Negotiations Through the Eyes of an Expert: Continuing the ISDS Reform

On 22–26 September 2025, International and Comparative Law Research Center participated as an observer in the 52nd session of UNCITRAL Working Group III. The Center was represented by Anna Kozyakova.

The session held in Vienna marked another stage in the long-term process of the ISDS reform. Since 2017, Working Group III has been developing approaches to the reform aimed at addressing identified concerns while maintaining a balance of interests between the parties.

The session focused on the draft provisions on procedural and cross-cutting issues and their annotations (A/CN.9/WG.III/WP.253 and A/CN.9/WG.III/WP.254), as well as the draft statute of a standing mechanism for the resolution of international investment disputes and corresponding annotations (A/CN.9/WG.III/WP.239 and A/CN.9/WG.III/WP.240).

Procedural and Cross-Cutting Issues

This part of the agenda deals with draft provisions governing general procedural matters and issues related to investment dispute resolution. The form of implementation of these provisions remains undecided — no time was left for the discussion in the September session. The delegates had previously agreed in principle that part of these provisions should be included as an annex to the UNCITRAL Arbitration Rules, while another part should take the form of a separate document with model provisions for inclusion into investment agreements.

Initially, the agenda was quite ambitious: to review and agree on ten draft provisions covering procedural and cross-cutting issues: security for costs (draft provision 5), suspension and termination of proceedings (draft provisions 6 and 7), period of time for making the award (draft provision 8), allocation of costs (draft provision 9), consolidation and coordination of arbitrations (draft provisions 11 and 11 bis), third-party funding (draft provision 12), joint interpretation (draft provision 21), and submission by a non-disputing Treaty Party (draft provision 22).

However, from the very first day, significant disagreements emerged, slowing progress. Discussion of draft provision 5 on security for costs took a day and a half, mainly due to differing views on whether it should apply only to investors or also to states.

Some delegates insisted that the provision should apply only to investors since states are presumed to be solvent. Others argued that the it should also apply to states to ensure balance of interests and procedural equality.

A compromise was reached: states are not required by default to provide security, but the tribunal retains discretion to order such measures in “exceptional circumstances”. A presumption is introduced — that states are financially capable and willing to comply with order for security for costs. The burden of rebutting this presumption lies on the party requesting security.

The role of third-party funding (TPF) when determining whether a party should be required to provide security for costs was lengthy discussed. Some delegates supported the current text of draft provision 5 — TPF is not a standalone factor and is considered together with other factors: the party’s ability and willingness to comply with an adverse decision on costs, potential consequences of provision of the security for costs and conduct of the parties. Others wanted TPF to be an independent ground for ordering security.

After long discussion, the delegates agreed to retain the current wording clarifying that TPF should be one of the factors considered by the tribunal when deciding on security for costs without automatically triggering such an order.

Regarding draft provision 6 on suspension of proceedings, it was noted that suspension is already an inherent power of tribunal.

Meanwhile, it was agreed to retain this provision as a separate standard rule. To avoid potential inconsistencies with other provisions governing suspension of the proceedings on other grounds, the Working Group decided to add a clause specifying applicability of this provision “unless otherwise provided in the applicable rules”.

Draft provision 7 concerns termination of proceedings — by agreement, inaction, settlement, or impossibility of continuation.

Paragraph 1 of draft provision 7 on termination of the proceedings on joint request of the parties was adopted without amendment. Paragraphs 2 and 3 were merged establishing a 30-day period for a party to object to a request for termination.

In discussion of paragraph 4, which allows termination for prolonged inaction by the parties after filing the claim (“fail to take any steps”), expert of the ICLRC questioned feasibility to retain this paragraph. It was borrowed from the International Centre for Settlement of Investment Disputes (ICSID) Arbitration Rules but rarely applied in practice thus its inclusion in the UNCITRAL Rules might be unwarranted. Moreover, this paragraph overlaps with already existing provisions in the UNCITRAL Arbitration Rules, for example, on termination for failure to file a claim (Article 30(1)(a)).

Also, if this paragraph was retained, the expert of the ICLRC emphasized the need to clarify the meaning of “fail[ure] to take any steps” to avoid uncertainty in practice. For instance, there may be long periods of inactivity (awaiting hearings or drafting documents) that do not hinder the proceedings. Therefore, it is important to clarify directly in the paragraph 4 of draft provision 7 what situations do not fall within “fail[ure] to take any steps”.

After discussion, the Working Group agreed to retain paragraph 4 of draft provision 7 with amendments to specify what constitutes “fail[ure] to take any steps”.

Paragraphs 5 (on settlement of dispute prior to the award) and 6 (on unnecessary or impossible continuation of the proceedings by reason other than in paragraph 5) were adopted by the Working Group without changes.

Draft provision 8 on period of time for making the award received broad support. Delegates agreed that fixed periods of time increase predictability and reduce risks of prolonging the proceedings. Meanwhile, it was considered important to maintain flexibility by allowing the tribunal to extend the time limits in “exceptional circumstances” with mandatory notice to the parties. This approach, in view of the Working Group, ensures balance between efficiency of decision-making and unforeseen situations.

Only four of the ten draft provisions were discussed in the two and a half days allotted for the procedural and cross-cutting issues. The Chair humorously noted that if the pace continued, reform might take a very long time. Both delegates and observers expressed concern over the progress. Moreover, given the financial constraints facing the UNCITRAL Secretariat it was emphasized that delayed consideration of issues could lead to additional workload and complicate future work. In this regard, participants called for a more structured approach to planning sessions and prioritizing the provisions discussed to ensure the effectiveness of the reform and the efficient use of resources.

Standing Mechanism for the Resolution of International Investment Disputes

Discussion of the standing mechanism was highly anticipated. Controversial issues regarding its structure and jurisdiction had been repeatedly postponed. At the last session in New York, the Chair of the Working Group planned a final resolution of these issues at the session in September 2025. In addition, the agenda included a discussion of Article 34 of the draft statute of the standing mechanism on the effect of decisions, which determines the binding nature and entry into force of the first-instance awards after their review by the appellate body. The Working Group, on the proposal of the delegation of Switzerland, began examining Article 34 as contained in document A/CN.9/WG.III/WP.241 (Proposal of the Swiss Confederation on select aspects concerning the Appeals Tribunal).

The main discussion of Article 34 concerned when an award is considered final and binding, how to take into account partially overturned decisions, and what issues are subject to appeal after a case is resubmitted for a new consideration. Paragraphs 1 and 2 provide that awards or decisions of the first-instance tribunal become final and binding on the parties — either in their original form (if the appellate body upholds them) or as modified (if the appellate body amends the decision).

Delegates discussed the meaning of the phrase “final and binding” in the context of potential inconsistency with arbitration rules, under which decisions are deemed final and acquire binding force upon issuance. In this regard, it was proposed to add a provision stating that awards or decisions subject to appeal are not considered final. It would eliminate the inconsistency with most arbitration rules.

Regarding paragraphs 3 and 4, which stipulate that a first instance award that is overturned as a whole has no legal consequences at all, while a partially overturned decision — only in the overturned part, the delegates discussed the meaning of the wording “have no effect”.

It was suggested to clarify this by using the terms “has no binding force” or “is annulled” to emphasize that such a decision is not binding and cannot be invoked. However, this proposal did not receive support, and the wording “have no effect” was retained.

With regard to paragraph 4, the delegates agreed to clarify that the part of the award that was not overturned becomes binding on the parties to the dispute. Meanwhile, this part of the award may be recognized or enforced only after the first instance tribunal issues an award or decision in the course of new proceedings after the case has been resubmitted.

During the discussion of paragraph 5, a dispute arose regarding the possibility of a second appeal, that is, an appeal against an award of the first instance tribunal after the case has been resubmitted for a new consideration. It was emphasized that, according to draft article 33, the mere resubmission of a case for a new consideration is an exceptional measure, applicable only if the appellate body is unable to amend the award on its own.

Delegates supported the possibility of a second appeal, but only in strictly defined cases: if the first-instance body failed to comply with the appellate body’s instructions or in relation to new issues not considered in the first appeal, including procedural deficiencies in the award.

During the discussion on the enforcement of appellate body decisions, it was decided to develop more detailed provisions for different types of decisions, which would, in particular, clarify how appellate body decisions relate to awards of the first instance tribunal and to awards made after the case has been resubmitted for a new consideration.

The final day of the session proved to be the most intense. The Working Group discussed the structure and jurisdiction of the standing mechanism. The discussion required several rounds of informal consultations among delegates. There were discussions about the mechanism’s structure: single-tier, two-tier, or hybrid models were discussed in terms of effectiveness, predictability of decisions, and the financial burden on states. The Working Group emphasized that the mechanism should be transparent, flexible, and have sustainable funding.

Ultimately, an agreement was reached to continue work toward establishing two separate bodies: a body to resolve disputes on the merits at first instance and an appellate body. They will be independent but will coordinate their work to ensure maximum effectiveness. The Working Group instructed the Secretariat to prepare two separate statutes: one for the standing first instance tribunal and one for the appellate body.

The main dispute concerned the jurisdiction of the standing mechanism. Some delegations proposed granting the standing mechanism exclusive authority to hear investment disputes, preventing parties from bringing such cases to other forums. Other delegations, on the contrary, warned that establishing exclusive jurisdiction would limit the parties’ freedom to choose a dispute resolution body — a standing mechanism or arbitration — which is an important feature of the current ISDS system. No final decision was made.

However, it was agreed that exclusive jurisdiction would only be possible with the express consent of the parties. Such consent could be provided for in future investment treaties or expressed through the notification mechanism provided for in the statute.

There are still open questions — how to effectively extend the jurisdiction of the standing mechanism to disputes arising from existing investment treaties, distribute costs between participants, coordinate the work of two independent bodies — the first instance tribunal and the appellate body and ensure that the new mechanism interacts with the existing system to avoid duplication and fragmentation.

There was not enough time to resolve these issues. The work on creating a standing mechanism and clarifying its statutes will continue at upcoming sessions.

Unsatisfactory Outcome and Future Plans

As the Chair and several delegates noted, the speed with which the Working Group is progressing in its consideration of agenda items cannot be considered satisfactory. It is particularly important to note that, following the last period of work, the Working Group did not present an agreed outcome of its work to the Commission session in summer 2025. If a similar situation repeats, questions may arise about the effectiveness of continuing the work overall. Therefore, pressure is mounting, requiring delegates to seek compromise and use their time more efficiently. This has raised the question of plans for future sessions.

Despite the difficulties, the delegates of the Working Group remain optimistic and intend to complete some of the work by the 58th session of UNCITRAL in the summer of 2026. Subject to the provision of additional resources by the General Assembly, the agenda of the 53rd and 54th sessions will be adjusted to focus either on draft provisions on procedural and cross-cutting issues or on a standing mechanism, with a view to presenting the results to the Commission in 2026. Until such a decision is made, time will be divided between these topics.

The ICLRC continues to actively follow the progress of work within Working Group III and participate in discussions as an observer.

Participants of 2025/2026 Investment Law and Arbitration Lab are also taking part in the analysis of agenda items for the sessions of Working Group III, including selected issues of the draft statute of the standing mechanism and draft provisions on procedural and cross-cutting issues.

Read more about the discussions held within UNCITRAL Working Group III:

• at the 38th session of the Working Group
• at the 44th session of the Working Group
• at the 46th session of the Working Group
• at the 47th session of the Working Group
• at the 49th session of the Working Group
• at the 8th intersessional meeting of UNCITRAL Working Group
• at the 50th session of the Working Group
• at the 51st session of the Working Group