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Working Group III (Investor-State Dispute Settlement Reform) Update by Marina Kofman

UNCITRAL Working Group III – Report to UNCCA and LawAsia on the 38th session (Vienna, 14-18 October 2019)

Update from the Third Inter-sessional session 

At the outset of its 38th session, UNCITRAL Working Group III heard a report from the delegation of the Republic of Guinea on the result of the third Inter-sessional Regional Meeting on ISDS reform, held in Conakry, Guinea on 25 and 26 September 2019. The Working Group heard that the meeting provided the opportunity to raise awareness of the current work of the Working Group, to share experiences and views on ISDS and to explore the reform agenda. 

The Working Group was also informed of budgetary cuts at the UN, which would impact its work. Due to budgetary constraints, a word count would now be imposed on the reports from the Working Group’s sessions, among other impacts. 

Project scheduling 

The first substantive task of working group III during its 38th session was to develop a project schedule for the order in which reform options would be discussed over its next sessions. The focus on developing the schedule was on how to move the reform options forward in parallel (broadly, ‘structural’ and ‘non-structural’ options, although this characterisation was challenged as unhelpful during the session) as agreed during the 37th session. The schedule was resolved on the morning of the second day of session after a range of views were expressed. Throughout the discussions the emphasis was on the need 

It was decided that during the remainder of the 38th session, the Working Group would discuss (a) a multilateral advisory centre and related capacity-building initiatives; (b) a code of conduct for arbitrators and (c) third-party funding. 

The 39th session would be allocated to (a) a stand-alone appellate mechanism; (b) standing multilateral investment court and (c) selection and appointment of arbitrators. 

The 40th session would be allocated to consider (a) dispute prevention, mitigation and other means of alternative dispute resolution; (b) treaty interpretation by States parties; (c) security for costs; (d) means to address frivolous claims; (e) multiple proceedings including counter-claims and (f) reflective loss and shareholder claims based on joint work with the OECD. 

It was said that the focus of the working group’s deliberations should be on providing guidance to the UNCITRAL Secretariat so as to guide it in providing preparatory work on the topics identified for the working group to consider.  

Advisory Centre

Substantive discussions on reform options kicked off with a topic on which there was much agreement in the room – an ISDS advisory centre. Delegations from Africa, in particular, emphasised the importance of the advisory centre and capacity building. There was general support in the working group for establishing an advisory centre as a complement to other reforms. The focus of the discussions was on which stakeholders would be permitted access to the advisory centre’s services, the scope of its services and on how to finance it. There was also a focus on identifying services already provided by other organisations, with a view to eliminating overlaps. It was noted that funding and staff capacity issues would make it challenging for the centre to act as legal counsel in a dispute. The goal of the capacity building aspect was to increase the capacities of the centre-beneficiaries over time. It was suggested that the Advisory Centre on WTO Law could provide a useful model, but would need to be adapted to the ISDS regime.

Code of conduct

There was widespread support in the working group for the development of a code of conduct for arbitrators, to address concerns or perceived concerns about a lack of independence and impartiality of arbitrators. It was generally agreed that the code should be binding and of universal application in ISDS disputes, to reduce fragmentation and uncertainty. Conflicts of interest, diligence, integrity and efficiency will need to be addressed in the code of conduct. Various sanctions for breaches of the code of conduct were discussed, including consequences impacting arbitrator remuneration, such as repayment of arbitrator fees already paid in a case; disciplinary measures and measures that would tend to affect arbitrator reputation e.g. a database recording breaches. The Working Group gave detailed guidance to the Secretariat on a number of matters to be covered in the preparatory work in developing the code of conduct, as more fully set out in the Draft Report of the 38th session.

Third-party funding

Although some delegations expressed views that third-party funding should be prohibited, it was generally felt that third-party funding should be regulated rather than outright banned. The regulation would need to deal with a number of matters with a view to increasing transparency, especially given the potential for conflicts of interest in circumstances where the existence and identity of the funder is unknown.

Delegations noted the importance of developing a definition of third-party funding and it was noted that existing definitions should be considered as a potential guide. Delegations generally agreed that the existence and identity of a funder should be disclosed at an early stage in the proceeding or as soon as a funding agreement had been concluded. Delegations also felt that disclosing the beneficial owners of a funder was important to addressing potential conflicts of interest. It was suggested that the disclosure should be made to the tribunal and also the opposing party.

In relation to security for costs when a funder is involved, in line with prevailing jurisprudence, it was generally agreed that the mere existence of a funder, without more, was insufficient to warrant an order for security for costs. This is in line with the approach taken in the current ICSID Rules amendment process. The observer delegate for ICSID said that ICSID could postpone adopting the new provisions on third-party financing during the planned 2020 vote on its reform package if ICSID member States so desired, with a view to developing a harmonised approach with the process in Working Group III. The Secretariat was tasked with preparing draft provisions on third-party funding, incorporating alternative approaches for the Working Group to consider.

Other discussions

The Working Group requested that the Secretariat begin to undertake preparatory work in respect of a possible multilateral instrument incorporating a suite of reform ‘options’, including both procedural reforms and structural reforms that could be used to update existing treaties. Both the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the Mauritius Convention) and the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting  (BEPS Convention) were cited as possible models to examine. 

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