Lexology | 2 November 2020
Update on the future of ISDS: UNCITRAL working group III publishes draft working papers
by Andrew Cannon and Caitlin Eaton - Herbert Smith Freehills LLP
The United Nations Commission on International Trade Law’s (“UNCITRAL“) Working Group III (Investor-State Dispute Settlement Reform) (“WGIII”) has recently published two draft working papers for comment (the “Working Papers”). The Working Papers address the possible reform of investor-state dispute settlement (“ISDS“), focusing on (i) an appellate mechanism and enforcement issues and (ii) the selection and appointment of ISDS tribunal members, respectively. The Working Papers were prepared by the UNCITRAL Secretariat, which WGIII requested to undertake further preparatory work following discussions on these issues during WGIII’s resumed 38th session held in January this year. The Working Papers aim to provide information to WGIII but do not express a view on the possible reform options, which remains a matter for WGIII.
UNCITRAL has been considering the possible reform of ISDS through the work of WGIII, which has been given a broad mandate to consider issues regarding ISDS procedure, and develop relevant solutions to be recommended to the main UNCITRAL body. While WGIII enjoys broad discretion in discharging its mandate, any solutions devised will take into account the ongoing work of relevant international organisations, and each State may decide the extent to which it chooses to adopt the proposed solutions. For further information about WGIII’s previous work on ISDS reform, please see our extensive coverage of this topic here: PIL Notes posts of April 2018, January 2019, February 2019, November 2019 and February 2020.
1. Working Paper on appellate mechanism and enforcement issues
This Working Paper addresses the main elements of a possible appellate mechanism, potential enforcement issues, and possible draft provisions for establishing such a mechanism. This includes consideration of the following areas:
2. Working Paper on the selection and appointment of ISDS tribunal members
Qualifications and other requirements
The Working Paper notes that the draft code of conduct for ISDS adjudicators prepared jointly with ICSID (“Draft Code”) addresses certain qualifications and requirements of ISDS tribunal members, including: independence and impartiality; availability, diligence and efficiency; repeat appointments and “double-hatting” (the practice of acting as both counsel and arbitrator). The Draft Code is discussed in our earlier blog post here.
The Working Paper considers whether also to develop possible substantive qualification requirements for ISDS tribunal members (not currently addressed in the Draft Code), such as requirements to:
Diversity and balanced representation
The Working Paper notes that WGIII has previously indicated that diversity – geographical, gender, linguistic, and different legal systems and cultures – must be “of essence in the ISDS system”. The Working Paper notes that pursuing the objective of inclusiveness, rather than diversity, may help ensure that no type of diversity would be viewed as exclusionary. In this regard, the Working Paper mentions several existing statutes of international courts that refer to “equitable geographical representation” or “distribution” for the selection of adjudicators, and notes that similar language could be adopted in ISDS arbitrations.
The Working Paper considers that core qualifications and requirements could be implemented through the adoption of a code of conduct, which could be: (i) incorporated into investment treaties (ii) agreed to by disputing parties at the inception of each case; (iii) appended to the disclosure declaration that adjudicators must file upon acceptance of nomination; (iv) incorporated into applicable procedural rules or statutes of a permanent body; or (v) made part of a multilateral instrument on ISDS reform.
The Working Paper highlights that the specific features of the reform options will largely depend on the broader design of ISDS, including whether the ad hoc nature will be preserved, or whether a standing mechanism will be established.
The Working Papers are open for comment until 15 November 2020 and WGIII will then go on to consider the proposals, before meeting for the 40th session in the first half of 2021.