{"id":287745,"date":"2025-10-17T16:00:00","date_gmt":"2025-10-17T14:00:00","guid":{"rendered":"https:\/\/dailyjus.com\/?p=287745"},"modified":"2025-10-17T15:58:55","modified_gmt":"2025-10-17T13:58:55","slug":"multilateral-investment-court-with-an-appellate-mechanism-part-2","status":"publish","type":"post","link":"https:\/\/dailyjus.com\/index.php\/2025\/10\/17\/multilateral-investment-court-with-an-appellate-mechanism-part-2\/","title":{"rendered":"Multilateral Investment Court with an Appellate Mechanism \u2013 Part 2"},"content":{"rendered":"\n

Market Implications and the Way Forward for Stakeholders \u2014 The Disputing Parties<\/h1>\n\n\n\n
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THE AUTHOR<\/strong>:
Ali Shouzab<\/strong>, Arbitration Attorney<\/p>\n\n\n\n

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This article is part of a series<\/strong> discussing the implications<\/strong> and the ways forward<\/strong> for different stakeholders, including ICSID<\/strong> itself, parties<\/strong> (investors and the host states), legal service sector<\/strong>, arbitrators<\/strong>, and the third-party funders<\/strong>.<\/em><\/p>\n\n\n\n

UNCITRAL Working Group III (\u201cWG III<\/strong>\u201d) is leading the current procedural reform<\/a> to modernize Investor-State Dispute Settlement (\u201cISDS<\/strong>\u201d) through a Multilateral Investment Court (\u201cMIC<\/strong>\u201d) with an appellate mechanism (\u201cAM<\/strong>\u201d). Part 1 of this series<\/a> introduced the rationale for establishing the MIC and examined its background, including the legitimacy crisis in ISDS. That part discussed the market implications and ways forward for ICSID<\/a> as a stakeholder. This part focuses instead on the disputing parties: Investors and States.<\/p>\n\n\n\n

Before considering MIC\u2019s market implications for the parties, a brief review of current ISDS trends is necessary. Rachel L. Wellhusen<\/strong><\/a> discovered several trends in ISDS, but two are most relevant for the disputing parties. First, the states are becoming more experienced than investors because they act as permanent respondents. Second, ISDS proceedings are becoming more costly and time-consuming. These trends remain relevant and are reflected in the reform trajectory of WG III. The frequency with which the states are making suggestions in the MIC travaux pr\u00e9paratoires<\/a> shows that states, drawing on their experience, are participating far more in the reform process than investors. This one-sided shaping of a two-sided procedural law may create a disparity that leads to broader market impacts, as discussed below.<\/p>\n\n\n\n

On the other hand, the issue of costlier and lengthier proceedings has also been one of the most crucial ones since the earliest stages of the reform (See p. 9, Concept Paper ‘Investment in TTIP and beyond \u2013 the Path for Reform<\/a>). An AM, by its very idea, adds an extra layer of review to promote consistency and correctness of the awards. However, adding a second tier of proceedings may elongate the disputes, thereby increasing the costs. This could also have negative market implications, which need serious attention.<\/p>\n\n\n\n

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Problem 1: Exclusive States\u2019 Participation: How is it Reflected in the MIC Proposals?<\/strong><\/h2>\n\n\n\n

In the MIC context, the exclusive state participation in the reform is even reflected in how the proposals are being shaped. For instance, the appointment of adjudicators is expected to be made only from a roster of adjudicators, which are likely to be nominated by the states (Articles 7 through 13, Draft Statute of a Standing Mechanism A\/CN.9\/WG.III\/WP.239<\/a>). This would leave the disputing parties, particularly the investors, with limited choice in appointing adjudicators, as the roster itself would consist of candidates nominated by the states. Besides, the structure and composition of the Standing Mechanism of MIC is expected to consist of the \u201cTribunals<\/em>\u201d and \u201cthe Contracting Parties<\/em>\u201d (Article 3, Draft Statute of a Standing Mechanism A\/CN.9\/WG.III\/WP.239<\/a>). Article 3(2) highlights that the contracting parties would be the ones \u201cthat have ratified or acceded to this Protocol in accordance with article 41<\/em>\u201d. According to Article 41, only \u201ca State or a regional economic integration organization<\/em>\u201d can be a signatory, ratifier, etc. This means that only states or regional economic integration organizations would have a say in the structuring of the standing court.<\/p>\n\n\n\n

Comparing these procedural proposals to the existing ISDS models, the participation of investors seems nearly negligible. Consider, for example, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (\u201cICSID Convention<\/strong>\u201d)<\/a>. These are primarily the parties that nominate the arbitrator(s) of their choice (Article 37(2)(b) of the ICSID Convention), only failing which the Secretary-General would step in to take charge of the constitution of the tribunal (Article 38, ICSID Convention). According to Article 44 of ICSID Convention, \u201cAny arbitration proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties otherwise agree<\/strong><\/em>\u201d. Hence, the tribunal\u2019s overall conduct of proceedings is primarily in the hands of the parties. Non-ICSID investor-state arbitrations also preserve this flexible character of ISDS, with parties acting as the ultimate architects of their proceedings.<\/p>\n\n\n\n

First, the proposed MIC structure plans to solicit nominations for the appointment of adjudicators from the states, allowing investors to choose from those state-nominated candidates. Second, the MIC plans to take the perspectives of states and regional economic integration organizations, which are also constellations of states with some decision-making authority in specific matters. In such a setup, the participation of investors in shaping the structural compositions of the standing mechanism would be missing.<\/p>\n\n\n\n

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Implications<\/strong><\/h3>\n\n\n\n

With such a MIC structure, it would be least likely that any investor would even choose MIC as their dispute resolution forum. The legitimacy of the process could be questionable, and thus a successful enforcement of any subsequent award would nearly be impossible. Even if we consider a hypothetical scenario where investors agree to MIC as their dispute resolution forum, leaving investors out of the process of structuring and nominating adjudicators completely defies the principle of party autonomy, which is generally regarded as a hallmark of international arbitration. Ideally, the constitution of the benches should be a mutually agreed and party-driven process. Overlooking the investors\u2019 perspectives would be a deviation from the contractual and party-driven nature of ISDS, which would be detrimental to the parties’ right to procedural autonomy. This could violate the principle of equality of arms and may eventually raise serious concerns about access to justice. In fact, this shift can alter the dynamics of ISDS altogether: from a private contractual dispute resolution system to a public international adjudicatory system.<\/p>\n\n\n\n

From a state\u2019s standpoint, the proposals may seem to offer more bargaining power, but they could still work against states. Even though the adjudicators would be state-nominated, relying on a fixed pool of adjudicators could limit states\u2019 own ability to choose. This is because the MIC roster may not always include adjudicators with the specific expertise needed for every type of dispute. Also, state-nominated adjudicators may even be perceived as biased towards their nominating governments. This perception may lead to the politicization of MIC, not only in its administration but also in its decision-making processes. This could lead to complications at the enforcement stage of a subsequent award. The risks could be greater if there is no strict moral or ethical code of conduct for the adjudicators to ensure impartiality. The existing soft-law instruments, like the IBA Guidelines on Conflicts of Interest in International Arbitration (2024)<\/a>, are based on the system of mutual party appointments. They may become ineffective in a system where adjudicators are nominated by the states. Obtaining enforceable decisions from such a body, as it is currently proposed, would be nearly impossible.<\/p>\n\n\n\n

Given the criticism above, it is unclear whether the decisions of such a body will be meritorious or impartial, ultimately leading to legitimacy issues. Hence, MIC might create a whole new legitimacy crisis rather than resolving the one already suffered by the current ISDS models.<\/p>\n\n\n\n

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A Possible Way Forward<\/strong><\/h3>\n\n\n\n

The criticism calls for practical proposals for MIC. One option could be to nominate the adjudicators in an ad hoc way, as in the current ISDS models. In such a scenario, a standing <\/em>body for investment disputes is less likely to be envisioned. Ensuring fair participation from both investors and states in structuring and nominating adjudicators while maintaining the standing character of the MIC can be challenging, but not entirely impossible.<\/p>\n\n\n\n

A few approaches can be adopted here to enhance the investor participation both in the structuring of MIC and adjudicator nomination. The investor participation can be increased at two stages: the member state level or the MIC level.<\/p>\n\n\n\n