Building Blocks for a New ISDS System
Since the United Nations Commission on International Trade Law (UNCITRAL) mandated its Working Group III with the topic of “Investor-State Dispute Settlement Reform” in 2017, the PCA has been actively involved in the Working Group’s discussions.
The Working Group has notably considered targeted reforms of the present arbitration system, the creation of an appeals mechanism, or the creation of a permanent investment court. The PCA takes no view as to the desirability of particular reforms, considering that it is the prerogative of governments to select the dispute settlement mechanism that they regard as most appropriate, taking into account their policy preferences and interests. To the extent that States wish to consider new approaches to investor-State dispute settlement (ISDS), however, the PCA stands ready to support any such initiatives at the technical level, including by assisting States in designing and implementing novel mechanisms for the resolution of investment disputes.
On 3 April 2019, the PCA hosted a side event for delegates of UNCITRAL Working Group III at the United Nations in New York to explore legal and institutional challenges that would arise in the creation of a new ISDS mechanism.
The side event consisted of an interactive discussion on the topic of “Building Blocks for a New ISDS System: Technical Challenges and Solutions”, conducted by Secretary-General Hugo H. Siblesz and Senior Legal Counsel Dirk Pulkowski with distinguished panellists: Aloysius Llamzon, practicing lawyer at King & Spalding and lecturer at Ateneo de Manila Law School; Mariana Mota Prado, Professor at the Faculty of Law, University of Toronto; Jan Yves Remy, Deputy Director at the Shridath Ramphal Centre of Trade Policy, The University of the West Indies, and former Legal Officer at the WTO Appellate Body Secretariat; and Christian Rohde, Principal Registrar at the Dispute and Appeals Tribunals of the United Nations.
The discussion highlighted the following:
Consistency and change
In every judicial system, there is a need to balance the value of consistent, predictable decisions with the need to adapt to change (or correct past errors). In international law, in the absence of a global constitutional framework, that balancing exercise poses a particular challenge. Any reformed ISDS mechanism will need to be designed to encourage greater consistency of decisions while defining an institutional path for departing from previous case law in appropriate cases.
There is no blueprint for building an international court or tribunal, although the experience with existing arrangements may be useful in evaluating institutional design options. Institutionalization describes a broad spectrum of possibilities, ranging from an independent body, which fulfils all court functions through its own staff, to a body that forms part of an existing institution, and relies on the services of that institution for its operation. Examples of the latter type of body would be the standing arbitral tribunal of the Bank for International Settlements, which was constituted in the 1930s, and the Eritrea-Ethiopia Claims Commission, which over almost a decade issued a series of 17 awards.
Independence and Accountability
A challenge in any reform is how the principle of judicial independence, recognized, in the context of international courts and tribunals, in the Burgh House Principles on the Independence of the International Judiciary, is best squared with appropriate accountability of judicial decision-makers. Two types of accountability mechanisms may be distinguished: external accountability mechanisms, operating vis-à-vis the member States, and internal accountability mechanisms, operating within the dispute settlement mechanism.
A variety of external accountability mechanisms, including reporting obligations, empowering member States to adopt rules and interpretations binding upon the judges or arbitrators, and control over the budget, are conceivable.
Internal accountability mechanisms may need to be strengthened in the event that the ISDS system relying on ad hoc tribunals were to evolve toward the use of permanent bodies. This includes safeguards to monitor and enforce compliance by judges or arbitrators with internal ethical obligations incumbent on them. The reform of the internal justice system of the United Nations in 2009, which involved the creation of new administrative structures, codes of conduct, and a complaint mechanism, provides an illustration of internal accountability mechanisms that could be contemplated.
When States consider different institutional options for ISDS, they must recognize that there can be no institutional design without trade-offs. No model will do better on all counts.
In developing a new or reformed mechanism, it will thus be important to provide for a degree of institutional malleability to allow relevant stakeholders to calibrate the functioning of the mechanism over time in light of the experience gained.