Investor-state Dispute Settlement Reform Research Articles

Contributory Fault in International Investment Arbitration

As a general rule, if a state commits a wrongful act, it is under an obligation to make full reparation for the injury caused. Yet, arbitral tribunals have used the doctrine of contributory fault to reduce the amount of damages awarded to the investor for the state’s breach of an investment treaty. This article analyses fifteen arbitration cases in which the respondent argued that the claimant contributed to its injury, either as a result of the investor’s bad business judgment or because the investor’s behaviour provoked the state’s wrongful conduct. The analysis shows that arbitral tribunals supported their decisions to reduce the amount of compensation by as much as 50% with strikingly brief reasoning and instead relied on their wide margin of discretion. The article discusses possible avenues to remedy deficiencies in arbitral practice dealing with contributory fault, both through the reform of investor-state dispute settlement and practical solutions that may be adopted by arbitral tribunals when considering allegations of contributory fault.

Unpacking Legitimacy Perceptions of Investment Dispute Settlement: Effects of Outcome and Procedure

Abstract How do citizens perceive different avenues for resolving investor–state disputes in case of an unfavorable decision? In this article, I argue that the interplay between procedure- and outcome-related considerations influences citizens’ legitimacy beliefs toward investor-state dispute settlement (ISDS) systems. First, an unfavorable ISDS ruling should decrease public legitimacy beliefs in the country that got sued. Second, the type of dispute settlement mechanism should influence legitimacy beliefs, leading to different assessments of the legal proceedings. I fielded a survey experiment in France, Germany, and the United States to test these theoretical expectations. The findings confirm that an unfavorable ISDS ruling has a strong negative effect on public perceptions of the legal proceeding, but further show that appropriate design choices can boost public legitimacy beliefs. These results have important implications for the debate about ISDS reform and the scholarship on legitimacy in global governance. The impact of unfavorable decisions on public legitimacy beliefs has been widely overlooked.

Discourses of ISDS reform: a comparison of UNCITRAL Working Group III and ICSID processes

Abstract The reform of investor-state dispute settlement (ISDS) has been tackled by the International Centre for Settlement of Investment Disputes (ICSID) and United Nations Commission on International Trade Law (UNCITRAL) Working Group (WG) III. Despite different objectives, both processes have relied on written submissions from various stakeholders. What are the structures and the narratives underlying the discourses of ISDS reform in these organizations? This article explores the content of 172 submissions by using mixed methods. It demonstrates that UNCITRAL WG III has involved less structured submissions whose content has expanded the initial mandate, with narratives encapsulating deeper disagreement among participants. By contrast, ICSID operated through a common pattern across submissions and a stronger focus on procedural issues, with less disagreement revealed in its narratives. The article proceeds in three steps. First, it compares the structure of discourses for each reform process by aggregating the content of submissions through computational analysis. Second, it relies on critical discourse analysis to reveal narratives that have emerged in each process. Lastly, the article explores submissions from actors who have participated in both processes to illustrate how they have navigated the tension between structures and narratives when reforming international investment arbitration.

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.

Investment Treaty Arbitration Caught in The Public-Private Law Divide

The ongoing reform of investor-state dispute settlement (“ISDS”) underlines the pertinence of an old question that has received various and conflicting answers: Is investment arbitration a public or private method of dispute settlement? A key criticism leveled at investment treaty arbitration is that public interest disputes are decided by a system of private justice. This article critically reviews the dominant interpretations of investment treaty arbitration as public, private, or hybrid. It argues that the subjective nature of each interpretation means that none of them can be definitively adopted. Rather, the real arguments in favor of or against arbitration lie beyond the traditional debate. The article shows that investment arbitration displays important commonalities with international court systems, with its presumed unique features—including party autonomy—appearing a little less unique on closer inspection. Ultimately, a system is what states make it, irrespective of whether its particular features are described as public or private.

Designing a Multilateral Investment Court for Procedural Justice

Abstract Working Group III of the United Nations Commission on International Trade Law has embarked on a mandate to reform investor-State dispute settlement (ISDS), through identifying a set of concerns that merit multilateral procedural reform. In response, the EU has proposed creating a standing multilateral investment court. Despite the importance of procedural justice theory in domestic legal systems, its value as a resource in international dispute resolution is under-recognized. This article focuses on procedural justice through the literature on the social psychology of justice, as offering an empirically-based theoretical foundation that helps identify key elements and options in designing investment adjudication. Within ISDS reform, the authors focus on necessary innovations in independence and impartiality, transparency, participation, and correction of error, the key pillars of procedural justice research. The EU proposal suggests substituting a more traditional judicial model of dispute resolution for the current and problematic arbitral model, which aligns to a greater degree with the principles of procedural justice.

ASEAN and The Reform of Investor-State Dispute Settlement: Global Challenges and Regional Options

As a 10-country bloc, the Association of Southeast Asian Nations (ASEAN) is poised to ascend to the fourth largest economy in the world by 2030.2 The ASEAN-centered framework premised on the ASEAN Economic Community and ‘ASEAN Plus Six’ free trade agreements (FTAs) has led to new Asian regionalism, which has galvanized paradigm shifts in the international order.3 This framework also culminated in the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade pact by economic scale. Given ASEAN’s pivotal role in regional trade and security, recent Indo-Pacific strategies of major powers reinforce the importance of ASEAN centrality and ASEAN-led mechanisms.4 The legalization of ASEAN’s internal and external trade and investment pacts has transformed the ASEAN way, which conventionally denotes the code of conduct and the decision-making process based on consultations and consensus. Distinct from the European Union (EU), ASEAN has developed the approach of pragmatic incrementalism to enable structural flexibilities for binding rules, thus balancing soft and hard law obligations. Along with trade law, investment law forms an integral part of ASEAN’s legal architecture and is paramount to the sustainable growth of ASEAN developing countries. One of the most challenging issues in investment law is investor-State dispute settlement (ISDS), which has encountered massive backlash.5 At the multilateral stage, the United Nations Commission on International Trade Law (UNCITRAL) entrusted Working Group III to discuss procedural reforms for ISDS under investment agreements.6 Asian States have yet to form a unified stance on reform proposals. However, in light of ongoing ISDS debates, ASEAN’s experience will provide valuable lessons for the Global South and enrich discussions about reforming investment legislation and treaties.

The Investor-State Dispute Settlement Reform Process: Design, Dilemmas and Discontents

Abstract This Special Issue takes the pulse of the UN Commission on International Trade Law process on reforming investor-state dispute settlement (ISDS) at its midway point. It features contributions by members of the Academic Forum on ISDS, engaging with various topics on the negotiating table, as well as some that are off the table or hovering in-between. Together, these articles seek to address questions of design, dilemmas and discontent – especially how states negotiate the values and tradeoffs of reform, and engage (or not) with critics of the process. They do so from the perspectives of law, social science and public policy and they employ a range of methods, including computational approaches.

Recent Trends in Investment Arbitration on the Right to Regulate, Environment, Health and Corporate Social Responsibility: Too Much or Too Little?

Abstract The article addresses the recent trends in investment arbitration, focusing on the evolution of international investment agreements from the perspective of the right of the States to regulate in public interest, as well as of the provisions concerning environment, health, and corporate social responsibility. These issues have been chosen because they highlight areas where the tension between sovereign and private interests is evident, as well as where States often face resistance in implementing public policy. Furthermore, the discussion is opportune as the mandate entrusted to the UNCITRAL Working Group III concerned with investor-State dispute settlement reform is limited to procedural aspects of such reform, leaving to the discretion of the States, as treaty-makers, the regulation of the substantive issues concerning foreign investments. The analysis of the international investment agreements concluded between January 2018 and December 2020 demonstrates that treaty language is constantly evolving to protect and expand the scope of States’ regulatory autonomy. The article concludes that investor-State dispute settlement remains the framework in which environmental, human rights and corporate social responsibility obligations can be smoothly integrated within the international investment law, allowing both States and investors to take advantage of and be held accountable for their respective obligations.

ISDS and Nazis or History Without Context: A Reply to Gary Born

Gary Born’s article ‘The 1933 Directives on Arbitration of the German Reich: Echoes of the Past?’ fascinates for good and not so good reasons in almost equal measure. The author skillfully illuminated a rarely-discussed episode of arbitral legal history and aimed to apply its lessons to current debates surrounding investor-state dispute settlement (ISDS) reform. The overarching argument is that criticism and/or reform of investor-state arbitration is reckless and reminiscent of National Socialist efforts to curb private-public arbitration – risking undermining the rule of law and even allowing ‘history to repeat itself’. As much as the legal history part is a worthy contribution, this later part is laden with problematic claims and unfortunate parallels. The criticisms and potential (fairly limited) reforms of ISDS are portrayed as missteps towards a totalitarian abyss. Yet as much as investor-state arbitration can sometimes help promote the rule of law, it is not an indispensable ‘bulwark’ against state oppression. ISDS is a historically recent invention, with an even more recent case law. It deals with wide-reaching and objectively often controversial substantive rules, making reform proposals unsurprising. Crucially, even if investorstate arbitration disappeared completely, the history of Nazi horrors would not repeat itself. commercial arbitration, investor-state arbitration, history of arbitration, ISDS reform, Nazism

Mediation in Future Investor–State Dispute Settlement

Abstract Mediation is an intensely discussed topic as a possibly promising venue for investor–State dispute settlement (ISDS) and conflict prevention. Given that mediation can be used within ‘cooling-off’ (amicable settlement) periods in International Investment Agreements, this article takes stock of those as well as explicit mediation rules which are on the rise in new IIAs. It draws lessons from the small amount of known cases which went to mediation and presents business view on mediation. It also draws a list of common obstacles for business and states preventing the use of mediation in the investor–State context. Finally, this article attempts to map future work which could be useful in the context of UNCITRAL negotiations towards the reform of ISDS.

ISDS Reform in the Context of China’s IIAs

Abstract The investor–state dispute settlement mechanism enables investors to seek remedies in the face of a violation of related international investment agreements, which are crucial to maintaining the standards of investor protection that have been consented to by the contracting parties. On the other hand, more and more problems in the system have been exposed as the number of investor–state dispute settlement cases has increased. These range from substantive issues, such as the treatment granted to investors, to procedural ones, such as cost management and related procedures. Debates on investor–state dispute settlement reform have led to various options for reshaping the relevant mechanisms. Amid the new trend of investment liberalization and facilitation, China is undergoing a new round of bilateral investment treaty revision and free trade agreement negotiation. How the investor–state dispute settlement process is to be framed boils down to how China assesses its own interest vis-à-vis its partners and how it prioritises its objectives in international investment agreement negotiation with its partners. It is submitted that China should take a calculated risk on the investor–state dispute settlement provisions in international investment agreements with adequate consideration of competing interests.

Reform Trend of Investor-State Dispute Settlement in International Investment

The reform of Investor-State Dispute Settlement (hereafter "ISDS") is a bellwether for the reform of the international investment dispute settlement mechanism, this paper about the ISDS mechanism reform finds the root cause of ISDS mechanism reform comes from the national sovereignty and the interests of the investors under the conflict of "crisis of legitimacy” Based on the" legitimacy" crisis, the ISDS mechanism has many problems. In this context, countries have started to reform the ISDS mechanism in order to solve the corresponding problems. These reform measures have three typical trends, Facing the three trends of ISDS mechanism reform, Chinese scholars put forward countermeasures from various angles, but fundamentally China should recognize its own position in international investment, be realistic and adopt a flexible way to deal with ISDS mechanism reform, and try best to contribute to ISDS mechanism reform.

Reform of Investor-State Dispute Settlement – Current State of Play at UNCITRAL

In the last two decades, investor-State dispute settlement has received continuous criticism related to inter alia the legitimacy, transparency and efficiency of the current system. Since 2017, different options of how to improve the system are discussed at the United Nations Commission on International Trade Law (UNCITRAL). The reform options discussed in this context are of high political relevance, considering that investor-State dispute settlement often concerns sensitive topics related to States’ sovereign regulatory powers. In order to provide a overview for all interested parties, this article summarizes and explains the different reform options discussed at UNCITRAL in the last four years. It also presents the positions of the relevant stakeholders, evaluates some of the reform options and gives an outlook over the next steps needed to move the reform efforts forward.a

Cutting-Edge Issues in International Dispute Resolution

Esmé Shirlow presented the findings of a policy paper developed in collaboration with the International Institute for Sustainable Development (IISD), titled Approaches of International Courts and Tribunals to the Award of Compensation in International Private Property Cases and Implications for the Reform of Investor-State Arbitration. The policy paper follows previous IISD work on compensation in investor-state arbitration, which left open the question of whether approaches to issues of compensation in investor-state arbitration differ from the approaches of other international courts and tribunals (hereinafter, courts), and the extent to which this comparative practice might offer inspiration or ideas for ongoing investor-state dispute settlement reform. The research presented by Dr. Shirlow seeks to answer this question by analyzing how issues of compensation have been analyzed in cases concerning alleged state interferences with private property filed before the Permanent Court of International Justice (PCIJ), International Court of Justice (ICJ), International Tribunal for the Law of the Sea (ITLOS), United Nations Convention of the Law of the Sea Annex VII Tribunals, European Court of Human Rights (ECtHR), African Court on Human and Peoples’ Rights (ACtHPR), and the Inter-American Court of Human Rights (IACtHR).

Explaining China's Approach to Investor-State Dispute Settlement Reform

Explaining China's Approach to Investor-State Dispute Settlement Reform

Holding Transnational Corporations Accountable for Environmental Harm Through Counterclaims in Investor-State Dispute Settlement: Myth or Reality?

Abstract Considering the imperative need to protect our environment, the present article begins by highlighting the absence of a comprehensive international framework under which transnational corporations may be held accountable for environmental harm. Drawing from the successful decisions on environmental counterclaims in Perenco v Ecuador and Burlington Resources v Ecuador, this article thus argues that this legal void could be filled by holding transnational corporations accountable for environmental harm under international investment law. However, the practice of environmental counterclaims as they have materialised in these recent decisions emphasises the existence of a gap between theory and reality and, thus, their limited chances of success. It is nevertheless suggested that, in the context of current debates surrounding an investor-State dispute settlement reform, States hold the cards to ensure that transnational corporations are held accountable for environmental harm under international investment law.

Damages and ISDS Reform: Between Procedure and Substance

Abstract Monetary damages is the ordinary remedy in investor-state dispute settlement (ISDS). As such, arbitral practice relating to damages has direct, practical relevance for states and investors. The size of damages awards is also amongst the core critiques of ISDS. It is somewhat surprising, then, that the issue of damages has not figured prominently in discussions on reform of investment treaties and the ISDS mechanism, including those currently underway in Working Group III of the United Nations Commission on International Trade Law (UNCITRAL). In this context, this article makes three contributions. First, it provides an overview of empirical trends in damages in ISDS. Secondly, it considers the extent to which tribunals’ approaches to damages raise the sorts of concerns with ISDS identified by UNCITRAL Working Group III, focusing specifically on concerns of correctness, consistency, legal and expert costs, and independence and impartiality. Thirdly, it identifies a range of possible procedural and substantive reform options that might alleviate these concerns.

Canada’s Pro-Ban Stance on Double-Hatting: Playing the Long Game in ISDS Reform?

AbstractThe practice of arbitrators and counsel in investor-state dispute settlement (ISDS) cases simultaneously playing both roles — known as “double-hatting” — has been the subject of much controversy in recent debates on ISDS reform, notably, at the United Nations Commission on International Trade Law’s (UNCITRAL) Working Group III where a Draft Code of Conduct for Adjudicators in International Investment Disputes is under discussion. While Canada has been less than consistent in its approaches to ISDS in recent international investment agreements (IIAs), its position against double-hatting has been rather constant. This article explores whether this stance reveals a commitment on the part of Canada towards increased judicialization of ISDS or reflects a “flavour of the month” reform likely to change with differing IIAs and negotiating partners. Analysis of Canada’s recent IIA practices, including its model Foreign Investment Promotion and Protection Agreement, released in May 2021, and the positions it has taken at UNCITRAL’s Working Group III, lead the author to conclude that Canada appears committed to increased judicialization of ISDS in the long run.

Disrupt the Gambler’s Nirvana: Security for Costs in Investment Arbitration Supported by Third-Party Funding

ABSTRACT Third-party funding is a recent yet rapidly growing phenomenon in investment arbitration. While it enables investors lacking funds to pursue remedies against States, it exposes States to greater risk of inability to recover arbitration costs. Against this background, this article examines the legal principles on security for costs and, contrary to the view of several tribunals and commentators, it argues that in cases involving third-party funding and the funding agreement does not cover potential adverse costs, there is a presumption in favour of ordering security for costs. However, as revealed in recent decisions in Herzig, the current legal framework on security for costs, which is predicated on the bilateral investor–State relationship, is ill-suited to regulate the tripartite relationship involving third-party funders. Unfortunately, the discussions on Investor–State dispute settlement reform and the current proposal by the International Centre for Settlement of Investment Disputes (ICSID) on the ICSID Rules amendment have largely overlooked this problem. Thus, this article urges policy-makers to develop new rules to regulate the tripartite relationship involving third-party funders.