Winter 2017

UNCITRAL Working Group begins consideration of investor-State dispute settlement reform

In July 2017, at its 50th Session, the United Nations Commission on International Trade Law (“UNCITRAL”) gave its Working Group III (the “Working Group”) a broad mandate to consider the desirability of reforming investor-State dispute settlement (“ISDS”).  The Working Group’s mandate also extends to the possibility of developing and recommending relevant solutions.  From 27 November to 1 December 2017, the Working Group held its first Session.

Background

UNCITRAL’s involvement and role in ISDS is well-established.  Second only to the International Centre for Settlement of Investment Disputes (“ICSID”), its Arbitration Rules (the “UNCITRAL Rules”) are the most utilised rules in treaty-based ISDS.  They have been used in 262 of 855 known cases (see UNCTAD ISDS Navigator, April 2018).

UNCITRAL’s first attempt to reform ISDS was through the promulgation of the Rules on Transparency in Treaty-based Investor-State Arbitration (“Rules on Transparency”), which were incorporated in the 2013 version of the UNCITRAL Rules.  Unless the parties agree otherwise, the Rules on Transparency apply to investor-State arbitrations initiated under the UNCITRAL Rules pursuant to treaties (including international investment agreements (“IIAs”)) concluded on or after 1 April 2014.  [See also an earlier newsletter article, available here].

In December 2014, the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration was adopted in Mauritius (the “Mauritius Convention”).  Notably, the Mauritius Convention mandatorily applies the Rules on Transparency to all IIA-based investor‑State arbitrations (even to those pursuant to IIAs concluded before 1 April 2014 and, inter alia, also to ICSID arbitrations commenced), so long as the respondent State is a party to the Convention and the claimant is of a State that has ratified the Convention and there has been no “relevant reservation” to its application.  To date, 22 States have signed the Mauritius Convention and three (Mauritius, Canada and Switzerland) have ratified it.  It entered into force on 18 October 2017 and currently applies to only one IIA concluded before 1 April 2014, that is, to the bilateral investment treaty between Mauritius and Switzerland.  Of course, subject to agreement and/or the requisite expression(s) of consent, the Rules on Transparency are available also for use in investor-State arbitrations initiated, whether or not pursuant to IIAs concluded after 1 April 2014, under rules other than the UNCITRAL Rules and in purely ad hoc proceedings.

In 2015, following on from the Mauritius Convention, the UNCITRAL Secretariat expanded its work on ISDS by engaging in a study on ISDS reform.  After presenting the results of this study at its 2016 meeting, the Secretariat was tasked with consulting widely with States and regional economic integration organisations on how best to carry the project forward.  The results of those consultations were a subject of discussion at the UNCITRAL July 2017 Session.

In preparation for the July 2017 Session, the UNCITRAL Secretariat released a high-level “Note” outlining the role of ISDS and certain criticisms of the system, observing that these reflected concerns about its perceived legitimacy and, more broadly, democratic accountability.  The UNCITRAL Secretariat considered a total reform of international investment law, including to the substantive rules of protection, as opposed to reform of ISDS alone.  But it concluded that it was preferable not to seek to effect a total transformation of the system at once.  As a result, it suggested instead that reform would be more likely to succeed if proposed and carried out in phases, with the first being the restructuring of the ISDS mechanism.

On the possible reforms to ISDS, the Note suggested two options for further exploration:  (1) adjusting the existing ISDS regime (including through the creation of a stand-alone appellate body); or (2) creating a multilateral investment court (i.e., as a departure from the current ISDS regime).  Self-evidently, the modalities of applying either reform option to the existing IIA regime also require careful consideration.

First round of meetings demonstrate the agenda’s high-stakes

At the outset of its most recent meeting, the Working Group’s first task was to elect its Chair.  Whereas this is typically a short and uneventful process, delegates to this particular Working were unable to reach consensus.  In order to break the deadlock, and for only the second time in UNCITRAL’s history, delegates turned to a voting process, demonstrating the perceived sensitivity and importance of the agenda.  Indeed, at one point, the Mauritian delegate, Salim Moollan, remarked that this Working Group was “the biggest project UNCITRAL ha[d] ever faced, by far.”  After a day-and-a-half debate, a majority of the delegates elected Mr Shane Spelliscy of Canada as Chair by way of a secret ballot.

Following its protracted commencement, the meeting progressed to a discussion of the concerns expressed about the existing ISDS system, but without debating reform options.  Reports indicate that there were evident divisions among States, particularly between those States open to incremental bilateral reform and those advocating for a systemic, multilateral overhaul.

At this stage, it remains unclear whether, and how extensively, the Working Group will consider these criticisms in the future, including at the next Session, scheduled to take place in New York from 23 to 27 April 2018.  That said, the Working Group’s Agenda for the next session seems to include further consideration of issues previously tabled and to expand discussions to include two new topics:  (1) concurrent proceedings; and (2) ethics for arbitrators.

No immediate impact on the existing regime

Seeking to reform the international investment regime is not something novel proposed by UNCITRAL; it is only the latest in a series of similar initiatives by other organisations and bodies.  Two noteworthy examples include:  (1) the Organisation for Economic Co-operation and Development’s proposed Multilateral Agreement on Investment, the negotiation for which was discontinued in 1998; and (2) ICSID’s 2004 research on “Possible Improvements of the Framework for ICSID Arbitration” which considered the possibility of introducing an ICSID appeals facility but did not lead to any reform.

Despite these earlier efforts, recent developments indicate that there now is a wider, more broadly supported, call for substantive reform.  At the bilateral level, some States have opted to include novel language in their recent IIAs.  At the multilateral level, institutional stakeholders (e.g., the United Nations Conference on Trade and Development) and some regional organisations have advocated for more widespread reform.  For example, the Southern African Development Community recently amended its Finance and Investment Protocol, curtailing certain substantive protections.

Notably, the European Union has been, and continues to be, a staunch supporter of ISDS reform.  Indeed, its recent free trade agreements with Canada (i.e., the Comprehensive Economic and Trade Agreement) and Vietnam include a novel two-tier court-like ISDS mechanism.  More recently, the Council of Europe mandated the European Commission to participate in the upcoming Session of the Working Group in order to begin negotiations for a multilateral investment court.  To that end, the European Commission submitted a note detailing its views on the need for ISDS reform.

For the immediate future, the work of the Working Group will not impact the existing ISDS regime.  And while it is uncertain whether any of the Working Group’s suggested reforms will materialise, a clearer picture should begin to emerge in the near future.