ICLRC held a discussion on the impact of ISDS reform on investment treaties

On 15 May 2025, as part of the Russian International Arbitration Congress (RIAC), the International and Comparative Law Research Center (ICLRC) held a satellite event “Rebalancing Investment Treaties: Implications of the New Mechanisms Proposed by the ISDS Reform”.

The speakers were:

• Olga Tsvetkova, Managing Partner, Arbitrator, Brevia Law Offices (Abu Dhabi & Moscow);
• Koh Swee Yen, Senior Counsel, Head of International Arbitration Practice of WongPartnership;
• Baiju Vasani, Barrister and Arbitrator, Twenty Essex;
• Mikhail Galperin, Professor at the National Research University Higher School of Economics and the S.S. Alekseev Private Law Research Centre under the President of the Russian Federation; Member of the Management Board of Inter RAO.

Ekaterina Petrenko, Researcher on Public International Law at the ICLRC, moderated the discussion.

The event was attended by representatives of Russian and international law firms, research institutions, and government agencies.

In recent years, states have redefined their approach to investment treaties, seeking to strike a better balance between investor protection and their right to regulate in the public interest. The discussion focused on the specific mechanisms used by States to restore that balance, providing States with sufficient regulatory freedom, as well as holding investors accountable for possible violations of investment treaties, including in the context of the ISDS reform undertaken by UNCITRAL Working Group III.

Olga Tsvetkova spoke about the evolution of the States’ right to regulate in the public interest. In her view, States were seeking to give themselves more space to take such measures, which had resulted from conflicting findings of the investment tribunals. To that end, States are amending their model investment treaties and bilateral investment treaties, as well as engaging in multilateral discussions at UNCITRAL and UNCTAD. Olga drew attention to the draft provision on the right to regulate being developed by Working Group III and the current lack of consensus among States on the scope of that right. In her view, it is a positive trend to recognize that the public purpose of measures is not a threat to investment protection, but rather a basis for sustainable investment.

The discussion also highlighted procedural mechanisms that could assist in balancing the interests of investors and States. Koh Swee Yen noted the asymmetry of dispute settlement provisions, where only the investor could file a claim. She also raised the question of whether a State should be allowed to file a counterclaim against an investor for violation of its obligations. Based on existing case law on counterclaims (including the famous Urbaser v. Argentina case), Swee Yen noted that the difficulty was in establishing the tribunal’s jurisdiction to consider a counterclaim (namely, whether the investor’s consent to the claim extended to the counterclaim) and in establishing the investor’s violation. In her view, the draft provision on counterclaims being developed in UNCITRAL aims to address some of these issues and is a positive trend.

Baiju Vasani addressed the issue of whether it was appropriate for one person to take on different roles in investment arbitration at the same time (e.g., arbitrator in one case and party representative in another). He emphasized that a common concern in that regard was the possibility that the arbitrator might make a decision that might assist his client in another case where he was acting as a representative of the party. Another concern is that the pool of experts is extremely small and the same persons end up acting as both arbitrators and representatives of the parties, essentially creating a closed system. In this regard, Baiju drew attention to the UNCITRAL Code of Conduct for Arbitrators in International Investment Dispute Resolution, which prohibited double-hatting subject to several conditions. However, he noted that, in practice, there are already sufficient mechanisms in place to regulate the double-hatting. For example, it is indicated in the disclosure statement filed during the dispute. Also, according to Baiju, double-hatting ultimately has advantages, which relate to, among other things, the development of professional expertise and a smoother career path.

Mikhail Galperin elaborated on the spirit of the discussions in UNCITRAL Working Group III. He expressed doubt that the reform would give investors and States confidence that their economic interests would be sufficiently protected. In his view, in the future there would be the same situation as it had been 50-70 years ago – a State seeking to attract investment would have to enter into a direct investment contract (containing an arbitration clause) with the investor in addition to a bilateral or multilateral treaty, thereby giving the investor double protection. Depending on the outcome of the reform, the resolution of the contractual claims may occur in different forums and not all options are desirable.

The discussion showed that there is a demand for states to strengthen their position in dealing with foreign investors. That is why they are reviewing existing legal instruments (e.g., the right to regulate) and engaging in the creation of new ones. It seems that while such instruments may bring more clarity and predictability to the ISDS system, they do so only partially. It is important to evaluate their application in practice to see whether they will create new complexities and undermine the foundations of the ISDS system, as well as confidence in the investment protection regime as a whole.