The ICLRC took part in the 49th session of the UNCITRAL Working Group III

On 23-27 September 2024, the International and Comparative Law Research Center (ICLRC) took part as an observer in the 49th session of the UNCITRAL Working Group III. The Center was represented by expert Anna Kozyakova.

Since 2017, Working Group III has been implementing the mandate given to it by UNCITRAL to work on the Investor-State Dispute Settlement (ISDS) reform. The main objective of Working Group III’s work is to address the concerns of the current ISDS system with a focus on transparency, accessibility and fairness of the process. Various proposals are being discussed, including the establishment of a Multilateral Investment Court, an Advisory Centre, the establishment of an appellate instance, and improvements to the procedural rules, which should contribute to a more efficient and predictable system.

At the 49th session in September 2024, a draft statute of a standing mechanism for the resolution of international investment disputes (A/CN.9/WG.III/WP.239), draft provisions on procedural and cross-cutting issues (A/CN.9/WG.III/WP.244), and a draft multilateral instrument on ISDS reform (A/CN.9/WG.III/WP.246) were considered.

The establishment of a standing mechanism for the resolution of international investment disputes was intended to enhance the predictability and consistency of decisions, as well as the independence and impartiality of proceedings. At the September session, the Working Group focused on the discussion of provisions on the selection and appointment of the tribunals’ members.

Particular attention was paid to Article 7, which establishes qualification criteria and requirements for members of the tribunals. Members of the Working Group emphasized the need to find a balance between the possible strengthening of those requirements and the risk of narrowing the pool of potential candidates. If the requirements for judges were too stringent, it could make it difficult to find a sufficient number of qualified candidates who could effectively perform the functions of judges.

Joining the discussion on this issue, the Center’s expert emphasized the importance of raising the qualification requirements for appellate judges in comparison to those for first instance.  This would be in line with the hierarchy between the levels of proceedings and would contribute to strengthening the professionalism and thus the credibility of the appellate instance. Setting higher requirements for appellate judges would create career advancement opportunities for judges, allowing them to move from first instance to appeal. In turn, this would contribute to the development of professional skills and knowledge of international law. Following its discussion, the Working Group agreed that the qualification requirements for members of the appellate tribunal should be different from those for judges of the first instance.

The Working Group also agreed that members of the tribunals need not necessarily be nationals of one of the Contracting Parties (Articles 8 and 9). However, it was noted that the issue of nationality still needed to be taken into account to ensure a balanced geographical representation and to avoid a situation where representatives of States directly involved in the proceedings were involved in the dispute. In that regard, it was agreed to include a rule for determining the primary nationality of members who were nationals of more than one State. The members of the Working Group also determined that there should not be two nationals of the same State in each instance, thus contributing to the independence and impartiality of the judicial processes.

In the discussion of Article 9, a key topic was the holding of an open call for nominations. Some delegations supported this idea to enhance legitimacy and broaden the pool of candidates. However, concerns arose about the possible duplication of candidates. As a result, it was agreed that an open call could be announced by the Conference of Parties only in special circumstances, such as to ensure equitable geographical representation or when there were insufficient numbers of candidates. However, such a call should not become a standard procedure for the nomination of candidates but would remain at the discretion of the Contracting Parties.

During the discussion, the Center’s expert emphasized the importance of transparency in the nomination process. In her intervention, she suggested considering the introduction of mandatory nomination statements, which should contain information on the selection procedure and consultations with professional communities. The organization of public consultations and discussions, according to the Center, could contribute to greater transparency and objectivity, which in turn would strengthen confidence in the judiciary at the international level. This proposal was supported by the members of the Working Group. It was also suggested that transparency could be enhanced by publicizing the list of candidates for feedback and publishing information on the nomination process.

During the discussion on Article 10, the Working Group considered the desirability of establishing a Selection Committee to screen candidates against the eligibility criteria. Some delegations were of the view that the executive director could perform that function, but others raised questions about the subjectivity of the evaluation criteria. As a result, it was agreed that the composition of the Committee should be diverse, include representatives of different legal systems and guarantee equal gender representation. It was also emphasized that Committee’s members should respect the requirements of independence and impartiality and be subject to certain accountability mechanisms to ensure transparency and fairness in the selection process.

With regard to the draft provisions on procedural and cross-cutting issues, delegates agreed to divide the provisions into three categories: (i) provisions designed to ensure consistency with existing procedural rules (including the ICSID Arbitration Rules 2022); (ii) provisions based on existing procedural rules and provisions of recently concluded investment agreements; and (iii) provisions dealing with cross-cutting issues. It was emphasized that this breakdown did not imply a different prioritization of provisions, but merely served to clarify their nature.

The Working Group was able to discuss draft provisions on counterclaims, third-party funding, amicable settlement and assessment of damages and compensation. However, all provisions left issues requiring further discussion at future sessions. Delegates encountered the greatest difficulty in considering the draft provision on third-party funding, owing to the diversity of views on its regulation. In particular, the difficulty was noted in the need, on the one hand, to preserve access to the practice of third-party funding of a claim as an important guarantee of access to justice for small and medium-sized enterprises and, on the other hand, to provide sufficient protection against potential abuses such as misrepresentation, influence in proceedings and inequality of arms.

In the 49th session, for the first time, a draft multilateral instrument for the ISDS reform was also discussed, which aims to bring together all the elements of the reform. The draft is modeled on a framework convention to which it is proposed to attach protocols on specific elements of the reform (establishment of an Advisory Centre, standing mechanism, procedural and cross-cutting issues, etc.). During the deliberations, some States questioned the utility of this instrument. In this regard, it was noted that the main objective of the instrument is to provide participants with an opportunity, through participation in a multilateral instrument (convention) and relevant protocols, to amend numerous bilateral investment treaties at the same time, which, according to the drafters, will simplify the amendment process and make the implementation of different elements of the reform more effective. The need to preserve the possibility for states to choose which elements of reform they want to implement was also emphasized. Thus, there were different views on the degree of flexibility afforded to states under the protocol: some participants insisted on the need to accede to a multilateral instrument to participate in the protocol, while others favored the possibility of acceding to the protocol without necessarily having to participate in a multilateral instrument, which could provide greater flexibility.

There was broad support for the need for institutional support for the successful implementation of reforms. Delegations emphasized the importance of building sustainable institutions and mechanisms to facilitate the effective implementation of changes. At the same time, the possibility of using already existing institutions to provide such support was discussed, which could help to avoid unnecessary costs of creating new structures. The members of the Working Group expressed their intention to revisit those issues in forthcoming sessions.

The ICLRC will continue to actively follow the work of UNCITRAL Working Group III and participate in the discussions as an observer. Within the framework of the Investment Law and Arbitration Lab, participants also consider topics of the Working Group III agenda, including selected issues of the draft statute of the standing mechanism and draft provisions on procedural and cross-cutting issues.