Publish time: Wed Jan 17 15:25:39 CST 2018 Contributor:LIU Yang
Between November 27th and December 1st 2017, the 34th Session of Working Group III (Investor-State Dispute Settlement Reform) of United Nations Commission on International Trade Law (the “UNCITRAL”) has been held at Vienna International Centre in Austria. 49 UNCITRAL members, 30 observer countries, the European Union, ICSID, and UNCTAD attended the session; and more observer organizations including four intergovernmental organizations starting with OECD and PCA and 28 NGOs also sent their delegations to the session. As an observer, Beijing Arbitration Commission/Beijing International Arbitration Center (the “BAC/BIAC”) dispatched a delegation consisted of Mr. CHEN Liangyu, Deputy Dirctor of BAC/BIAC, Mr. SUN Wei and Mr. REN Qing, BAC/BIAC Arbitrators and Ms. LIU Yang, Case Manager, to attend this conference.
The current ISDS regime allows a foreign national (individual or company) to bring a claim directly against a sovereign state where its investment was made. At present, most disputes are based on investment treaties, and a few others are based on investment contracts or national investment laws. Investment treaties often provide some investment protection obligations placed upon the states (i.e., fair and equitable treatment, protection from expropriation and non-discrimination) and investment arbitration mechanism is also stipulated. The claimant-investor may bring a claim directly against the host State and the dispute is resolved by an arbitral tribunal constituted ad hoc for this dispute, and the claimant-investor and the respondent-State may select the arbitral tribunal. In recent years, since the increase of investor-state dispute cases, the international community has been paying more attention on the dispute solution system, and calls for system reform also arise.
In this context, UNCITRAL mandated Working Group III to work on the possible reform of ISDS.. Working Group III has just completed its task on “online dispute solution” in 2016 and this session has provided a stage for it to discuss the issue of investor-state dispute solution for the first time.
In view of the fact that this session was the first discussion on this subject, the UNCITRAL secretariat hosted the session and member states together selected a chairman of the working group at the beginning. Owing to the critical and sensitive nature of the issue, the member states could not reach an agreement on the personnel after several rounds of consultation. Eventually, Mr. Shane Spelliscy from Canada was elected as the Chairman of the working group through voting, which was a rare case in the history of UNCITRAL.
Then the session entered into the substantive review phase. According to the UNCITRAL document No. A/CN.9/WG.III/WP.142 “Possible reform of investor-State dispute settlement (ISDS) Note by the Secretariat” (hereinafter referred to as “No.142 document”), mandate of Working Group III consists of three phases: First, identify and consider concerns regarding ISDS; Second, consider whether reform in light of identified concerns; Third, if the Working Group were to conclude that reform was desirable, develop relevant solutions to be recommended to the Commission.. With regard to the first phase of the mandate, the Secretariat indicated in No.142 document that current concerns related to dispute settlement between investors and states mainly consist of: inconsistency in arbitral decisions, limited mechanisms to ensure the correctness of arbitral decisions, lack of predictability, impartiality and independence of arbitrators, lack of transparency, and increasing duration and costs of the procedure, etc. It was also emphasized that these concerns were not exhaustive. This five-day session focused on a small part of work of the first phase, and sometimes work of the second phase was also involved. Delegations and observers focused on the duration of procedures, cost issues and the consistency and coordination of cases.
For the issue of duration and costs of procedures, research data provided by relevant organizations during the session showed that up to 80% to 90% of the costs related to dispute settlement between investors and states were connected with legal representation and expert fees, and the average case cost was 8 million dollars (or even as high as 10 million dollars for some cases). It was pointed out that duration of the procedure and costs were connected, and lengthy and expensive procedures contributed to the practical difficulties for both investors and states. On the one hand, high costs made it difficult for SMEs to adopt this dispute settlement system; on the other hand, developing countries with limited financial resources were unable to pay such high costs with public funds. Meanwhile, other voices indicated, on the one hand, wishes of parties in action had certain effect on the duration of the procedure; on the other hand, factors affecting the duration and costs of cases were very complex, which at least included complexity of cases and treaties, quantity of evidence, efficiency of case management, State preparedness and choice of agents, language of arbitration, lack of precedent principle, abuse of procedure and the parallel procedure, and lack of mechanism of early dismissal of claims without basis, etc.
For the issue of consistency and coherence of cases, opinions expressed during the session includes but not limited to the following points: investor-state dispute settlement system featured fragmentation and distinct decision for identical lawsuit, and multiple factors contributed to such situation, at least including: dispersion of basic treaties, characteristics of ad hoc arbitration, and differences in the understanding of international laws (international rules and customary international law in the interpretation of treaties) by the ad hoc arbitral tribunal. During the session, one view was that consistency was a key element of the rule of law, and the coherence of ISDS could help to enhance the stability of the investment environment. Conversely, it may affect the reliability, predictability and even legality of the system. Long duration and high costs of procedure were also highly correlated with inconsistency, because either party could find something supporting his opinion from other cases. Therefore, it was necessary to ensure a consistent and coherent system, such as through appellate mechanism or multilateral courts. Another different view was that lack of consistency was an inevitable consequence of the dispersion of existing treaties. Basic investment treaties were not unified and were deliberately formulated through negotiations by each state after considering foreign policy, economic and trade policy, development strategy and many other factors. Therefore, the attempt to achieve consistency and coherence upon ISDS is not feasible and undesirable.
In addition, with regard to the scope of discussion of the working group, it was suggested during the session that discussion of the working group should not be limited to ISDS based on treaties, and settlement of disputes caused by investment contracts or investment laws should also be considered. But there was also a view that it should be limited to the discussion of dispute settlement based on investment treaties to avoid excessive enlargement without a focus. Some delegates believed that other types of dispute settlement in addition to investment arbitration should also be discussed. Discussion of the delegates also included specific issues such as cost sharing, third party funding, guarantee, transparency, early dismissal mechanism, and the possibility of state counterclaim.
As an observer, the BAC/BIAC provided its system exploring and practical experience of current arbitration institutions on reducing the duration and costs of the procedure during the discussion. From the practice of China, it suggested that we should consider multiple dispute settlement mechanism such as mediation in the investment arbitration system to reduce the cost. On the issue of consistency and coherence, it introduced its observation of relevant investment arbitration cases for reference. In addition, the BAC/BIAC delegation also actively communicated with other delegates during the intermittent session.
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CHEN Liangyu Deputy Director at the session |
Photo of the BAC/BIAC delegation |
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The BAC/BIAC members communicating with other delegates |
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During the five-day session, delegates reached some consensus, but different opinions still existed on current problems, causes, necessity and possible ways of reform. The session will continue its discussion in New York in April 2018. The BAC/BIAC will keep continuous concern on the progress and hope that more parties could participate into the discussion of the subject and provide more professional contribution from China to the deliberations of Working Group III of UNCITRAL.
After the session, the BAC/BIAC also visited the famous Austrian law firm Craf & Pitkowitz Law Firm, and made full exchanges with the main partner of the firm, Dr. Nikolaus Pitkowitz on issues related to arbitration and dispute settlement between China and Austria.
The BAC/BIAC delegation visiting Craf & Pitkowitz Law Firm
The BAC/BIAC is committed to providing first-class dispute settlement services to parties involved. Welcome people from all walks of life to continue to focus on the diversified dispute settlement business of BAC/BIAC and actively participate in activities organized by BAC/BIAC. We also welcome you to get consulting from BAC/BIAC’s official website and WeChat official account (“BAC/BIAC”).