Appellate Mechanism Research Articles

Reorienting Investment Dispute Resolution in Indonesia: Towards a Fair and Efficient System

In the era of Industry 4.0, the surge in foreign investment and the proliferation of global trade agreements have intensified the need for more reliable dispute resolution mechanisms. While the Investor-State Dispute Settlement (ISDS) system has long been the standard, it faces widespread criticism for its lack of transparency, fairness, and absence of an appellate mechanism. In response, the Investment Court System (ICS) has emerged as a novel alternative, introducing significant reforms such as the appointment of more qualified arbitrators, greater neutrality, enhanced transparency, and, crucially, a structured appeals process that offers stronger legal certainty. Although no disputes have yet been resolved through ICS, raising questions about its efficiency, the system represents a promising advancement in creating a more equitable and trustworthy framework. The appellate mechanism of ICS, in particular, addresses a critical shortcoming of ISDS, where arbitration awards are often challenged in national courts, leading to legal uncertainty. By balancing investor protection with state sovereignty to regulate in the public interest, ICS has the potential to enhance legal clarity, foster public confidence, and create a more stable and inclusive global investment environment.

CONTROL MECHANISMS IN MULTILATERAL INVESTMENT TRIBUNALS: NAVIGATING PROCEDURAL MULTILATERALISM AND SUBSTANTIVE BILATERALISM

AbstractA future multilateral investment court (MIC) or multilateral appellate mechanism (MAM) will operate on a plurilateral basis, among States that become parties to the tribunal's constitutive instrument and grant it jurisdiction over disputes under their investment treaties. The creation of a MIC or MAM would involve a significant strengthening and centralization of dispute settlement institutions in the investment treaty regime, which is already overly dependent on law-development by adjudicators, reflected in well-established concerns about loss of State control. Thus, a key challenge in designing a MIC or MAM is to incorporate appropriate control mechanisms that will enable State input, without unduly undermining a MIC or MAM's independence. This article analyses control mechanisms in a MIC or MAM, considering a wide range of questions of institutional design. It highlights two fundamental tensions. One is the tension between independence and accountability. The other tension is between procedural multilateralism and substantive bilateralism. While the procedural law in a MIC or MAM will have been multilateralized, the substantive law the tribunal will interpret and apply will remain contained in mostly bilateral investment treaties, controlled by the parties to those agreements. This article addresses the challenges of designing a multilateral tribunal for a regime that lacks multilateral substantive law and contributes to wider debates over striking an appropriate balance between international judicial independence and Member State control.

Article: Sorting the Building Blocks of Investor-State Dispute Settlement Reform: Recent Developments from the UNCITRAL Working Group III

The United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WGIII), as the main forum the reform of investor-state dispute settlement (ISDS), continues to deliberate an ambitious agenda of reform areas of high priority. Recently, the WG marked an important milestone with the adoption of the first reform instruments on the conduct of adjudicators and investment mediation. Nevertheless, the most challenging ‘building blocks’ of reform remain to be addressed, including the systemic reform proposal for a standing mechanism, which would transform the landscape of ISDS as we know it. This chapter first captures the progress of the WGIII as it stands today, focusing in particular on the first reform instruments – the Codes of Conduct for Arbitrators and Judges in International Investment Dispute Resolution, the UNCITRAL Notes on Mediation, and UNCITRAL Guidelines for Mediation in Investment Disputes. Then, it outlines the issues that remain on the agenda of the WGIII, in particular the standing investment court, appellate mechanism, the Advisory Centre and other procedural and cross-cutting issues. The chapter concludes with reflections on the overall dynamics of the WGIII and the lessons learned thus far that could contribute to the effectiveness of the deliberations ahead.

The ICS vs. the ICSID system: a possible compromise in the light of the sustainable development

The current inclination to direct investment efforts towards sustainable development, coupled with the 2030 Agenda for Sustainable Development, unveiled in 2015, which included the 16th goal of granting equal access to justice and reinforcing the rule of law on a universal level, has brought investor-state dispute settlement (ISDS) mechanisms to the forefront of global investment discussions. The ICSID has carried out a crucial role in overseeing the ISDS system, offering arbitration facilities for disputes between investors and states for over six decades. However, the ISDS system has faced criticism in recent years. In response, a new Investment Court System (ICS) implemented by the EU that aims to address these concerns by establishing a permanent court formed with judges who have been appointed by member states in advance and are distributed to disputes in a rotating and random manner. It also limits the parties’ freedom to opt the applicable law and considers that the substantive provisions in investment agreements are the applicable law to the raised disputes and inserts an appellate mechanism review for law and fact matters as well. The paper discusses the relationship between the ICS and the ICSID system in the light of sustainable development and examines a possible compromise between both systems by considering the ICS as inter se modification of the ICSID convention based on investigation of its compatibility with requirements of the VCLT. Ultimately, the paper finds that recognizing the ICS as an amendment between some parties to the ICSID convention does not conflict with the VCLT.

Towards an Effective Appellate Mechanism for ISDS Tribunals

AbstractThis Article identifies the problems of an Appellate Mechanism for ISDS Tribunals in relation with its possible benefits. We propose the inclusion of certain design features to improve the working of an eventual Appellate Mechanism and help mitigate problems related to procedural, conflict resolution, and substantive concerns. We finish by identifying the most central problems with a possible Appellate Mechanism, which helps to narrow down options within the ongoing reform process at UNCITRAL. Overall, we illustrate how institutional choice is always contextual and that all institutional options are imperfect and subject to important trade-offs.

Modernization of the Investor-State Dispute Settlement System: reform or revolution?

INTRODUCTION. The UN Commission on International Trade Law established Working Group III in 2017. Within the framework of this Working Group, States’ delegations and representatives of international governmental and non-governmental organizations seek to work out solutions to the identified problems of the investor-State dispute settlement system. Such problems include: lack of consistency and predictability of arbitral awards, lack of independence and impartiality of arbitrators, cost and duration of proceedings. Part of the ways suggested by the UNCITRAL Secretariat and States to remedy problems could be estimated as reform of the system, but several proposals seem to be a revolution.MATERIALS AND METHODS. The authors researched the provisions of bilateral investment treaties, case law of tribunals demonstrating the problems of the ISDS system, as well as the works of Russian and foreign scholars. The methodological basis of the research contains general scientific and special methods.RESEARCH RESULTS. The authors have analyzed several ways of the ISDS system reform overviewed by the Working Group III. Firstly, the authors have considered the draft code of conduct for arbitrators, provisions on third-party funding and an advisory center in the ISDS system. It has been stated that each of these initiatives is able to solve certain problems of the system. Secondly, the authors have analyzed the documents on the creation of an appellate mechanism and a standing multilateral mechanism for the settlement of investment disputes. The authors have concluded that initiatives may bring the fundamental changes to the system.DISCUSSION AND CONCLUSIONS. The authors have concluded that the identified shortcomings of the ISDS system can be remedied only by its reform. Every problem of the system can and should be rectified through consistent work, and not by radical changes. The revolutionary ways considered, such as the appellate instance and the court, not only will not solve existing problems, but rather will add new ones. For example, such a “revolution” of the system may result in establishment of the two parallel regimes of investorstate dispute resolution.

Investment Court System: A Cure for the ‘Broken’ ISDS

This paper discusses the EU Commission’s proposal to establish a ground-breaking, two-tier Investment Court System in the Section 3 of the Commission’ draft TTIP to address concerns about systemic deficiencies looming behind the current ISDS (mainly lack of legitimacy, consistency and transparency) by bringing the private model of investment dispute settlement back to the public domain, as well as providing for an appellate mechanism to harmonise inconsistency in rulings and correct erroneous decisions. This undoubtedly contributes to develop a more coherent investment arbitration body of law, restoring predictability and faith in investment treaty regime, and therefore boosts foreign investments and economic growth.

Towards an Effective Appellate Mechanism for ISDS Tribunals

Towards an Effective Appellate Mechanism for ISDS Tribunals

Study on the Legal Consequences of Revocation of the Appellate Award in the Internal Appellate Mechanism for Arbitration

The traditional principle of finality in arbitration has certain drawbacks, and the huge risk costs it may lead to make some international commercial parties no longer use arbitration as their first choice for dispute resolution. However, the appellate mechanism for arbitration is not yet well developed, and the legal consequences of revocation of the appellate award need to be further clarified. In this article, I will analyse the academic opinions in China and abroad, and discuss the validity of the appellate award and the original award, the validity of these two kinds of awards after the appellate award is set aside, and the understanding of the principle of “non bis in idem” after being revoked, so as to draw conclusions on how to determine the validity of the arbitration award after the appellate award is set aside under different circumstances. Based on analysis above, my suggestion is that the same dispute after the revocation of the appellate award should be arbitrated by entering into a new arbitration agreement or by bringing a lawsuit.

Advancing Predictability via a Judicialized Investment Court? A Fresh Look Through the Lens of Constructivism

Abstract It has long been debated whether a multilateral court with an appellate mechanism should be established to reinforce the doctrine of precedent and improve the predictability of international investment law. Predictability is widely considered a fundamental canon of law. This article, however, cautions that the pursuit of predictability must be examined against the broader institutional context of investment law. To this end, it canvasses the issue through the lens of International Relations constructivist theory that highlights shared understandings as an essential precondition for legitimate law-making. It further conducts case study of the evolution of international trade law, which serves not only as empirical support for the constructivist framework but also a benchmark for comparative study between the two regimes. It argues that, as currently the investment law regime lacks foundational shared understandings regarding investment protection obligations, entrusting a judicialized court to advance predictability may cause the problem of ‘over-institutionalization’.

A Paradigm Change: The CETA Investment Chapter

The Investment Chapter of the Comprehensive Economic and Trade Agreement (CETA) can be seen as an unofficial blueprint of future EU Investment Agreements and Chapters. It was developed under immense public pressure and had to fulfil multiple conditions resulting from the EU constitutional framework. This contribution highlights the political and juridical background of EU investment policy, and then analyses the most significant new approaches in international investment law - both with regard to substantive standards and investor-State dispute settlement - as exemplified in the CETA. With regard to the substance, it can be witnessed that states are more proactive in defining investment protection standards, leaving less discretion for adjudicators. With regard to dispute settlement, the EU managed to introduce a completely new Investment Court System (ICS) with preselected adjudicators and an appellate mechanism. In light of all these developments, this article argues that we are currently facing a complete change of paradigms in EU investment law, heading towards the EU’s long-term goal of establishing a Multilateral Investment Court (MIC).

El debate sobre la reforma del arbitraje como método de solución de controversias entre Estados e inversionistas extranjeros y las alternativas de un mecanismo de apelaciones y una corte multilateral de inversiones

Analiza el debate actual respecto a la necesidad de la reforma del arbitraje como el método preferido para resolver disputas entre Estados e inversionistas privados, específicamente en lo concerniente a las propuestas respecto a un mecanismo de apelaciones y una corte multilateral de inversiones. Presenta la novedad de traer a la discusión la teoría sobre regímenes internacionales a fin de subrayar la idea que el balance político subyacente se ha movido hacia unnivel sustancialmente menor de tolerancia del arbitraje ad hoc como un mecanismo eficiente de resolución de disputas inversionista-Estado. Pasa revista a los principales argumentos a favor y en contra de un mecanismo de apelaciones y concluye sugiriendo cómo es que las consideraciones precedentes resultan necesarias a fin de alcanzar una legítima definición de la posición del Perú respecto a esta cuestión en el debate internacional actual.

Please, Reboot – Small Economies and the WTO Appellate Mechanism in Times of Trade War and COVID-19

The fact that the major economic blocs today no longer agree on which rules should apply in global trade reveals weaknesses in the WTO system and leads to the (temporary) downgrading of the WTO from a law enforcement agency to an administrator. This paper takes a closer look at the legal protection of trade interests of small and independent economies before the crisis in multilateralism and discusses to what extent the heavy dependence of the rules-based trading system on consensus among major economic blocs may have contributed to its current crises. It then turns to exploring alternative instruments for the legal protection of trade interests of small and independent economies outside of the WTO system, and to – from the perspective of small and independent economies – most critical practical and legal shortfalls in the previous WTO dispute settlement system, which ought to be addressed in the interest of all WTO members when considering re-establishing the WTO appellate mechanism in international trade disputes.

Book Review: Jens Lehne, Crisis at the WTO: Is the Blocking of Appointments to the WTO Appellate Body by the United States Legally Justified?

The US policy of blocking new appointments to the WTO Appellate Body relied on a number of legal arguments against the body’s work and ultimately succeeded in rendering the appellate mechanism of the WTO dispute settlement system inoperable in December 2019. In his book, Jens Lehne carefully analyses the various legal arguments officially brought forward by the US until summer 2019. His analysis is proof of the vulnerability of the WTO: despite equality of WTO members enshrined in the WTO treaties, the fate of the WTO remains largely dependent on the willingness of large economies to comply with a legally binding dispute settlement system.

Special Issue: UNCITRAL and Investment Arbitration Reform: Matching Concerns and Solutions

Abstract The ongoing ‘legitimacy crisis’ in investor-State dispute settlement (ISDS) has triggered a comprehensive attempt at multilateral reform. In 2017, Working Group III at the United Nations Commission on International Trade Law (UNCITRAL) was entrusted with a broad, open-ended and problem-driven mandate. The reform process aims to tackle particular concerns with ISDS: excessive costs and lengthy proceedings, inconsistent and incorrect decisions, and a lack of arbitral diversity and independence. The exclusion of substantive treaty reform has met critique but states are considering a wide range of procedural options from incremental reform to a multilateral court, appellate mechanism, and ISDS alternatives. In this article, we introduce the reform process and the seven articles that follow in this Special Issue of the Journal on World and Investment and Trade. In these contributions, ISDS Academic Forum members analyse the basis for each concern and the potential contribution of leading reform models.

Reforming the investor-state dispute settlement mechanism and the host state’s right to regulate: a critical assessment

This paper aims at understanding the relationship between the investor-state dispute settlement (ISDS) mechanism and the host states’ right to regulate. Fragmented into over 3300 bilateral investment treaties (BITs), international investment law is being increasingly challenged by states who believe that the regime is imbalanced. This can be seen from the decision of various states to either opt out of bilateral investment treaties or to reform the existing treaties. This paper would analyze the several connotations that the term right to regulate possesses and then attempt to see whether the present ISDS mechanism poses threat to host state’s regulatory power. Right to regulate for the purpose of this paper means the right of states to deviate from their investment commitments for public purposes such as health, environment, sustainable development, corporate social responsibility, without incurring the duty to compensate. It is stated by various authors that the investment regime has led to a situation of regulatory chill. Regulatory chill is understood to be a situation where governments do not enact or enforce legitimate regulatory measures due to concern about ISDS. The paper argues that though the present system imposes limitations on the host state’s right to regulate, it cannot be said to have created a chilling effect. It is further discussed that the ambiguity of the ISDS procedure leads to a situation where both states and investors are unclear about the outcome of a dispute. This lack of clarity creates uncertainty whenever a dispute is brought before an arbitral tribunal. It is argued that procedural reforms to the ISDS mechanism could be one way to remedy this situation. Making the system more transparent, forming a clear standard of review, and establishing a permanent arbitration forum or creating an appellate mechanism are some of the ways which could help in striking a balance between investment protection and protecting the host states’ right to regulate.

The Certificate of Division and the Early Supreme Court

The history and development of Supreme Court review over state courts in the early Republic is well known. The equally important history and development of Supreme Court review of federal trial courts under the “Certificate of Division” is not. This Article addresses this largely forgotten yet critically significant feature of the early Court’s appellate power. During much of the nineteenth century, the main federal trial courts were generally staffed with two judges—a Supreme Court Justice riding circuit and a resident district judge. As a result, there were often tie votes on questions of law. Congress’s remedy was the certificate of division, which called for mandatory interlocutory Supreme Court review when the judges were divided. This unusual and understudied appellate mechanism proved critical to the development of law and the role of the Court during the Chief Justiceships of Marshall and Taney, and it implicated procedural issues that are still relevant today. As this Article will show, many of the early Court’s most important cases came to it via certificate of division. And certification produced almost as many Supreme Court decisions as did the Court’s direct review of the state courts, the more widely-studied practice. In addition, because review was obligatory when there was division, disagreement between the judges was sometimes feigned, in order to steer certain legal questions to the Court that the judges wished it to hear, many of which might otherwise have escaped review. In this regard, we include a heretofore unavailable dataset that collects all cases—civil and criminal—that reached the Court via certification. And we undertake an empirical analysis of the dataset to ascertain, among other things, which Justices used (and sometimes abused) the practice. This Article will also show how certification by division allowed for practices that scholars tend to assume arose much later. For example, it provided an early opportunity for interlocutory appeals from lower federal courts, and it provided Supreme Court Justices with a form of discretionary control over the Court’s docket (simply by disagreeing with the district judge), long before discretionary review became the norm. Finally, certification was important as one of a variety of possible approaches that judicial systems use to break ties—here, by allowing an appeal as of right to a higher court.

Duration of Investor-State Dispute Settlement Proceedings

Abstract Speed is often touted as an advantage of arbitration. In recent years, however, some have worried that investment arbitration risks losing this advantage. Concerns about the length of investor-State dispute settlement (ISDS) proceedings have also been raised in the discussion about ISDS reform. This article analyses the duration of ISDS proceedings applying a data-centric approach and evaluates the impact of proposed ISDS reforms on the duration of proceedings. After some terminological clarifications on when proceedings are ‘excessively’ long, the article sets out the evidence on the length of proceedings using several data-sets. As a comparator, we present data on the length of World Trade Organization (WTO) proceedings, even though we urge caution as to the usefulness of such a comparator. The article then discusses the impact of various reform proposals on the duration of proceedings, namely improving ISDS, adding an appellate mechanism, establishing a multilateral investment court and abolishing ISDS.

Stare Decisis in the WTO Dispute Settlement Procedure: A Response to the Trump Administration’s Criticism

The United States’ refusal to reappoint judges to the WTO Appellate Body will potentially render the appellate mechanism functionless at the end of this year. One of the alleged justifications provided by the Trump Administration – the treatment of previous Appellate Body reports as precedent – is the subject of this article. By examining the WTO legal framework as well as relevant case law, the paper demonstrates that the criticism in this regard is unjustified, and instead rather serves to conceal the dissatisfaction with consecutive negative decisions by panels and the Appellate Body, dismantling protectionist US measures.

Stare Decisis in the WTO Dispute Settlement Procedure: A Response to the Trump Administration’s Criticism

The United States’ refusal to reappoint judges to the WTO Appellate Body will potentially render the appellate mechanism functionless at the end of this year. One of the alleged justifications provided by the Trump Administration – the treatment of previous Appellate Body reports as precedent – is the subject of this article. By examining the WTO legal framework as well as relevant case law, the paper demonstrates that the criticism in this regard is unjustified, and instead rather serves to conceal the dissatisfaction with consecutive negative decisions by panels and the Appellate Body, dismantling protectionist US measures.