The Mandate Conundrum: Reflections on the 46th Session of the UNCITRAL Working Group III on ISDS Reform

The UNCITRAL Working Group III convened in Vienna between 9 and 13 October 2023 for its 46^th session to discuss the establishment of an advisory centre on international investment law, which would be tasked to provide legal and technical assistance in connection with investor-State disputes. In addition, it would tackle a number of “procedural and cross-cutting” issues (PaCCI) it had identified in earlier sessions. The PaCCI, 25 in total, includes the right to regulate, damages, consultation, denial of benefits, shareholder claims, and counterclaims. On the first day, the WGIII allocated three days to discuss the issue of the advisory centre and two days to commence its debate on the PaCCI (specifically damages). The WGIII began its work by acknowledging that given the number of the identified PaCCI and their extensive content, the discussions on both agenda items would likely continue well beyond the 46^th session. The 47^th session is scheduled to take place between 22 and 26 January 2024 in Vienna.

Parallel to these two agenda items, the WGIII seemed to have grappled with the scope and boundaries of its mandate throughout the week. Discussions concerning the extent of this mandate, granted to the WGIII by UNCITRAL in 2017, have been vital for WGIII in shaping the scope and direction of the debates since its inception. This relevance was more pronounced this October. In particular, some states were cautious and unwilling to further delve into the specifics of highly contentious issues such as damages, citing the limitations imposed upon them by this mandate. Other states disagreed on these perceived limitations. As a result, heated debates occurred throughout the week about what falls within this mandate, what may fall within it, what is outside it – and why. To the surprise of many in the room, including the author of this post, who has been an observer at the WGIII since 2018 on behalf of the Centre of Excellence for International Courts (iCourts), it turns out more than six years after the conferral of its mandate, fundamental disagreements existed among participants of the WGIII as to what they can (and should) do to fulfil the objective of reforming investor-State dispute settlement (ISDS).

This post will first recount the mandate of WGIII when it was conferred in 2017, generally reflecting on this scope prima facie. Keeping the emphasis on the mandate issue, it will then juxtapose its understanding of this mandate with the debates within the WGIII as they transpired in the October session. It will focus on the nature and tasks of a future advisory centre and different approaches about the extent of these tasks. It will then attempt to trace the debate on the issue of damages and outline different camps in the room as to how this mandate is perceived. Interesting to note at this point is that many states at the WGIII believe it to be limited only to the “procedural” issues, as opposed to what they perceive to be “substantive” matters.

Defining the Mandate

As a preliminary step, it is crucial to recall what the mandate of the WGIII is. During its fiftieth session between 3 and 21 July 2017, UNCITRAL decided that “the topic of investor-State dispute settlement reform would be considered in a comprehensive manner to also include the topics of concurrent proceedings and ethics” with the primary objective to “restore confidence in the overall system” (UNCITRAL Report, par. 242-43). The language in the Commission’s report of this session distinguishes between what it calls “substantive investment protection” and “[ISDS]”. It highlights a connection between possible ISDS reforms and “[enhancing] consistency in treaty interpretation and application” (par. 244).

While some states noted that “work on substantive standards [such as Fair and Equitable Treatment and indirect expropriation] was deemed less feasible than work on the procedural aspects’ (par. 257), the report acknowledges that “[ISDS] reform was connected with a number of policy issues and that Governments should have a leading role in that process” (par. 250). A point the Commission repeatedly mentions is that “work should cover the widest range of issues and possible solutions”.

This line of reasoning arguably establishes an awareness on the Commission’s end that procedural and substantive issues are intrinsically connected. Instead of explicitly limiting the mandate to procedure, the Commission ultimately decided to entrust the WGIII “with a broad mandate to work on the possible reform of investor-State dispute settlement” (par. 264). The Commission further noted that “broad discretion should be left to the Working Group in discharging its mandate”.

Read in its entirety, the relevant section VI.B of the Report shows that UNCITRAL considered a multilateral reform of substantive principles less likely. This impression remains true to this day, given the divergent views of states in drafting these provisions in their international investment agreements (IIAs). However, given the strong emphasis on the interconnectedness of ‘substantive’ and ‘procedural’ aspects and seemingly broad deference to the WGIII in ascertaining its breadth of discussions, the Commission foresaw some substantive spillover into what it considered to be a reform of ISDS.

WGIII’s perception of its mandate is also expansive, supporting this broader reading. In implementing its mandate and elaborating on the desirability of ISDS reform, the WGIII identified its primary concerns and grouped them under three broad categories: a) lack of consistency, coherence, predictability and correctness or arbitral decisions; b) concerns relating to arbitrators and decision makers; c) cost and duration of ISDS cases. Furthermore, WGIII contended that this particular categorization should not “limit how [it] would address possible reforms” (par. 22).

Advisory Centre for International Investment Law

While the WGIII had considered establishing an advisory centre on investment law as early as October 2019, it was not until the October 2023 session that it started considering specific draft provisions on its foundations and objectives. Before the 46^th session, the Secretariat presented the WGIII a series of draft provisions on the “establishment, objective and general principles” of a prospective advisory centre. The draft provision 2 states that the objective of the advisory centre would be “to provide technical assistance and capacity-building with regard to international investment law and investor-State dispute settlement (ISDS) and provide legal support and advice with regard to ISDS proceedings, including representation services.”

One outstanding question relating to the activities of the advisory centre was whether the services provided should extend to State-State Dispute Settlement (SSDS). Subsequently, this question invoked a debate on whether these disputes even fall within the mandate of the WGIII. According to one view, which was widely shared by those who intervened on this subject, assistance with regard to SSDS would fall outside the mandate, given that it did not concern disputes between an investor and a state. Another view, principally put forth by the European Union, stipulated that SSDS should be included, as it may be used to settle disputes between investors and states. Its inclusion was also argued to be essential for ‘future-proofing’ the tasks and objectives of the advisory centre.

SSDS has different reiterations within the IIA regime. Most IIAs in force include a provision for the settlement of disputes between contracting parties pertaining to disputes concerning the ‘interpretation and application’ of the IIA in question. According to Roberts, these provisions can lead to three distinct categories of claims: diplomatic protection claims, interpretive claims, and requests for declaratory relief (Roberts, 2014). The first category involves claims arising out of an investor-State dispute, whereby the home state espouses the claim on behalf of the investor. Italy v. Cuba, where Italy brought a claim on behalf of itself and its investors, is a relatively recent example. The second category involves claims exclusively on ‘pure interpretation’ where disputing state parties diverge on how to interpret a particular provision of an IIA. Peru v. Chile, an inter-state dispute prompted by the Lucchetti v. Peru case; and Ecuador v. United States, prompted by the Chevron v. Ecuador case, are two famous examples. The third type concerns the claims for declaratory relief, whereby common issues of law or fact can be determined akin to class actions.

It could be argued that the types of disputes above, given that they contextually originate from a dispute between a foreign investor and a state, could be captured by a broader definition of “ISDS”, even though the parties to the actual adjudication are two states. WGIII’s understanding of “ISDS” appears to be more restrictive. With the notable exception of the EU, most delegations vehemently opposed the inclusion of any dispute where a foreign investor is not directly involved as a party. Among the concerns states referred to were possible conflicts of interest (as the claimant state in an SSDS case can be a respondent seeking assistance in another case) and burdening the advisory centre with additional caseload. On the latter point, given the small number of SSDS cases to date, any significant increase in the workload of the future advisory centre is unlikely.

In addition to these concerns, it was also claimed that SSDS was, in any case, outside the mandate of the WGIII – hence, its inclusion posed a normative and structural obstacle. However, as noted above, the exclusion of SSDS from the scope of the advisory centre and the determination that it falls outside the mandate of the WGIII is not necessarily the only valid interpretation. Instead, it appears to be a policy preference which resonated with many WGIII members.

Procedural and Cross-cutting Issues: Damages

On Thursday and Friday (12-13 October), the WGIII began discussing the PaCCI it identified before and during its 43^rd session in September 2022. These issues, twenty-five in total, were grouped under three distinct categories: a) “Submission of a claim”, b) “Conduct of proceedings”, and c) “Decisions by Tribunal”.

Some delegations, mainly developing states, expressed their willingness to prioritize critical issues such as damages – referring to some arbitral decisions as ‘outrageous’. Switzerland, backed by developed countries such as the United States, the United Kingdom, and Australia, contended that some proposals included in the document raised issues regarding the mandate of the WGIII, which was ostensibly ‘procedural’ in essence. In response, the Panamanian delegation, backed by Chilean, Pakistani, Ecuadorian, and Colombian delegations, noted that the mandate as it was set in 2017 said nothing specifically about ‘procedural’ matters. They stated that it was a comprehensive mandate about ISDS, and the discretion belonged to the WGIII to address the reform as it deemed fit. Other delegations, notably Singapore and Canada, expressed their flexibility in discussing matters concerning damages but cautioned against engaging with these subjects with a predetermined formula for the outcome.

The argument that the issue of damages was a matter of substance, therefore outside the mandate of the WGIII, was echoed throughout the last two days of the October session. On the surface, what may have seemed to be a technical debate as to what the WGIII was allowed or ‘mandated’ to do, there was a noteworthy undertone to the opposition put forth by developed states (first expressly noted by the delegation of the United Kingdom) that the focus should be on issues where a consensus was possible. Many believed that no consensus could be reached on the highly contentious subject of damages. The developed states (including Canada) noted from the outset that their intention was not to change the ‘customary international law’ established by, inter alia, landmark decisions such as the Factory at Chorzów nearly a century ago.

Conclusions

Undergirding the entirety of the debates throughout the 46^th session of the WGIII in Vienna was whether the issues discussed were even allowed by the mandate the Commission granted to the WGIII in 2017. The documentary evidence suggests that the WGIII’s mandate had been defined broadly and comprehensively, giving plenty of deference to its collective will and, arguably, its ability to establish consensus. Indeed, when certain states or ‘coalitions’ of states believed an issue to be insurmountable, the formal line of reasoning was that it exceeded the mandate. As such, I argue that what the WGIII can and cannot do is less about the normative limitations imposed upon it by its mandate, and more about what is perceived to be politically achievable. As noted above, this benchmark of ‘feasibility’ has been guiding the contours of this mandate from the outset – hence the acknowledgment that the contents of substantive principles such as the fair and equitable treatment were considered challenging to agree upon. What is perceived as ‘beyond’ or ‘within’ this mandate can ebb and flow accordingly if states’ positions on specific issues shift or approach one another politically.

After all, as noted by the delegation of Sierra Leone, perhaps it is precisely because a consensus is difficult that states should discuss contentious issues and try to find solutions instead of avoiding them. Through these debates, a meaningful reform of ISDS may eventually be possible.