THE AUTHOR:
Jack Bownes, Associate at Gide
Since its inception in 2017, the United Nations Commission on International Trade Law (“UNCITRAL”) Working Group III (“WG III”) has been tasked with exploring possible reform of Investor-State Dispute Settlement (“ISDS”). Following the adoption of codes of conduct for arbitrators and judges in 2023, WG III’s efforts have recently focused on the development of an advisory centre on international investment dispute resolution (the “Advisory Centre”) and a standing mechanism for the resolution of international investment disputes (the “Standing Mechanism”), as well as guidelines on the prevention and mitigation of international investment disputes (the “Guidelines”).
The forty-eighth WG III session took place 1-5 April 2024 in New York. 54 United Nations Member States, 19 non-Member States and 30 non-governmental organizations were amongst the attendees. On the agenda were discussions on a draft statute for both the Advisory Centre and the Standing Mechanism, as well as on draft provisions for the Guidelines (the “Drafts”). Whilst WG III made significant progress in adopting a draft statute for the Advisory Centre, discussions on the Standing Mechanism and Guidelines encountered several challenges. Nevertheless, WG III published working versions of the Drafts following the forty-eighth session. This article provides an overview of what was agreed by WG III and the outstanding issues with respect to each Draft.
Advancing the Advisory Centre: Draft Statute of the Advisory Centre
Discussions on the draft statute of the Advisory Centre started at the forty-seventh WG III session in January 2024 and culminated in New York, reflecting the substantial progress WG III has made on this particular area of reform. WG III reached an agreement on the provisions of the statute and the annexes thereto, subject to several modifications which are expected to be made in late 2024.
The overall objective of the Advisory Centre, enshrined in Article 2 (Page no. 2) of the draft statute, is to provide training, support, and assistance to States as regards international investment dispute resolution, thereby enhancing their capacity to prevent and manage international investment disputes. These services are aimed particularly at least developed or developing countries. Article 3 (Page no. 2) of the draft statute outlines the general principles of the Advisory Centre, which include assurances with respect to its independence and impartiality.
Membership and governance are addressed in Articles 4 (Page no. 4) and 5 (Page no. 5) of the draft statute respectively. There is no limitation on membership to the Advisory Centre; indeed, accession is open to any State or regional economic integration organization that signs and ratifies the draft statute (Articles 4.1 and 12). Members of the Advisory Centre are classified into one of three categories (Article 4.3 (Page no. 4), annexes 1-3 (Page no. 14-15)), the objective criteria for which have not yet been finalised but will be loosely based on development status (least developed countries/organizations will be categorized into annex 1 and most developed into annex 3; see the report published by WG III on the forty-eighth session (the “Report”), paras. 68-71). Article 5 (Page no. 5) defines the governance structure of the Advisory Centre, which will consist of a Governing Committee, an Executive Committee, and a Secretariat with an Executive Director.
Articles 6 and 7 of the draft statute provide clarity on the services provided by the Advisory Centre to its members. Article 6 (Page no. 7) addresses the provision of more general technical assistance, the exchanging of information and best practices, and the organization of capacity-building activities such as training sessions and seminars. Article 7 (Page no. 9) specifies the legal advice and support available to members in relation to ISDS. This includes support preparing preliminary assessments and submissions, assistance with the appointment of external counsel, adjudicators and experts, and representation in proceedings.
According to the Report, there was a divergence in views on whether the Advisory Centre’s services should be extended to State-to-State Dispute Settlement (“SSDS”). Consequently, WG III decided to exclude any explicit reference to SSDS in the draft statute whilst noting that the Governing Committee has the power under Article 5(3)(i) (Page no. 5) to adjust the scope of the Advisory Centre’s services (Report, para. 23; draft statute, para. 10).
Article 8 (Page no. 11) of the draft statute provides information on the Advisory Centre’s financing model, which will consist of contributions from Members, service fees, and voluntary contributions. Members will contribute depending on a sliding scale, provided in Annex IV. The exact amounts are yet to be determined, WG III leaving this and the decision on the method of calculation of service fees to the Governing Committee (Report, paras. 25-26).
Article 9 (Page no. 12) provides that the Advisory Centre will have full legal capacity and enjoy immunity from various liabilities. According to the Report, WG III is in favour of establishing the Advisory Centre within the UN system on the condition that it would not be funded by the regular UN budget (Report, para. 27). Whether and how the Advisory Centre will be established and operate within the UN system will be determined after the provision of additional detail on this point (Report, paras. 27, 28 and 75). Finally, Articles 10 to 16 (Report, paras. 44-67) determine, inter alia, the draft statute’s entry into force and amendments to, withdrawal from and termination of the draft statute.
In early July 2024, WG III will present the draft statute to the UNCITRAL at its 57th session in New York, where adoption of the Advisory Centre will be discussed. Subject to the outcome of these discussions, implementation of the Advisory Centre could take place at an inter-sessional meeting of WG III in Bangkok, December 2024 (Report, para. 78).
Challenges in Establishing the Standing Mechanism: Draft Statute of the Standing Mechanism
In contrast to the progress made on the Advisory Centre, discussions on the draft statute for the Standing Mechanism encountered several challenges. WG III has been debating the functioning of such a mechanism since 2019, with the hope that it will provide a more structured approach to ISDS. At the forty-eighth session, WG III produced a draft statute of the Standing Mechanism for discussion. However, consensus on its establishment and operational details is yet to be reached, with major differences remaining among delegates.
Article 1 of the draft statute establishes the Standing Mechanism (the name to be determined) to resolve international investment disputes, and to be founded on principles such as effectiveness, affordability, accessibility, financial sustainability, independence, and freedom from undue external influence (Article 2 – Page no. 3). Article 3 (Page no. 4) determines the structure and composition of the Standing Mechanism, which will be composed of a Conference of the Contracting Parties, a Dispute Tribunal, an Appeals Tribunal, and a Secretariat. Articles 4 to 6 outline the roles and responsibilities of each of these components.
In Section B of the draft statute (Selection and appointment of tribunal members), detailed provisions address the qualifications (Article 7), nomination (Article 9), and appointment processes for members of the Dispute Tribunal (Article 10) and the Appeal Tribunal (Article 11) (together the “Tribunals”), aiming for high moral character, fairness, integrity, and competence in relevant legal fields (Article 7). Reference is made to the UNCITRAL Code of Conduct for Judges, to which members of the Tribunals are subject. The term of office is yet to be determined (Article 12).
The draft statute delineates the jurisdiction of the Tribunals and the process for initiating dispute resolution and appeal proceedings in Articles 14 to 21 (Page no. 8-10). Articles 22 to 36 (Page no. 10-15) outline the procedures for conducting hearings, issuing decisions, and recognition and enforcement for each decision. As with the Advisory Centre, contributions from Contracting Parties, service fees, and voluntary contributions will finance the Standing Mechanism (Article 37), which will have full legal personality (Article 38). Section H of the draft statute includes provisions on reservations, the role of the depositary, the process for signature and ratification, entry into force, and withdrawal (Articles 39-44).
According to the Report, delegates disagreed on whether the standing and appellate mechanisms should be governed by the same or separate protocols (Report, paras. 86-90). Leaving the issue unresolved, WG III continued with discussions of the draft statute in the context of a first-tier standing mechanism, without prejudice to any subsequent decision on bifurcation (Report, para. 90), and focused primarily on provisions in Sections A (establishment and structure) and C (the Dispute Tribunal).
There was a divergence in views on several jurisdictional aspects of the draft statute. Notable suggestions concerned the non-binding nature of interpretations on parties that have not given consent (Report, para. 99). Differing views were similarly expressed on the composition and selection of adjudicators; questions were raised as to whether members of the Tribunal should be fixed or appointed on a rotating basis. The importance of linguistic flexibility was highlighted, as was the need to consider potential issues with practicalities such as a member’s term of office (Report, paras. 103-104).
The discussions concluded with WG III agreeing to amend the draft statute provisions based on the suggestions made. It was also agreed that WG III provide drafts of the options put forward for each outstanding issue (Report, para. 112).
Facilitating Dispute Prevention and Mitigation: Draft Guidelines
WG III also deliberated on the draft Guidelines, first presented at the forty-seventh session in January 2024.
Section A (Page no. 2) of the Guidelines outlines their purpose and scope. The Guidelines are designed to help States establish a coherent and effective system for dispute prevention and mitigation, demonstrating a commitment to risk management and maintaining healthy relationships with investors.
Guidance on communication with investors is provided in Section B (Page no. 3) of the Guidelines, which affirms that effective communication is crucial for dispute prevention and mitigation. The Guidelines suggest providing investors with easy access to information, engaging them in policy discussions, and establishing an investor grievance mechanism.
Section C (Page no. 6) offers guidance on coordination among governmental and related agencies. The Guidelines emphasize the importance of coordination among various governmental and related agencies, including information sharing and identifying or establishing a coordination body, to ensure a unified approach to investment policy and dispute prevention.
Coordination and cooperation with other governments are identified as another essential aspect of effective international investment dispute resolution in Section D (Page no. 9). The Guidelines recommend establishing mechanisms for inter-governmental coordination and cooperation to facilitate mutual assistance in dispute prevention and mitigation.
Section E (Page no. 10) covers issues related to international investment dispute resolution. Issues such as the need for financial and human resources, exoneration of liability for government officials involved in dispute prevention and mitigation, and maintaining confidentiality during the grievance handling process are highlighted in this section.
During the forty-eighth session of WG III, there was a general consensus on the importance and need for dispute prevention and mitigation in the international investment context (Report, para 81). However, diverging views were expressed on whether the draft Guidelines were ready for adoption. Suggestions were made to emphasize the non-binding nature of the text and to rename it as a “toolkit” or “compilation of practices” to avoid creating any obligation or expectation on States to adhere to the practices mentioned therein (Report, para 82). To this end, WG III also advised that the prescriptive provisions be rephrased (Report, para. 83).
Consequently, the Guidelines are not yet ready to be adopted; the WG III Secretariat will make the necessary amendments to the Guidelines, before submitting them to the UNCITRAL for its consideration and further guidance as necessary. It was also noted that WG III might regularly update the Guidelines in future to reflect international best practice (Report, para. 83).
Conclusion: Progress and Prospects in ISDS Reform
The Drafts produced by WG III represent a significant step towards the reform of ISDS, with the establishment of the Advisory Centre being a notable milestone. The Advisory Centre is expected to play a crucial role in supporting States in dispute prevention and resolution. Meanwhile, the roadblocks in discussions on the Standing Mechanism and Guidelines reflect ongoing debates on the future of international investment dispute resolution. The former will be on the agenda at the next WG III session scheduled for 23-27 September 2024 in Vienna. The 50th and 51st sessions have equally been pencilled in for January 2025 and April 2025 respectively, whilst inter-sessional meetings – at which delegates may be invited to submit comments on the Drafts – will take place in October 2024 and March 2025 (Report, paras. 115-118). With the international community awaiting further developments on ISDS reform, WG III will hope – and need – to make considerable progress at these upcoming sessions.
ABOUT THE AUTHOR
Jack Bownes is an Associate in the International Dispute Resolution group in Gide‘s London office. He specialises in international arbitration and dispute resolution and has acted in investment and construction arbitration proceedings in both English and French across a variety of sectors, including construction, energy, and mining. He has experience in disputes under the auspices of various arbitral institutions and rules (ICSID, ICC, SIAC, LCIA). Jack also advises government institutions and international tribunals on matters of public international law and dispute resolution.
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