What to expect from the first 2024 session of the UNCITRAL WGIII – Bridging the Gap – The Advisory Centre on International Investment Dispute Resolution (ACIIDR)
THE AUTHORS:
José Emilio Ruiz Pineda, Foreign Legal Expert at Linklaters LLP in Amsterdam
Dr. Piotr Wilinski, Managing Associate at Linklaters LLP in Amsterdam
Piecemeal Reforms to the International Investment Law Regime
On 22-26 January 2024, the United Nations Commission on International Trade Law (“UNCITRAL”) Working Group III (the “WGIII”) held its forty-seventh session in Vienna. During the session, the WGIII worked on three agenda items, namely:
- the establishment of the Advisory Centre on International Investment Dispute Resolution (the “Advisory Centre”, “Centre” or “ACIIDR”) (A/CN.9/WG.III/WP.236);
- the draft guidelines on dispute prevention and mitigation of international investment disputes (the “Guidelines”) (A/CN.9/WG.III/WP.235); and
- the draft provisions on procedural and cross-cutting issues and annotations (the “Draft Provisions”) (A/CN.9/WG.III/WP.231 & A/CN.9/WG.III/WP.232).
This note will focus on the design of the Advisory Centre (and the revisions made by the WGIII during the forty-seventh session), which is aimed at leveling the playing field between States and foreign investors in the resolution of international investment disputes. It is important to note that at the time of writing, the WGIII has not yet made available the revised draft Statute reflecting the revisions made during the session; reference is therefore made to the Report of the WGIII on the work of its forty-seventh session and to the latest publicly available version of the draft Statute.
The two remaining items of the WGIII agenda are instruments that are intended to guide States in their investment-related practices. As a result, the Guidelines outline strategies to prevent the escalation of investment disputes. The Draft Provisions are, in essence, model provisions intended to serve as model clauses for States to incorporate and/or consider in future international investment agreements (“IIAS”) in the myriad forms they may take. The piecemeal approach to the ongoing reform efforts shows how the current overhaul of the investment law system is the Sisyphean task undertaken by the WGIII.
Background | the Backlash Against Investor-State Arbitration
By way of background, in 2017, the WGIII was tasked with identifying areas for ISDS reform after identifying key areas of concern. One was the alleged lack of independence and impartiality of arbitrators sitting in ISDS tribunals. With these concerns in mind, the first accomplishment of the WGIII was the Code of Conduct for Arbitration in International Investment Dispute Resolution (the “Code”).The Code, which was developed by the WGIII in close cooperation with the Secretariat of the International Centre for the Settlement of Investment Disputes (“ICSID”), addresses important ethical considerations with respect to, inter alia, independence and impartiality, disclosure requirements, double-hatting and repeat appointments, which had previously been the subject of much criticism because they had not been directly addressed in the context of ISDS proceedings (Art 3, 4, 11, of the Code).
The Code is an important step forward. While it largely mirrors the current practice (mostly) based on the IBA Guidelines on Conflict of Interest in International Arbitration (2014), it departs slightly from the traditional framework of international arbitration by regulating double-hatting (Article 4 of the Code) and detailing the arbitrators’ disclosure obligations (Article 11 of the Code). On this point, it is yet to be seen how those two soft-law-based regimes will interact with each other.
The Code also imposes a duty on arbitrators to comply with the Code (Article 12 of the Code). The latter, however, is, for now, a paper tiger that lacks a concrete enforcement mechanism (A/CN.9/1148, para 100). Once the Code is developed, the UNCITRAL continues its piecemeal approach to the reforms by focusing on the work of the Advisory Centre, which will be further explained below.
Why Do We Need the Advisory Centre?
The envisaged Advisory Centre will be open to membership of States, in particular least developing countries (“LDC”), developing countries, but also regional economic integration organization(s) (“REIO”) (A/CN.9/WG.III/WP.236). The Centre aims to address concerns with respect to the increasing costs related to investment disputes by providing technical assistance and issue-specific know-how to its Members in order, inter alia, to avoid, and to face investor-state dispute settlement (“ISDS”) proceedings.
The establishment of an Advisory Centre was on the table of WGIII during several sessions held between 2019 and 2023. During the forty-sixth session in October 2023, the WGIII conducted a first reading of the draft statute of an Advisory Centre and opened the floor to comments, the majority of which were expressions of support for the establishment of the Advisory Centre, also underscoring the urgent need for developing countries to receive assistance in their investment disputes (A/CN.9/1160, Report of Working Group III on the work of its forty-sixth session, at. 15, p. 4). At that session, it was also reported that an Advisory Centre would address “[t]he urgent needs of developing States in obtaining assistance with regard to investment disputes” (A/CN.9/WG.III/WP.236, at. 3, p. 2). It was further noted that “[a]n advisory centre should be established as an intergovernmental body, which would require the preparation of an international instrument” (A/CN.9/WG.III/WP.236, at. 3, p. 2).
The following analysis addresses several aspects of the functioning of the prospective Advisory Centre, starting with:
- a brief explanation of the founding principles of the functioning of the Centre, as well as an analysis of who can become a member;
- followed by an overview of the structure of the Centre; and
- the envisaged services that may potentially be provided by the Centre.
The Principles of Operation of the Advisory Centre on International Investment Dispute Resolution
As explained above, the overarching goal of the Centre is to provide technical assistance and capacity-building services to LDCs and developing countries and REIOs (A/CN.9/WG.III/WP.230, II, p. 2). That is why Article 3 of the Statute sets out the general principles that would govern the envisaged operation of the Advisory Centre, namely, effectiveness, affordability, financial sustainability, independence, and cooperation.
In this context, a few reflections might be useful in terms of the last three principles that are, arguably, related. For example, while the Centre aims to have a sustainable financial structure (in terms of financial sustainability), at this stage the financial aspects appear to be one of the biggest hurdles for the project to have a successful lift-off. It is particularly so considering that the ACIIDR expects to be for the benefit of LDCs and developing countries and provide its services at affordable rates.
This financial stability is an important consideration taking into account that an initial idea is for the Centre to operate independently and “[be] free from undue external influence, including from its donors” (A/CN.9/WG.III/WP.236, Art. 3, at. 2, p. 4). However, it remains to be seen if the Centre would indeed be established as an independent organization or rather established under the auspices of one of the existing organizations, for example, the United Nations (A/CN.9/WG.III/WP.236, Annex Budget and financing of an advisory centre).
In any event, the Centre is expected to be an added value (and not duplication) of already existing services. It means that it should cooperate and coordinate with other international organizations active in the realm of investment law, including, for example, UNCTAD, ICSID, and OECD. This, in turn, will allow for the Centre to streamline its services, by focusing on those that its Members are not able to receive at an affordable rate elsewhere.
Membership Open to the States and Services Available to Others
In the current draft Statue for an Advisory Centre, the membership of the Advisory Centre is outlined in draft Article 4 of the Statute. Essentially, it entails that membership is open to both States and REIOs. The UNCITRAL Secretariat caveats, however, in its notes that if the Advisory Centre is established under the auspices of another organization, membership may be exclusive to the parties of that organization, similarly to the Advisory Centre on WTO Law (the “ACWL”) (A/CN.9/WG.III/WP.236, Art. 4, at. 14, p.4).
In any event, both draft Article 4(2) and draft Article 6(1) of the Statute emphasize that the Centre is designed to serve its Members, i.e. the Signatory States (or REIOs), even when operating as an independent entity. This is a somewhat logical consequence, considering that membership will entail financial obligations in the form of contributions that are expected to fund the Centre. In return, the Members will benefit from the services of the Centre (outlined in draft Article 6(2) of the Statute, now revised draft Article 6(1), and explained below). Critically, this means, for example, that micro, small, and medium-sized enterprises (“MSMEs”) (i.e. investors) are not eligible to become Members of the Advisory Centre.
While – as a general rule – the Centre would operate exclusively for Members, draft Article 6(4) of the Statute opens the possibility for other (non-Member) States or REIOs as well as non-States entities (i.e. investors, (non-)governmental organizations, academic institutions and practitioners) to benefit from the services of the Centre, during the forty-seventh session it was agreed that such participation would be limited to the exchange of information and the sharing of best practices, which would naturally be subject to higher participation fees, thus excluding the possibility of tailored advice. In a nutshell, services available to ‘others’ will require the approval of the Executive Director and would have to align with the objectives of the Centre (A/CN.9/WG.III/WP.236, paras. 29-33, pp. 8-9). This will be further explained below.
Structure and Governance
The Centre draws inspiration from the ACWL, which has a similar function in the context of WTO law (A/CN.9/WG.III/WP.212, fn. 4, p. 4). In line with the ACWL’s three-tier structure, the WGIII, during its forty-seventh session, decided to also adopt a three-tier structure reflected in the now revised draft Article 5. The three-tier structure of the ACIIDR shall consist of:
- a Governing Committee (composed of representatives of the Members of the Advisory Centre [each member appointing one representative]);
- an Executive Committee (to be reflected in the now revised draft Article 5(7) [A/CN.9/1161, para. 48, p. 11]); and
- the Secretariat headed by an Executive Director (draft Article 5 of the Statute).
The scope of functions to be performed by each body has already been defined. For example, the Governing Committee is tasked with, inter alia, appointing the members of the Executive Committee (taking into account geographical diversity and gender balance) and assigning the functions of the Executive Committee; in this regard, the Executive Committee is to consist of six members, including the Executive Director ex officio, the six members are to be nominated by the Members of the Advisory Centre and are to be selected on the basis of professional qualifications in international investment dispute resolution, the Executive Committee will, inter alia, advise the Executive Director, and supervise the administration of the Secretariat and, as indicated above, perform other functions the Governing Committee may assign (A/CN.9/1161, Art. 5(7), para. 48, p. 11).
In line with the above, the Governing Committee will also be tasked with, evaluating and monitoring the performance of the Centre, approving the annual report (which will be prepared by the Executive Director), adopting the rules of procedure, adopting the regulations on the operation of the Centre and, importantly, appointing the Executive Director.
Accordingly, the Executive Director will head the Secretariat of the Centre, which will be responsible, inter alia, for managing the day-to-day operations, representing the Advisory Centre, recruiting and managing the staff of the Secretariat, preparing the annual budget (which will be reviewed by the Executive Committee) and the annual report for the Governing Committee’s approval (A/CN.9/WG.III/WP.236, Art. 5, pp. 5-6 and with the revisions in A/CN.9/1161, Art. 5 paras. 42-65, pp. 7-11).
Finally, the Executive Director is expected to be independent in the performance of his/her duties and it is expected that the Executive Director will not hold any other employment or engage in any other occupation without the approval of the Executive Committee. Accordingly, in the hierarchical structure of the Centre, the Executive Director will report to the Governing Committee (A/CN.9/WG.III/WP.236, Art. 5, pp. 5-6). The duration of the mandate of the Executive Director’s term has not yet been determined; it is expected that this will likely be one of the topics of discussion at the forthcoming sessions, or perhaps it will be left for further regulation once the Advisory Centre has been adopted in principle.
Facilities and Services Offered by the Centre
As explained above, the starting premise for the UNCITRAL WGIII reforms is that LDCs and developing countries are disadvantaged within the system of investment law. Therefore, the objective of the Advisory Centre is to provide services to its Members at an affordable cost.
The Centre, as currently designed, will provide two types of service. On the one hand, the Centre will provide technical assistance and capacity-building services. On the other hand, the Centre will provide legal advice and support with regard to international investment dispute proceedings. The two will be explained in turn.
Technical Assistance and Capacity-Building
First, according to draft Article 6, the Centre aims to level the playing field by providing “technical assistance” and “capacity building” to its Members by providing advice, training, and relevant information on international investment law and ISDS disputes. In this respect, draft Article 6(2), now revised draft Article 6(1) (A/CN.9/1161, paras. 66-69, pp. 12-13), provides a robust list of services that the Centre will provide to its Members, including (A/CN.9/1161, para. 68 pp. 15-16):
- advising on issues pertaining to dispute prevention;
- training with regard to possible means of preventing and resolving disputes;
- Holding seminars and conferences
- functioning as a forum for exchange of information and sharing of best practices;
- functioning as a repository for information and related sources; and
- performing any other functions assigned to it by the Governing Committee.
The draft Statute further explains the cooperative nature that the Centre is expected to foster. In view of this, the Centre is expected to engage other persons or entities to provide the above-mentioned services (i.e. to engage practitioners, experts, and academics) (draft Article 6(3) of the Statute, now revised draft Article 6(2).
As mentioned already above, while the underlying philosophy of the Advisory Centre is to serve its Members, the draft Statute leaves the doors open for non-Members to benefit from the services provided under draft Article 6. In other words, the draft Statute affirms that the Centre shall provide technical assistance and capacity building to non-Members (A/CN.9/WG.III/WP.236, Art. 6(5), p.7). Importantly, however, such access to the services of the Centre will be at the discretion of the Executive Director (draft Article 6(4) of the Statute, now revised draft Article(3), provided that the interested parties meet the criteria set out in the regulation that the Governing Committee is expected to approve with regard to the participation of non-Members, other persons or entities. In doing so, the Governing Committee must consider, for example, whether the provision of services to others contributes to the objectives of the Centre, whether it would be beneficial to the Members or whether it creates a conflict of interest, and, finally, the resource implications that the provision of services may have for the Centre.
It follows that it may be possible for investors, particularly those that qualify as MSMEs under ‘other persons’, to participate in the activities envisaged in the revised draft Article 6(1)(c) and (e) (A/CN.9/1161, para. 68, p. 12). Indeed, while there will be a political cost to this solution, facilitating access to the Centre’s activities for certain investors would potentially attract donors and deter the filing of frivolous claims (A/CN.9/1161, para. 75, p. 13) and, as noted by others, promote the right of access to justice (Note on access to ISDS for small and medium-sized enterprises and individual investors). Allowing certain investors to participate in the activities of the Centre will not necessarily conflict with the objectives of the Centre, provided that tailored eligibility criteria are employed.
In the same vein, such participation would contribute to the envisaged financial sustainability of the Centre, as ‘significantly’ higher fees (compared to those for Members) would be applied, although it was also mentioned during the session that the Executive Director would have wide latitude to waive fees under certain circumstances, e.g. the non-Member is a least developed country and/or the non-Member, other person or entity provides in-kind contributions to the activities of the Centre (A/CN.9/1161, para. 83, p. 15).
All in all, this part of the Centre’s envisaged services (that is “technical assistance” and “capacity building”) focuses squarely on dispute prevention which can be distinguished from being involved in dispute resolution once a legal conflict arises.
Legal Advice and Support With Regard to International Investment Dispute Proceedings
The second type of service that the Centre will offer relates to the concept of “leveling the playing field”. Draft Article 7 provides for the Centre to provide strategic assistance and legal advice in relation to ISDS proceedings brought or expected to be brought by a State (Member of the Centre). In this respect, draft Article 7(2), now revised draft Article 7(1) is instructive in outlining the services that the Centre shall provide (A/CN.9/1161, revised draft Article 7(1) para. 90, p. 13):
- a preliminary assessment of the potential case, including the appropriate means to resolve the dispute;
- assist in the selection of mediators, arbitrators, or other types of adjudicators (including any challenges) as well as experts and in so doing, take into account geographical diversity and gender balance;
- support the preparation of statements, pleadings and evidence as well as other aspects of the proceedings;
- represent the Member in the proceedings including in a hearing, possibly in conjunction with a team of the Member;
- facilitate the appointment of external legal counsel to provide the above-mentioned services; and
- perform any other functions assigned to it by the Governing Committee.
Given the number of ISDS disputes currently pending (Investment Dispute Settlement Navigator), the availability of these services will require careful design and resource allocation. One can imagine that providing these services to Members would require significant manpower and financial resources. In this sense, draft Article 7(3) foreshadows that the Centre’s services will be subject to the availability of resources. In this respect, the Executive Director, in consultation with the Governing Committee, will periodically assess and adjust the services offered (e.g. by deciding to phase in some of the aforementioned services at a later stage of the Centre’s operation). It is envisaged that the Centre should provide the services throughout the entire lifecycle of the proceedings.
Importantly, the Centre has put in place a priority system whereby countries are categorized under either Annex I or Annex II of the Protocol (which is expected to be adopted by the Governing Committee) as to which group countries are considered to be least developing and developing, for the purpose of prioritizing assistance. Naturally, when Member countries from the same group (e.g. least developing countries) make a request for assistance, priority will be given to the Member that made the request first. Thus, the Centre operates on a first-come, first-served basis. Additionally, draft Article 7(4) clarifies the manner in which Executive Director will prioritize requests (in consultation with the Governing Committee when necessary (A/CN.9/1161, revised draft Article 7(4) para. 92, p. 17). This will be particularly important in situations where the Centre is operating at a limited capacity. It is expected that the Governing Committee will further refine the priority system (A/CN.9/WG.III/WP.236, at. 40, p. 11).
With respect to the provision of services to non-Members, pursuant to draft Article 7(5), the Governing Committee will, in principle, first determine, on a case-by-case basis, whether the non-Member would actually benefit from the service and the extent to which the service can be provided to the non-member, naturally, higher fees would apply (A/CN.9/1161, revised draft Article 7(5) para. 94, p. 17). As in draft Article 6(4), now revised draft Article 6(3), the criteria to be taken into account are similar, with the additional consideration of whether the non-Member intends to become a member of the Advisory Centre. In contrast to draft Article 6, the services described in draft Article 7 can only be requested by a member or by a non-Member (i.e. to the exclusion of other persons or entities (including investors)).
It’s important to note that the above-mentioned services, in being provided by an intergovernmental organization, constitute a nuance in the ISDS system and may help to address some of the criticisms that the ISDS system has received over the years.
Critically, the provision of these services is not subject to a specific set of ISDS-related rules, meaning that the Advisory Centre would, in principle, be able to represent Members and non-Members before a wide range of institutions.
ACIIDR | A Much-Needed Component of Investor-State Dispute Resolution and Prevention System
In conclusion, an Advisory Centre on International Investment Dispute Resolution may be just what the International Investment Law regime needs, given the growing criticism of the system over the years and the piecemeal approach that WGIII has had to take, partly due to the many stakeholders involved in the multilateral reform process. It is undeniable that an Advisory Centre that primarily supports LDCs, developing countries, and REIOs is a welcome addition to the ISDS system.
With this in mind, a number of key elements will be subject to ongoing discussion at the WGIII forum:
– Diversity and inclusion: Promoting geographic and gender diversity in the selection of mediators, arbitrators, or other types of adjudicators in the Centre’s advisory services will help to streamline diversity and inclusion efforts in international investment law and ISDS proceedings.
– SSDS proceedings: The draft Statute excludes reference to services related to state-to-state proceedings, which may relate to the avoidance of potential political conflicts, and the fact that the mandate of the WGIII was limited to ISDS reform. Crucially and importantly, the possibility of the ACIIDR covering SSDS proceedings should not be completely ruled out. It appears that no compromise has yet been reached in this regard, but it is envisaged that the answer to this question may ultimately be left to the Governing Committee.
– Allocation of assistance: As the draft statute stands, the first-come, first-served order of assistance in draft Article 7(4) for Members requesting assistance may benefit from further refinement and clarification to avoid potential ambiguity regarding the Centre’s allocation of assistance.
– Financing: Funding remains an important element of the functioning of the Advisory Centre. The envisaged financing of the Advisory Centre has been discussed during the last Working Group session and draft Article 8 largely approved by the Working Group. The refinements made by the Working Group III relate to – for example – the possibility to establish ‘trust funds’ where necessary (including endowment funds), the flexibility for the Members of the Advisory Centre to make annual, multi-year or one-off contributions (A/CN.9/1161, revised draft Article 8 paras. 96-109, p. 17-18). The details of the financial obligations of the Members are still subject to further elaboration. In any event, it is considered that the financial structure of the Advisory Centre should be transparent and avoid any potential conflict of interest.
All in all, the Advisory Centre will be a much-vaunted part of the international investment law realm because of its added value to LDCs and developing countries not only in building their capacity in relation to international investment law and ISDS disputes but also in obtaining adequate representation in terms that are both acceptable and beneficial to them.
ABOUT THE AUTHORS:
José Emilio Ruiz Pineda specializes in international commercial (and investment) arbitration. He is a foreign Legal Expert in the Litigation, Arbitration & Investigations department of Linklaters Amsterdam, where he advises and is involved in arbitrations under various arbitration rules (including the ICC Rules, SIAC Rules, the UNCITRAL Rules). In addition to his work at Linklaters, Emilio is a Honduran qualified lawyer with an LL.M. in International Arbitration and Business Law from Erasmus University Rotterdam and serves as Vice-President of the Honduran Young Arbitrators organization in Honduras.
Piotr Wilinski specializes in international arbitration. He is a Managing Associate (Knowledge) in the Litigation, Arbitration & Investigations department of Linklaters Amsterdam, where he is involved in arbitrations under various arbitration rules (including the ICC Rules, the UNCITRAL Rules) as well as post-award proceedings. In addition to his work at Linklaters, Piotr is an assistant professor at Erasmus University, Rotterdam, where he teaches international commercial arbitration and investment arbitration.
