Proposals in Play and What Could Go Wrong
THE AUTHOR:
Ali Shouzab, Arbitration Attorney
The UNCITRAL Working Group III (“WG III”) has been actively engaged in reforming the Investor-State Dispute Settlement (“ISDS”) system. One of their noteworthy initiatives is a proposal to create a Multilateral Investment Court (“MIC”) with an appeals process, which should increase productivity and lower proceedings costs. One of the major challenges to efficiency and costs in ISDS has been the multiple or parallel proceedings. This challenge can be addressed through consolidation of proceedings—either by merging proceedings into a single award or harmonizing them without necessarily issuing the same award. In this context, Draft Provision 11 of A/CN.9/WG.III/WP.244 and the responses from different stakeholders, particularly the comments from the European Union and its Member States (“EU”), are amongst the important developments.
This study identifies prominent modes of consolidation under discussion in the ongoing reform and tends to point out grey areas that should be under consideration in the WG III.
Consolidation of Proceedings: The Ongoing Developments under WG III
Under the current ISDS models, consolidation mostly occurs with the mutual consent of the parties to combine some aspects of two or more different proceedings based on similarities in fact or law, whether for the same or different awards. An agreement to consolidate usually constitutes a waiver of the parties’ right to challenge the decision on consolidation. Hence, there usually is no right to appeal such decisions.
The WG III’s Draft Provision 11 of A/CN.9/WG.III/WP.244 reads as:
“1. Where two or more claims have been submitted separately, the disputing parties may agree to consolidate or coordinate the relevant proceedings.” The consolidation by mutual consent (or “mutual consent model”) is further reiterated in a subsequent part of the same draft provision: “3. The disputing parties shall provide the proposed terms for the conduct of the consolidated or coordinate proceedings to the Tribunals”
The EU proposed a more detailed two-tiered system where the parties may initially pursue consolidation by mutual consent. Failing such mutual consent, the respondent can proceed with a unilateral request for consolidation (EU’s Draft Provision 11(3), EU’s Comments on A/CN.9/WG.III/WP.244). For a unilateral request, the adjudicating body is required to “consider” the views of disputing parties to render a “consolidation order” that “would best serve the interests of fair and efficient resolution of the claims” (EU’s Draft Provision 11(4), EU’s Comments on A/CN.9/WG.III/WP.244).
The EU’s proposal, inspired by the consolidation provisions in other International Investment Agreements (Article 8.43 of Comprehensive Economic and Trade Agreement (“CETA”), Article 9.28 of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”), and Article 14.D.12 of the Agreement between the United States of America, the United Mexican States, and Canada (“USMCA”)), is both innovative and forward-looking. It can better address situations where a respondent seeks consolidation but a claimant refuses. Under the mutual consent model, a claimant may refuse consolidation, leading to increased costs and delays in the proceedings. The EU’s model also supports efficiency and consistency, as it could allow consolidation of those claims that could otherwise not be blocked in a purely mutual consent model. Therefore, the EU’s proposed model might be more practical for MIC than a pure mutual consent model.
The Grey Areas
The EU’s proposal aims to enhance the procedural efficiency and fairness. However, a major concern might be that allowing a unilateral initiation of consolidation could infringe upon a fundamental principle of international arbitration: the party autonomy. Starting consolidation without the claimant’s agreement could indirectly broaden the scope of the arbitration agreement beyond the original consent of the parties. One could argue that the model would not be that problematic if the claimant were given a fair opportunity to be heard. Despite offering that, there could always be a chance that a consolidation results in procedural prejudice, such as forcing the claimant to proceed before a tribunal it did not agree to or to have its claim adjudicated alongside others with possibly varying contours. This could not only undermine the claimant’s procedural rights but also expose the entire process to challenges concerning the legitimacy and enforceability problems in the subsequent award(s). An obvious and practical solution to the problem would be to allow the claimant an opportunity to address their concerns through an appeal.
WG III’s Draft Article 27 of A/CN.9/WG.III/WP.239 deals with appeals in MIC. But the question is whether there is room for appeals against consolidation decisions. Appeals are allowed against an “award…on its jurisdiction or on its merit” but not “Procedural orders” (Draft Article 27(2)(a), A/CN.9/WG.III/WP.239). The usual practice in ISDS is to treat consolidation orders as procedural orders. However, inspired by CETA’s Article 8.43(12), the EU’s proposal on Draft Provision 11 terms a consolidation order as an “award.” Based on the terminology used in the Draft Article 27(2)(a), a consolidation award appears to be appealable only if it pertains to issues like jurisdiction, admissibility, or merits of a dispute. However, if a consolidation “award” does not pertain to these areas, it can be deemed legally as a mere procedural, hence non-appealable, order. Therefore, an appeal against a consolidation award under MIC is expected to be possible only in narrow circumstances. Following this model, as proposed, could present issues in certain scenarios. If a consolidation is initiated unilaterally, the claimant might be compelled to proceed before a tribunal beyond the scope of the arbitration agreement. Should the tribunal later issue a consolidation award that is considered unrelated to the dispute’s jurisdiction, admissibility, or merits, the claimant may find no recourse, since the award would not be appealable.
Thus far, two major grey areas have been identified in the EU’s proposed model, which suggests that even this model may not be ideal for the MIC.
- Unilateral consolidation may override a claimant’s consent, extending the arbitration agreement beyond its original scope and possibly forcing the claimant into proceedings before tribunals they did not agree to—raising due process and legitimacy concerns; and
- Consolidation awards may not be appealable under MIC’s current draft rules unless they address jurisdiction, admissibility, or merits—possibly leaving the claimant without a remedy in certain circumstances.
Considerations Ahead
The concern about deviation from party autonomy is very genuine. However, if party autonomy is considered absolutely inviolable, the disputing parties would have to rely on mutual consent in order to consolidate two or more ongoing proceedings. As noted above, the mutual consent model is not ideal, especially if the parties do not agree on consolidation, which would decrease efficiency and raise costs.
But, observing the overall structure of MIC, where the parties are expected to have lesser control over the constitution of benches (Draft Provision 1, A/CN.9/WG.III/WP.244) and fixed timelines (Draft Provisions 5 through 9, A/CN.9/WG.III/WP.244), party autonomy in MIC is already expected to be lower as compared to the current ISDS. Hence, the unilateral initiation of consolidation will not be an outright violation of the principle of party autonomy but rather a deviation. Furthermore, parties agreeing to dispute resolution through MIC would have already ceded jurisdiction for the disputes to MIC, implicitly agreeing to a reduced degree of autonomy. Therefore, the unilateral initiation of consolidation could save time and resources, and also aligns with the purpose of MIC to increase efficiency, even at the expense of willfully reduced autonomy. Still, the relevant concerns about procedural fairness are worth considering. Hence, including a provision allowing recourse to appeals would be both logical and necessary.
An appeal against the consolidation award has been made possible. However, the concerns discussed above make it less likely to be successful in practice. There are several potential solutions to the concerns discussed.
- To allow appeals against all procedural orders. However, this could open the floodgates to numerous appeals, which could be detrimental to efficiency; therefore, it would be the least recommended.
- To allow a claimant to opt out of consolidation under specific, narrowly defined conditions, such as severe procedural prejudice or manifest incompatibility of claims, etc. This would preserve some element of party autonomy while mitigating procedural coercion and still enabling consolidation in most cases.
- To mandate a hearing or written submissions where the claimant is given a full, meaningful opportunity to oppose consolidation, along with a reasoned justification from the tribunal for allowing unilateral consolidation. While this does not introduce a right to appeal per se, it enhances the procedural legitimacy of consolidation awards and could reduce the need for an appeal.
- A limited or exceptional right of appeal specifically for consolidation orders, where certain criteria are met, e.g., where the order results in the composition of a different tribunal than originally agreed, joinder of unrelated factual or legal issues, or substantial prejudice to a party. This could ensure that parties are not left without any remedy in exceptional circumstances, while still preventing frivolous or obstructive appeals that could hinder efficiency.
- To incorporate a rule that all consolidation awards arising from unilateral requests are deemed to involve jurisdictional consequences, thus automatically falling within the scope of the appellate mechanism under Draft Article 27(1). This would create a legal fiction to safeguard party rights and simultaneously preserve the MIC’s structured appeal framework.
Conclusion
The blog post has discussed WG III and the EU proposed consolidation models. WG III’s model appears simplistic, while the EU’s two-tiered model, which allows for both mutual and unilateral consolidations, could be more pragmatic if designed carefully. There are some grey areas in the EU’s model that need some attention, like a deviation from party autonomy, the issue of procedural fairness for a claimant, and post-decision recourse options (when read together with MIC appeal provisions).
Consolidation of proceedings in MIC would be an effective way to enhance procedural efficiency and cost-effectiveness. For the MIC consolidation to be effective and legitimate, it is essential to ensure that any deviation from traditional principles, such as party autonomy, is complemented by adequate safeguards, with a particular emphasis on an appellate review that gives due regard to a claimant’s procedural concerns. The study puts forward several proposals to improve the appeal framework against consolidation awards to ensure that a claimant’s rights are effectively protected under MIC.
ABOUT THE AUTHOR
Ali Shouzab is an arbitration attorney from Pakistan based in Sweden and holds an LL.M. in Investment Treaty Arbitration from Uppsala University.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
