ho and Katherine Peiffer
Worldwide: Uncitral Working Group III reaches notable milestones in recent New York meeting
UNCITRAL is a body composed of several working groups tasked with preparing work on topics within the Commission’s mandate, including in the area of dispute resolution. UNCITRAL’s Working Group III is tasked with reforming Investor-State Dispute Settlement ("ISDS"). This Working Group, composed of the sovereign States elected to UNCITRAL, as well as Observer States and UN-accredited institutions and experts, has been meeting regularly to carry out its mandate. At its latest session held last month at United Nations Headquarters in New York, the Working Group III reached two notable milestones: finalizing its work on the use of mediation in ISDS and on developing two separate codes of conduct for adjudicators in ISDS. This client alert examines the Group’s final work products and highlights its potential impact on investor-State arbitration.
B. Mediation Provisions for Investor-State Disputes
In an effort to identify ways in which investor-State disputes may be resolved in a more cost effective and time efficient manner, the Working Group III undertook work and completed the draft provisions on mediation to be potentially included by States in, inter alia, bilateral and multilateral investment treaties, domestic legislation governing the use of mediation, and investment contracts.(1) The text will be presented to UNCITRAL for approval at its annual meeting in Vienna in July 2023 together with the guidelines on the use of mediation in ISDS.
The main features of the draft mediation provisions include:
With more States signing on to the Singapore Convention, the mediation provisions developed by the Working Group III are likely to also proliferate.
C. Code of Conduct for Adjudicators
During its September 2022 session in Vienna, the Working Group III announced that it would formulate two separate codes of conduct, one for arbitrators in investor-State arbitration and another for judges in a potential standing mechanism for investor-State dispute settlement – the Multilateral Investment Court ("MIC") – proposed by the European Commission and subject to further consideration by the Working Group. The two codes were finalized at the UNCITRAL session in New York last month, with the final text to be published soon.
The codes aim to strengthen the duty of independence and impartiality of adjudicators and broaden the disclosure agreement and regulate the practice of double-hatting by arbitrators. They are intended to supplement – not supersede – the conflict of interest provisions found in a bilateral investment treaty or other instrument of consent.(9) Parties may consider incorporating the code of conduct in their arbitrations, in addition to other guidelines such as the IBA Rules on Conflict of Interest.
Key features of the code of conduct for ad hoc ISDS arbitrations include the following requirements for arbitrators:
Importantly, the code imposes strict limits on arbitrators playing multiple roles concurrently as counsel, expert and arbitrator, i.e., "double hatting." The code proposes that unless the disputing parties agree otherwise, arbitrators in one case cannot serve as a legal representative or expert witness "in another proceeding involving: (a) the same measure(s); the same or related party (parties); or (c) the same provision(s) of the same instrument of consent."(14) For example, if three investors initiate three separate proceedings with regard to a single regulation implemented by a State, an arbitrator in one proceeding would be prohibited from concurrently serving as a legal representative or an expert witness in the other two proceedings. The period of prohibition for acting as legal representative or expert witness in any investor-State arbitration or related proceeding involving the same measure or the same related parties is three years. But in cases involving the same provisions of the same instrument of consent, the prohibition time will be one year.
As to the code of conduct for judges on a permanent MIC, it will generally impose on judges broader obligations to maintain independence and impartiality compared to those of arbitrators, covering not only cases they would hear but also to any other proceedings before the standing mechanism. The code will also prohibit judges on having parallel roles as party representatives or experts and will require them not to publicly discuss or comment on any decision for three years following their end of office. However, given the uncertainty as to whether an MIC will be established, the draft code has several caveats, with certain States acknowledging that potential modifications to the code might be necessary based on the actual design of the court.
The Working Group will present both draft codes to UNCITRAL for approval, and they are expected to be adopted at the 56th annual session, to be held from July 3-21, 2023 in Vienna. Once adopted, they will serve as guidelines for parties and arbitrators in ISDS proceedings.
It is expected that the new code of conduct or provisions thereof will be increasingly adopted in procedural orders and terms of appointment governing the conduct of investor-State proceedings in the future, and the parties, particularly sovereign States, will have to weigh the pros and cons of adopting the code of conduct in their proceedings.
1. A/CN.9/WG.III/WP.226, paras. 4-5; Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its forty-third session (Vienna, 5–16 September 2022) ((A/CN.9/1124), ¶ 145.
2. Possible reform of investor-State dispute settlement (ISDS), Draft provisions on Mediation (27-31 March 2023) (A/CN.9/WG.III/WP.226), Draft Provision 1, options A and B, pp. 3-4.
3. Id., Draft Provision 2, p. 5.
4. Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its forty-third session (Vienna, 5–16 September 2022) ((A/CN.9/1124), ¶ 162.
5. Possible reform of investor-State dispute settlement (ISDS), Draft provisions on Mediation (27-31 March 2023) (A/CN.9/WG.III/WP.226), Draft Provision 4, p. 7.
6. Possible reform of investor-State dispute settlement (ISDS), Draft provisions on Mediation (27-31 March 2023) (A/CN.9/WG.III/WP.226), Draft Provision 5, p. 7.
7. Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its forty-third session (Vienna, 5–16 September 2022) ((A/CN.9/1124), ¶ 171.
8. States which do not make a reservation under Article 8(1)(a) of the Singapore Convention to carve out settlement agreements entered into by governmental agencies from the scope of the treaty may create a legal mechanism under their domestic law for the enforcement of settlement agreements arising out of investor-State mediation. Christina G. Hioureas, The Singapore Convention on International Settlement Agreements Resulting from Mediation: A New Way Forward? 37 BERKELEY JOURNAL OF INTERNATIONAL LAW 215 (2019).
9. Draft code of conduct for arbitrators in international investment dispute resolution and commentary (Vienna, 3-21 July 2023) (A/CN.9/1148), Articles 2 and 5.
10. Id., Article 3.
11. Id., Article 11 and Annex 1.
12. Id., Article 8.
13. Id., Articles 6(c) and 7.
14. Id., Article 4