Introduction

On 30 August 2022, the United Nations Commission on International Trade Law (UNCITRAL) and the Singapore Ministry of Law (MinLaw) jointly organized and hosted a Panel Discussion on “Reforms in Investor-State Dispute Settlement — Perspectives from the Asia-Pacific Region” as part of Singapore Convention Week’s UNCITRAL Academy Conference. The Singapore Convention Week is an event organized by the Singapore Ministry of Law (MinLaw) in collaboration with partner organisations with the aim of exploring new opportunities and discussing creative ideas and innovative solutions on investor-State dispute settlement (“ISDS”). The theme of the Convention was “Embracing Global Change, Navigating New Possibilities”.

The panel comprised distinguished government, industry, and institutional leaders, who took stock of the progress of the present discussion on reforms of the ISDS system. They highlighted key issues that strike at the heart of the legitimacy of the ISDS system and analysed the desirability and feasibility of the various reform measures. To conclude, panellists voiced underlying concerns about the way forward.

The opening remarks was delivered by Ms. Natalie Morris-Sharma, (Deputy Senior State Counsel, International Affairs Division, Attorney-General’s Chambers, Singapore; Rapporteur, UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), who introduced the history behind the ISDS reforms. The discussions of these reforms began 5 years ago at UNCITRAL Working Group III (“WG III”). The meeting was not an easy one to steer, but delegates managed to strike a compromise to investigate the legitimacy of ISDS in issues pertaining to costs, diversity, and impartiality. These discussions kept apace despite COVID-19, and the solutions contemplated have ranged from minor adjustments to wholesale replacements of the ISDS reform system. She said that the panel was very timely for revising how far this reform project has come.

 

 

 

Overview of ISDS Reforms

To kick off the conversation, Ms. Martina Polasek (Deputy Secretary-General, ICSID) gave an overview of the main changes to ICSID, including the new ICSID Mediation Rules that were approved by ICSID Member States and came into force in July earlier this year. The overriding goal was to modernise the process while maintaining the strengths of the existing system, and it may be described as an incremental approach. Subsidiary objectives included cutting time and costs and increasing transparency of proceedings. However, reforms also went beyond incremental steps to leaps like mediation. She proceeded to elaborate on three areas: (a) third-party funding, (b) security for costs; and (c) mediation.

Third-party funding had been discussed by WG III and there was no clear consensus on how much it ought to be regulated. There was agreement that third-party funding should be disclosed, but there were divergences on the extent of the disclosure. This is relevant for conflict-of-interest purposes. Some States wanted disclosure of the names of the funders and amount of funding but did not want for the actual funding agreement to be disclosed. WG III looked at different models, including a general prohibition, restrictive model, and a permissive model.

Security for costs was also discussed. There is no provision dealing with this in the 2006 rules, and a provisional measure adopted is to allow for security for costs under certain circumstances, depending on parties’ ability to pursue its claim, the conduct of the parties, etc. Some States wanted security of costs upon the disclosure of third-party funding. There is a compromise in the rule, which says that a tribunal must consider all relevant evidence in support of and against security for costs.

The new ICSID mediation rules are specifically designed for investor-State disputes, and are very responsive to requests for mediation capacity. This encourages broader access to mediation. Mediation can be administered if it concerns a State or related entity or an economic organisation as long as it relates to an investment, and there is no requirement for membership. The rules are also very aligned with the Singapore Convention on Mediation, which would allow mediated settlement agreements to be enforceable. WG III is now working on a model clause for mediation to be an option.

Following this, Ms. Koh Swee Yen SC (Partner, WongPartnership LLP, Singapore), who acts for both investors and States in investor-State arbitration proceedings, shared her experience on how the reforms to institutional rules would help address the legitimacy crisis of ISDS. She focused on the possibility of mediation and the model clause for mediation to be an option. She applauds the option of mediation as parties often claim to want to work towards reducing time and costs, and one can see how mediation really comes to play if it is able to help parties reach a settlement agreement. Investors often hope for negotiations after sending their notice of intent and commencing the cooling off period. She noted that parties currently have to consent in writing to mediation for it to be an option, but she questioned whether this was where we should stop. Can we not push it harder and make it a mandatory precondition to arbitration?

If not, the question then is whether parties have a sufficient “buy-in” to mediate. This is to be balanced against three problems: (a) bureaucracy; (b) inertia; and (c) unfamiliarity. First, States may face difficulty in achieving the authority to mediate from State organs even if they want to. Secondly, no one may want to take responsibility for initiating discussions. Officials may even be at risk of being accused of corruption. Thirdly, States may lack capacity to mediate due to significant unfamiliarity. In this regard, an effective mediator is key to make the process work. Capacity building is also essential. She suggested that, if mediation were made mandatory, this would remove many such difficulties, such as by taking away the “blame element”.

Growing appetite to pursue mediation for dispute resolution in the investor-State context

Mr. Shreyas Jayasimha (Co-Founder, Aarna Law (India) and Simha Law (Singapore)) made several points on what needed to be done to encourage the take-up of mediation in ISDS. First, as with any effort at multilateralism, there is a need to carry through with the implementation. Strong efforts would be required for “indigenizing” mediation, including lawyers needing to wear double- or triple-hats, learn more languages, and deal with different forms of intelligence. Participants must not only receive ideas but also reflect on them and determine the appropriate cultural, regional, and national response. Dedication is necessary to deepen this multilateralism.

Secondly, there is a difference between various dispute resolution contexts, which gives rise to the need to build confidence. This is especially true in the mediation context where a lot of cynicism exists since other forms of dispute resolution are viewed as the more “realistic” forms of dispute settlement.

Thirdly, there is the need to understand the various challenges, such as climate change and artificial intelligence. These topics may be completely beyond the realm of current inter-party arrangements. There is thus a need to understand the combined loads of information. These challenges would need to be borne in mind when attempting to resolve disputes by way of mediation.

Professor Manjiao Chi (Professor and Founding Director, Center for International Economic Law and Policy, School of Law, University of International Business and Economics, China) then raised the key challenges that WG III needs to address. He emphasised that the context must be remembered: ISDS is a method for pursuing the responsibility of sovereign States, and that both investors and States are not strangers to all kinds of dispute settlement mechanisms.

Professor Chi believes the real challenge ahead is adaptation. Since parties are already familiar with these mechanisms from a technical perspective, the question is how to adapt the existing mediation system to fit the ISDS context and the needs of States. Two points must be noted. First, mediation was made for commercial parties, who are likely more familiar with these rules. Secondly, States bear responsibility for public interest. With these in mind, the issue should be approached from a different perspective since mediation is desirable, more efficient in a way, and is less costly than arbitration and litigation in certain senses.

There are also other issues. There may be a problem of accessibility, such as “selective mediation”. There may also be a problem in making mediation mandatory as some states may not be willing to undertake this additional obligation since there are already rules that are tailored for investor-State disputes. The need to have good mediators was also mentioned. Finally, there is an accountability issue, such as corruption. Although these issues have been considered by WG III, balances may need to be made, such as between transparency with confidentiality and efficiency.

Overall, it is good to promote mediation, with good rules and mediators being important. Adaptation is required to strike a balance between a state’s needs and protecting investors procedurally.

Mitigating difficulties of ISDS in the Asia-Pacific Region

Dr Vilawan Mangklatanakul (Deputy Permanent Secretary, Ministry of Foreign Affairs, Thailand), first provided context on ISDS in the context of Thailand. From the 1997 financial crisis, investments have been and are the main force of economic development in Asia, and that they have and will be receiving foreign investment in the region. Thailand has been more prudent in receiving such investment, especially when entering into the free trade agreement negotiations, which include an investment chapter on protection and liberalisation.

There are about 33 investor-State disputes today in ASEAN and a lot are based on the older treaties that have more problems. The new generation of international investment agreements has tried to address the weaknesses of these treaties. ASEAN has also tried to clarify certain provisions of these agreements.

Thailand is especially happy with two concerns being addressed by UNCITRAL with great interest. First, they are happy with lowering costs and duration with good procedural rules. Secondly, Thailand strongly supports the proposed advisory centre that provide legal services for States in need as this will allow States to be able to obtain expertise to defend themselves. Overall, the country is happy to see progress and is looking forward to a compromise among all countries.

Mr. Jayasimha also shared about practitioner perspectives on WG III’s ISDS reform proposals from India’s perspective. As a practitioner, he has discovered that the original architecture of investment treaties has assumed a certain flow of capital. The true nature of bilateralism has not been reflected in certain substantive clauses. There have been attempts to recalibrate India’s system to this. The trajectory would be very mindful that it would be necessary to attract investments globally.

Mr. Jayasimha also said that, by limiting investment rights locally, they are also doing it overseas. The story is still unfolding and the revision of an earlier model does not mean that there is no dynamism. In this regard, incremental development is pragmatic, and there is scope for “blue-sky thinking” for long-run structural reforms. As already mentioned, the advisory centre is a matter of tremendous interest as it “delocalises” international law.

New ways of structuring dispute resolution

When asked for her thoughts on the possibility of a multilateral investment tribunal and an appellate mechanism, Ms. Koh candidly agreed that a multi-lateral investment court is a “nuclear” option and questioned the need for such a paradigm shift. Many speak about ISDS’s legitimacy crisis, but they fail to think back again to the origins of ISDS: Why did we have investor-State arbitration in the first place?

Thinking back to the rationale of ISDS, Ms. Koh said that ISDS was designed to de-politicise investment disputes and create a forum afforded investors a fair hearing before an independent, neutral, and qualified tribunal. It was seen as a mechanism for resolving disputes in a cheap, efficient, and affordable process by which parties would have control. Taking disputes out of the domestic sphere provides investors an important guarantee that the claims will be adjudicated in an independent and impartial manner.

She thinks a court would strike at the core of this message and there are two key problems. First, a fixed multilateral investment court comprising members appointed by States may exacerbate concerns of a lack of impartiality by stripping the right of appointment away from the investor, which is crucial to the neutrality of the process. Secondly, a court removes control from the parties. Control is important because dispute resolution is to serve the parties, and control is necessary to give parties satisfaction with the dispute resolution mechanism. Her personal view is thus that a multilateral investment court goes too far.

Ms. Polasek added that an appeal facility raises difficult questions. First, its interaction with the ICSID Convention is uncertain as Article 53 of the Convention provides that an award is binding and enforceable and cannot be subject to any appeal unless it is provided in the Convention, such as an annulment. This is a very limited remedy that does not allow for de novo review.

Secondly, the method of implementation may be a problem. The first method is amending the ICSID Convention to include error of law and error of fact, but this requires ratification of all ICSID member states so it is difficult to achieve. The second method is an inter-State notification under Article 41 of the Vienna Convention on the Law of Treaties. However, not all states who are members of the ICSID Convention may wish to provide for an appellate mechanism, so this would only be applicable for those involved in the notification. The wording of the instrument could adopt the same approach as an amendment, or this could be an independent multilateral instrument that aims to modify several instruments. This is feasible in the ICSID Convention framework and infrastructure, which would enable for appeals given the degree of expertise. A final mechanism is that ICSID could act under separate rules that establish a standing body and administer the cases like they would administer it under non-ICSID rules.

Professor Chi added that the mechanisms would provide a lot of institutional flexibility in Asia. Given WG III would have to take into account all kinds of alternative mechanisms when considering the potential instrument, he thinks that the best appeal mechanism would be inclusive, compatible with alternatives like arbitration, and have “connectivity” in the sense of being able to use different types of mechanisms in combination.

*The writer would like to thank the Ministry of Law for organising the opportunity to attend and cover the event, and Mr. Wooseok Shin from the Singapore International Dispute Resolution Academy (SIDRA) for providing comments on this article.

* This blog entry may be cited as Bill Puah, “Reforms to the Investor State Dispute Settlement System” (18 October 2022) (Singapore Law Blog) (https://singaporelawblog.sg/blog/article/281)