Partner, DMDB Law
For the second part of the 51st meeting, WG III had the same two items on its agenda as those that had been on the agenda of the previous session in Vienna: the “Draft provisions on procedural and cross-cutting issues” (with some “Additional provisions on procedural and cross-cutting issues”), and the “Draft statute of a standing mechanism for the resolution of international investment disputes”.
Since 2004, CEPANI is represented in UNCITRAL Working Group II on Dispute Settlement, and since 2023, CEPANI is represented in UNCITRAL Working Group III.
Draft Statute
The first part of the session was devoted to the Draft statute of a standing mechanism for the resolution of international investment disputes, and in particular on the provisions relating to the procedure before the “appeals tribunal” (articles 27 to 34). Aside from the Draft Statute, the Government of Switzerland had made a submission (A/CN.9/WG.III/WP.241) containing some suggestions for alternative language of certain provisions, in particular those relating to the decisions subject to appeal and the grounds for appeal.
Article 27 of the Draft statute covers the scope of appeal and provides that only “an award or decision of the first-tier tribunal on its jurisdiction or on its merits”, and “an interim measure ordered by the first-tier tribunal to preserve a party’s rights” may be appealed. Conversely the article explicitly provides that, amongst others, procedural orders, decisions on bifurcation, and decisions on challenges of arbitrators or adjudicators, are not subject to appeal. Divergent views were expressed on these issues, as some delegations suggested that only final awards should be the subject of appeal (as also advised in the “Swiss proposal”), while others considered, for example, that also decisions on challenges of arbitrators or adjudicators should be subject to appeal (without, perhaps, suspending the first-tier procedure). It was in the end agreed that the scope should be narrowed down, focusing on final awards or decisions, including a decision whereby jurisdiction is confirmed.
A second important question related to the exclusive nature of the appeal (article 28), that is to the exclusion of an annulment under the ICSID Convention, or set aside proceedings in domestic courts. The discussed article provided that an appeal can only be made if the party waives its “rights to initiate annulment, set aside, recognition or enforcement proceedings with regard to the award or decision of the first-tier tribunal [during the appeal proceedings].” This point too raised much discussion. While there was agreement on the fact that appeal should be the sole remedy available to the parties which have adopted the appellate mechanism, certain delegations noted that this might require amendments to domestic laws. In this respect, it is important to refer here to a document published by ICSID which exposes the various options for an inter se modification of the ICSID Convention in order to make possible an appeal of arbitral awards rendered under the ICSID Convention.
The grounds for appeal similarly were the subject of much debate. Article 29 of the Draft Statute provides for the grounds for appeal, and constitutes a combination of certain elements relating to set aside or annulment proceedings (article 29 §2) and others which more clearly align with traditional grounds for appeal (article 29 §1). The later are “an [manifest] error in the application or interpretation of the law”, and “a manifest error in the appreciation of the facts, [including the appreciation of relevant domestic legislation] [and the assessment of damages]”.
While some delegations supported the current draft, others preferred a more limited set of grounds as provided for in the “Swiss proposal”, which attempted to limit the grounds by avoiding overlap between some grounds as included in the current article 29 of the draft statute. Other delegations in turn expressed the view that the grounds should be similar to those included in Art V of the New York Convention in relation to refusal to recognize and enforce arbitral awards. Delegations also questioned the need for an error to be “manifest”, and the usefulness of including grounds such as the incapacity of a party to the agreement or the conflict with international public policy. WG III in the end agreed to a reformulation of article 29 inspired by the Swiss proposal, excluding reference to the incapacity of a party to the agreement or the conflict with international public policy.
In relation to Article 33, covering the decision of the appeals tribunal, it was decided to focus on a combination of the draft prepared by the secretariat and Swiss proposal. It was agreed that questions of procedure may be decided by the presiding member of the Chamber, but the second part of the proposed text “in consultation with the President of the Appeals Tribunal” was deleted. The discussion then turned to the circumstances under which the appeals tribunal should modify or reverse the award, or remand it to the first-tier tribunal. It was in the end decided that the appeals tribunal, if it does not uphold the award or decision, should “as far as possible modify the award or decision on the basis of the facts before the first-tier tribunal” (in line with the Swiss proposal). Remand, then, would be more exceptional.
Draft provisions on procedural and cross-cutting issues
The second item on the agenda was the continuation of the discussion of the Draft provisions on procedural and cross-cutting issues. As a reminder, the draft provisions are divided into three sections: provisions to supplement the applicable procedural rules (A), provisions building on existing procedural rules and investment agreements including on the submission of a claim (B), and provisions on cross-cutting issues (C). Two “Additional provisions on procedural and cross-cutting issues” had added to the discussion, covering “joint interpretations” by States parties to an investment agreement, and “Submission by a non-disputing Treaty Party”.
Draft provisions 14 relates to the exhaustion of local remedies. The text agreed to provides, that “prior to submitting a claim to the tribunal, a party may initiate proceedings before a court or competent authority of a Contracting Party where available.”
Draft Provision 15 requires the investor to waive its right to initiate or continue any “adjudicatory dispute resolution proceeding” with respect to the same subject matter, before submitting a claim. As such, this provision received support. Some delegations suggested, however, to include a paragraph extending the scope of the provisions also to subsidiaries and parent companies of the person initiating the claim.
Draft Provision 16 introduces a limitation period, providing that a claim should be submitted within a period of three years since “the investor first acquired, or should have first acquired, knowledge of the alleged breach of the Agreement and knowledge that it has incurred loss or damage.” The provision received support, though some modifications were suggested, including the extension of the limitation period by agreement of the parties.
After these rather uncontentious provisions, WGIII then moved to some of the more difficult and debated provisions. Draft Provision 17 covers “denial of benefits”. The provision is controversial, as some delegations observed that the provision does not squarely fall within the scope of the mandate of UNCITRAL WG III. It was also observed that the provision goes beyond existing provisions, covering for example the denial of benefits when the investor receives third-party funding in a manner inconsistent with Draft Provision 12, or when the claim would constitute a misuse of the Agreement and its objectives. It was in the end decided to resume the discussion at a next session based on a new proposal.
Similarly controversial is Draft Provision 18 covering shareholder claims. As it now stands, the provision limits shareholder claims “only for direct loss or damage incurred as the result of a breach of the Agreement, which means that the alleged loss or damage is separate and distinct from any alleged loss or damage to the enterprise in which the shareholder holds shares.” Divergent views were expressed on whether to include this provision or not, and on whether it was necessary or not to limit shareholder claims. Here too, it was decided to continue the discussion based on a new draft.
Finally, WGIII discussed Draft Provision 19 on the right to regulate. This also constitutes one of the more difficult provisions. Some delegations noted here too that the provision in fact covers questions of substantive investment law, and not of procedure, therefore exceeding the mandate of the Working Group. While some delegations proposed to expand the scope of application of this provision to also include, for example economic, fiscal and monetary policies, and consumer protection, others suggested to simply delete the provision. It was acknowledged that the Working Group disagreed on the inclusion of the right to regulate in the draft provisions, but the secretariat was nonetheless requested to prepare a revised draft of consideration in a future session.
The next session will take place in September 2025 in Vienna, to further consider the draft provisions on procedural and cross-cutting issues and draft guidelines on the calculation of damages and compensation which are being prepared by the Secretariat.