The latest round of negotiations among the member states of the UNCITRAL Working Group III on ISDS reforms held last week (8-12 February 2021) revealed increasing diversity rather than more unity among the parties on the future of investor-state dispute settlement and EU-sponsored plans for a multilateral court system. The EU and its member states are offering €150,000 to UNCITRAL for more research capacity.
Selection and appointment of ISDS tribunal members
Last week’s UNCITRAL WG III round of talks focused for the first time on concrete issues related to the functioning of investor-state dispute settlement tribunals and the appointment of its members.
The work was conducted on the basis of a paper prepared by the UNCITRAL Secretariat and focused on two possible scenarios: (i) an ad hoc tribunal system with an appellate mechanism or (ii) a permanent standing two-tiered court system, the Multilateral Investment Court – MIC – championed by the EU.
Many states highlighted the importance of maintaining sufficient party autonomy when it comes to the management of their disputes. In particular, the need to have control when selecting “their” arbitrator who would decide “their” cases was stressed.
These states were very wary that an ISDS tribunal member might have insufficient expertise, or insufficient understanding of their legal system or of the specific circumstances of the case. In other words, these states do not want a judge to decide their case whom they otherwise would never have selected if they had the choice – as is the case in the current arbitration system.
It was suggested that states should be able to appoint ad hoc judges of their choice who would be added to a particular chamber that hears their case. This is is similar to the system at the International Court of Justice.
Countries such as Russia, Japan, USA, Chile, Israel and Bahrain argued that carving out any right of investors/claimants to select ‘their’ ISDS tribunal members would make the whole court to be perceived to be pro-state biased – and thus of little use.
Besides, many smaller African, Asian and Central American states expressed fear that they would not be sufficiently be represented when it comes to the selection of the ISDS tribunal members.
Another hotly debated issue was how to prevent the politicisation of the selection and nomination process itself.
The EU and its member states reiterated that they have long thought about all these questions and found workable solutions, which they recently adopted for the CETA investment court.
The majority of the UNCITRAL members requested further discussions and analysis on these issues.
Appellate mechanism and enforcement issues
The parties discussed what exactly a potential future appeals mechanism for ISDS tribunals would rule on, its potential implications for the length and costs of a legal proceeding, and how to fit such a mechanism in the existing legal and institutional investor-state dispute settlement order dominated by the ICSID convention of 1965.
Three options were discussed regarding what the planned appeals mechanism would be expected to review: (i) a review limited to points of law, (ii) a review covering points of law and “manifestly wrong appreciation of facts” and (iii) full de novo review of the whole case.
The choice of the scope of review directly affects the costs and length of appeal proceedings. If the scope is strictly limited to points of law, appeal proceedings could be conducted fairly quickly because the facts as established by the first instance tribunal would not be questioned anymore. In contrast, if the appellate tribunal is allowed to review also facts – or even retry the whole case in full – the costs and length of the appeal proceedings would increase exponentially.
Most delegations expressed a preference for a limited scope of review, while other delegations, including the EU, want to include also “manifestly wrong appreciation of facts”. However, other delegations considered the term “manifestly” to be too vague.
Currently, two arbitration mechanisms operate fairly independently next to each other: (i) the ICSID Convention operates as a self-contained regime, which includes specific rules on automatic recognition and enforcement of ICSID awards, and (ii) the New York Convention, which involves the domestic courts of states, including the ability of domestic courts to annul or set aside awards on certain grounds.
The general view was that the new system could not be incorporated into the ICSID Convention simply because it explicitly bars any appeal option. At the same time, an amendment of the ICSID Convention or the adoption of an interpretation between a large number of ICISD member states appears very difficult to achieve.
Some delegations considered it possible to make the new system work under the New York Convention, the international treaty which regulates the recognition and enforcement of non-ICSID awards. However, this may require changes in the domestic laws of states in order to avoid that the domestic courts could overturn decisions of the appellate tribunal.
Some fear that the coexistence of a new system with the old one would create more fragmentation and inconsistency in the interpretation and enforcement of international trade law. rather than less, in particular if a significant number of states would not remain within current system.
No agreement? More research!
In light of the numerous unresolved issues mentioned above, the chair concluded that the UNCITRAL secretariat in cooperation with the Academic Forum – an observer group representing about 100 academics – should do more research, in particular regarding the potential costs for the establishment and running of an appeal mechanism or a permanent investment court, the potential costs and timelines for appeal proceedings and the interaction with the ICSID Convention and New York Convention.
The close involvement of the Academic Forum, which does not have any mandate, was criticised by several opposing members such as Bahrain, Russia, USA and Japan, which stressed that the drafting cannot be outsourced to the Academic Forum but should remain with the member states.
In an effort to push back and in order to avoid that this additional research workload would overburden the UNCITRAL secretariat or unnecessarily delay the negotiation process, Germany and France offered at the last minute €150,000 to the UNCITRAL.