Spotlight on Investor-State Dispute Settlement at UNCITRAL’s Annual Meeting

At a Glance

• At its annual meeting, UNCITRAL — the United Nations body that specializes in international trade law — adopted several legal texts focused on bolstering investor-state dispute settlement (ISDS) and international arbitration more generally.
• New codes of conduct for arbitrators and judges in ISDS proceedings aim to increase transparency, accountability and fairness in an international dispute resolution system that has come under intense criticism in recent years.
• Additionally, UNCITRAL proposes a new standard for early dismissal of international arbitration cases that are manifestly without merit.

Background

Last week, during its 56th annual commission session in Vienna, the United Nations Committee on International Trade Law (UNCITRAL) adopted several legal texts to reform ISDS procedures. As the principal legal body of the UN that promotes the harmonization and modernization of international trade law, UNCITRAL serves as an important forum for member states and international organizations to discuss and create international rules, standards and model laws that facilitate the efficient and fair resolution of commercial disputes, enhance legal certainty and foster the growth of international trade.

Working Group III: Code of Conduct for Arbitrators and Judges in International Investment Disputes

ISDS has come under intense criticism in recent years, with the former European Union Trade Commissioner calling it “the most toxic acronym in Europe.” This form of international arbitration, in which a foreign investor sues a host state — usually under the theory that the government violated its investment treaty obligations or other investment law — saw rapid growth as the preferred dispute resolution of choice in hundreds of investment treaties over the past decades. However, in recent years, it has suffered from a crisis of perceived unfairness and erosion of countries’ sovereign right to regulate in the face of corporate challenges to national policy decisions.

In 2017, UNCITRAL Working Group III was given the mandate to work on reforms to the ISDS. After years of work, UNCITRAL adopted several legal texts of the Working Group — including the Code of Conduct for Arbitrators in International Investment Dispute Resolution and the Code of Conduct for Judges in International Investment Dispute Resolution — that are designed to strengthen public confidence in an international dispute resolution system that has come under increased scrutiny and rebuke in recent years.

The codes of conduct reflect a significant initiative to enhance transparency, fairness and impartiality in ISDS by setting forth ethical standards and rules of conduct for arbitrators and judges involved in resolving investment disputes, with a particular focus on maintaining the integrity and credibility of the process. Notable provisions include the requirement to disclose any potential conflicts of interest, to regulate so-called “double-hatting” (serving as arbitrator in a case and an advocate in another), and prohibitions on ex parte communications with parties or their representatives.

While not legally binding on states, these codes of conduct carry significant influence and are widely recognized as a guiding framework that is referred to by arbitration institutions, governments and practitioners as a benchmark for arbitrator conduct. Accordingly, the codes could serve as valuable tools for jurisdictions and institutions to incorporate ethical standards into their national legislation or rules, leading to greater harmonization and alignment in the international investment arbitration landscape.

Working Group II: Consideration of Early Dismissal in International Arbitration

UNCITRAL also proposed amendments to its Notes on Organising Arbitral Proceedings (2016), a touchstone for arbitration practitioners, to provide guidance on early dismissal and preliminary determination in international arbitration.

Early dismissal has historically been treated with caution in international arbitration matters. This is because of the fundamental principle of allowing a party to present its case (a ground for refusal of enforcement under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards). However, given this is a well-trodden path in civil litigation (“summary judgment” in England and in the United States), parties are increasingly exploring whether this process is available in international arbitration.

UNCITRAL’s proposed text addresses this by providing guidance on the standard by which such applications are made and the process that should be followed.

The proposed text includes a “manifestly without merit” standard, which reflects the arbitration rules of: the International Chamber of Commerce (ICC) (Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration Under the ICC Rules of Arbitration (2021), paragraph 110); the London Court of International Arbitration (LCIA) (Article 22.1(viii)); the Stockholm Chamber of Commerce (SCC) (Article 39); the Singapore International Arbitration Centre (SIAC) (Rule 29); and the Hong Kong International Arbitration Centre (HKIAC) (Article 43).

Furthermore, the proposed text envisages, where required, the implementation of an “early dismissal process,” which requires the applicant to raise its argument “as promptly as possible” and suggests both parties “have a reasonable opportunity to prepare and present their case.”

Once formally approved, this note will provide a helpful framework for parties and practitioners alike.