Another round of the discussions on ISDS Reform has been completed at the 50th session of UNCITRAL Working Group III

On 20-24 January 2025, the International and Comparative Law Research Center participated as an observer in the 50th session of UNCITRAL The United Nations Commission on International Trade Law (UNCITRAL) develops conventions, model laws, guidelines, and other instruments in the field of international trade. The main preparatory work is carried out within the framework of Working Groups. UNCITRAL Working Group III is currently working on the reform of the investor-State dispute settlement system.  Working Group III. The ICLRC has been represented by the expert Anna Kozyakova.

Since 2017, Working Group III has been implementing the broad mandate given to it by UNCITRAL to reform the investor-State dispute settlement (ISDS) system. The focus of this work is on addressing “concerns”. The reform work is planned to be finalized in stages. Documents agreed during the Working Group sessions are being submitted to the UNCITRAL for consideration when ready.

Several documents are currently in the progress, including a draft statute for a standing mechanism for the resolution of international investment disputes (draft statute) with provisions on appeals, draft provisions on procedural and cross-cutting issues (procedural reform), and a draft multilateral instrument (modelled as   a framework convention with protocols on specific elements of reform). Work on these documents is progressing more slowly than planned. The 50th session reviewed the current versions of the draft provisions on procedural and cross-cutting issues with annotations (A/CN.9/WG.III/WP.244 and A/CN.9/WG.III/WP.245), and the draft statute of a standing  mechanism with annotations (A/CN.9/WG.III/WP.239 and A/CN.9/WG.III/WP.240).

The next session of the Working Group will be held in two phases: 17-19 February 2025, and 7-11 April 2025 in New York. However, it became clear after the last session that none of the documents would be finalized before the next meeting of the Commission in the summer of 2025. At the same time, delegates expressed the view that priority should be given to the quality of the documents rather than the speed of their discussion. Thus, the Working Group would not be ready to submit any document for consideration by the Commission this year.

Discussion of draft provisions on procedural and cross-cutting issues

The Working Group discussed draft provisions concerning evidence, bifurcation, interim and provisional measures and manifest lack of a legal merit/early dismissal of a claim.

A particular success of the discussion of the draft provision on evidence was the agreement on a list of reasons for which the court/tribunal, at the request of the parties or on its own initiative, may exclude documents, material evidence, or other evidence. The question of whether it is advisable to include subparagraph (d) in this list, which indicates a contradiction with the “essential security interests of the respondent” as a reason for excluding evidence, caused lively discussions among States.

There was general support for this paragraph, but some delegates expressed concern about the ambiguity of the term “essential security interests”. There was also a concern that a State might classify documents as confidential so that they could not be presented and used as evidence. As a result of the discussion, the Working Group agreed to remove subparagraph (d) from the list of reasons for exclusion of evidence.

With regard to the draft provision on bifurcation, the ICLRC drew the attention of the Working Group members to the practical significance of dividing the proceedings into a jurisdictional stage and a merits stage. Thus, according to the current wording of article 27 of the draft statute, an appeal could be filed against both the decision of the first instance court/tribunal on the issue of jurisdiction and the decision on the merits.

If the case is successfully bifurcated at the stage, the party will have the opportunity to appeal immediately after the judgment on the jurisdictional issue. If the court/tribunal decides not to bifurcate the proceedings, an appeal of jurisdiction will be possible only after the final judgment in the case. According to the ICLRC, this difference could be very tangible in practice in terms of saving time and finances of the parties

It was proposed to return to considering this aspect in the context of agreeing on the wording of article 27 of the draft statute. At the same time, a number of delegates of the Working Group emphasized that it is important to take into account the relationship between these provisions and other elements of the reform.

During the discussion of interim/provisional measures, it was decided to limit the freedom of the court/tribunal to order interim measures in the context of ISDS. It was also agreed that the court/tribunal should not be granted the right to order interim measures on its own initiative. The new version of this draft provision will be the subject of consideration by the members of the Working Group at one of the upcoming sessions.

The relationship of the draft provision on early dismissal to the provision on exclusion of evidence was noted. In particular, it was proposed to provide for the possibility to apply for dismissal of the claim if the evidence had been excluded by the court/tribunal. In this way it would be possible to further impose liability on the parties for misconduct. The proposal was not expressly supported. However, it was noted that the fact of exclusion of evidence could lead to the dismissal of the claim, but not necessarily based on this draft provision. It was also agreed that the court/tribunal should not be empowered to dismiss claims under this provision on its own initiative.

In the view of the members of the Working Group, procedural reform is the centerpiece of the ISDS reform, which is intended to address the problems initially identified by the Working Group. For the time being, the draft provisions listed above, contained in part A of document A/CN.9/WG.III/WP.244, were considered as rules supplementing the UNCITRAL Arbitration Rules, in order to harmonize their provisions with the 2022 version of the ICSID Arbitration Rules, for further consideration by the Commission. In doing so, it was agreed that the Working Group should endeavor to supplement rather than replace the existing provisions of the UNCITRAL Arbitration Rules.

Selection, appointment, and removal of the members of the Tribunals

It was decided that the selection committee should recommend to the Conference to place an open call for additional nominations. Also, delegates from various countries emphasized the importance of a fair geographical distribution of candidates for judges of the standing mechanism. It was noted that the issue should be considered by the Conference at the stage of the composition of the tribunals (Dispute Tribunal and Appeals Tribunal).

The question of whether members of the Dispute Tribunal and the Appeals Tribunal should be appointed from a single list of candidates or from separate lists remained unresolved. Arguments were made both in support of and against each option. However, according to the Working Group, the final decision on this issue will depend on the structure of the standing mechanism. The Chair of the Working Group encouraged members to decide on the final structure in the near future.

After a lively discussion, the Working Group decided that the term of office for a judge of the standing mechanism should be nine years, and for half of the members of the first composition, according to paragraph 2 of Article 12 of the draft statute, — six years. Moreover, in order to ensure independence and impartiality, none of the members will be eligible for reappointment.

It was also emphasized that removal from office should take place only in exceptional cases and in compliance with a strictly regulated procedure. It was decided that the process would be initiated by the President (or his/her Vice-President) based on a serious violation of duties by a member of the tribunal. The members of the Working Group also agreed that a substitute member should not be eligible for reappointment.

In general, when discussing the selection and appointment of members of the tribunal, the Working Group emphasized the importance of balancing strict selection criteria with the attractiveness of the position of judge, especially in view of the restrictions on former judges set out in the Code of Conduct for Judges in International Investment Dispute Resolution.

Appeals Tribunal

The Working Group managed to consider only the provisions on the request for appeal, the formation of the chamber of the appellate body, and the distribution of appeals, as well as the powers and functions of such a chamber. In particular, an appeal deadline of 120 days was agreed in order to provide the parties with enough time to prepare. It was also decided that the request for appeal should indicate the subject of appeal, including grounds for appeal provided for in Article 29 of the draft statute.

The Working Group agreed that the composition of the chambers should be formed after the registration of the appeal to ensure their independence, neutrality, and the possibility of random rotation. The Secretariat was requested to revise draft article 20 of the draft statute in the light of these decisions of the Working Group.