Report on the 55th Session of UNCITRAL WG III in Vienna (12-16 October 2026)

UNCITRAL’s Working Group III (“WG III”) on Investor-State Dispute Settlement (ISDS) Reform met in Vienna from 12 to 16 October 2026. CEPANI was represented by Eric De Brabandere and Erica Stein. Since 2004, CEPANI is represented in UNCITRAL Working Group II on Dispute Settlement, and since 2023, CEPANI is represented in UNCITRAL Working Group III.

The agenda for the 55th meeting of WG III contained the following items: (i) remaining draft provisions 10, 11 bis, and 12–22 on procedural and cross-cutting issues, and (ii) the draft guidelines on the calculation of damages and compensation.

Draft Provisions on Procedural and Cross-cutting Issues

The first item on the agenda was the continuation of the discussion on the “Remaining draft provisions on procedural and cross-cutting issues”. These remaining provisions are the provisions 10, 11 bis and 12 to 22, covering issues such as third -party funding, local remedies, waiver of rights to initiate adjudicatory dispute resolution, limitation periods, shareholder claims and assessment of damages and compensation.

As a reminder, in a previous session and in at the fifty-ninth session of the Commission, it was agreed that those provisions that relate to the conduct of the proceedings would form a supplement to the UNCITRAL Arbitration Rules and would also be part of a protocol to the multilateral instrument on ISDS reform. These rules were adopted by UNCITRAL as the “UNCITRAL Supplementary Provisions on the Conduct of Proceedings to Resolve International Investment Disputes”. These provisions, cover issues such as evidence, bifurcation, interim measures, security for costs and allocation of costs.

The Draft Provisions discussed in this present session on the other hand are intended as treaty provisions that States could opt into individually. For this reason, it was emphasized that even in the absence of very broad support, a provision may be included in the final text.

The discussion in the current session started with Draft Provision 11 bis on consolidation, and the first five paragraphs of the provision was approved in a slightly modified form. The adopted paragraphs of the provision relate to the procedure for seeking consolidation. Consideration of paragraphs 6 to 10, covering the powers of the Tribunal once it is constituted under this Draft Provision, the procedure to allows additional claimants to request inclusion in the consolidated proceedings, as well as procedural questions relating to the relation between the tribunal and tribunals established prior to the consolidation. was deferred to a later stage.

Draft Provision 12 bis concerns the regulation of third-party funding. Supplementary Provision XII (part of the “UNCITRAL Supplementary Provisions on the Conduct of Proceedings to Resolve International Investment Disputes” mentioned above) already regulates issues such as disclosure of third-party funding. Draft Provision 12 bis however concerns however the question of whether and how tribunals can limit reliance on third-party funding. After much discussion, the provision was adopted in a modified form, and provides amongst others in paragraph 2 that a Tribunal

“shall limit a disputing party’s recourse to third-party funding when:

(a)     The third-party funder has decision-making authority over the management of the claim or the proceeding, including the ability to make decisions to terminate, settle or otherwise resolve the dispute or the selection of the legal representative or independent experts of the funded party;

(b)     The third-party funder is able to terminate the funding arrangement without prior notice to the funded party; or

(c)      The Tribunal decides that the third-party funding has been provided in bad faith or threatens the integrity of the proceeding.”

The provision also contains further specifications on the determination of whether restrictions on recourse to third-party funding are warranted under paragraph 2(c), and the possibility for a Tribunal to require renegotiation of the terms of the funding agreement to address the grounds identified by the Tribunal under paragraph 2, within a fixed time-limit.

Draft Provision 14 “Local remedies”, which is connected to Draft Provision 15 “Waiver of rights to initiate adjudicatory dispute resolution Proceedings” and Draft Provision 16 “Limitation period” were subject to much discussion and debate.

The essence of Draft Provision 14 is to provide the possibility to initiate a proceeding before a court or other competent authority of a Contracting Party before submitting a case to an arbitral tribunal. In that case, the limitation period provided for in Draft Provision 16 is suspended. The final approved provision provides that in case an investor initiates a proceeding before a court, the applicable limitation period will be suspended until a final decision of the relevant court, until the investor ceases to pursue such proceeding, or for a period of five years, if no final decision is issued within that period.

Draft Provision 15, in turn seeks to avoid parallel proceedings, ie the situation in which an investor seeks to challenge, for example, the same measure in both domestic court proceedings or a contract arbitration, and a treaty based arbitration. Draft Provision 15 imposes a waiver by the disputing party of its right to initiate or continue any other adjudicatory dispute resolution proceeding with respect to the same subject matter, before submitting a claim to Tribunal. The first draft of the Draft Provision further specified that that it extends to situation where “the claim is submitted by an investor acting on its own behalf, all persons who, directly or indirectly, have an ownership interest in or are controlled by the investor and claim to have suffered the same loss or damage as the claimant; or if the claim is submitted by an investor acting on behalf of a locally established enterprise that the investor owns or controls directly or indirectly, all persons who, directly or indirectly, have an ownership interest in or are controlled by the locally established enterprise and claim to have suffered the same loss or damage as the locally established enterprise.”

Some states proposed adding two paragraphs, excluding “requests for interim measures, proceedings for injunctive, declaratory or other extraordinary relief or for criminal, tax, administrative or regulatory enforcement, not involving the payment of monetary damages”, and providing that the waiver would cease to apply in case the Tribunal would reject the claim on any procedural or jurisdictional grounds. Yet other delegations opposed this inclusion, explaining that the risk of an adverse decision on jurisdiction is an element to weighed by the investor when the investor makes to the choice to pursue either a contract or a treaty claim.

It was in the agreed to add that, if the claim is submitted by the investor, the waiver of the continuation or the right to initiate domestic court proceedings “shall not apply with respect to proceedings seeking interim measures which do not involve the payment of compensatory damages”, and that if the claim is submitted by the respondent, the waiver of the continuation or the right to initiate domestic court proceedings “shall not apply with respect to proceedings for injunctive, declaratory or other extraordinary relief or for criminal, tax, administrative or regulatory enforcement, which do not involve the payment of compensatory damages.”

The provision as now drafted does not in fact prohibit a sequential use of both proceedings, though the statute of limitations provided for in Draft Provision 16 might in that case pose a problem. Draft Provision 16 “Limitation period” therefore also was the subject of much debate. The final draft adopted imposes a three year limitation period for a claim to be submitted by an investor (or its subsidiary) from the time which it “first acquired, or should have first acquired, knowledge of the alleged breach of the Agreement and knowledge that it has incurred loss or damage, which allegedly arose from the breach”. This may be extended by agreement of the parties.

The Denial of Benefits prevision (Draft Provision 17) is based on contemporary practice of recent treaties, but extends the possibilities to deny the benefits of an international investment agreement to situation such as when the investor receives third-party funding limited by the Tribunal in accordance with Draft Provision 12 bis, when the investment was made in serious violation of the denying Contracting Party’s laws and regulations or the investment involved or when the investment was made through corruption, fraud, or deceitful conduct. It also clearly adds that invoking a denial of benefits can be made by the State at any time, even after a claim has been submitted to the Tribunal. These Paragraphs 3 and 4 are relatively novel compared to existing treaty practice, and have been inserted based on previous discussions.

There was much discussion on whether at all this clause should be part of the draft provisions, and whether or not this provision would fall within the mandate of the working group. Several delegations objected that this question does not concern procedural issues, but rather the question of coverage of the applicable treaty.

The two shareholder-claims provisions were largely settled. Draft Provision 18, on claims a shareholder brings on its own behalf, had broad support and was approved as drafted. Draft Provision 18 bis covers claims brought on behalf of the enterprise. The Group considered merging the two but kept them separate, since they address different claims and together reduce the risk of overlapping claims and double recovery. A State that opts into Draft Provision 18 must therefore also opt into Draft Provision 18 bis, so that no gap is left where the underlying treaty is silent.

Most of the debate on Draft Provision 18 bis concerned paragraph 1. Delegates asked whether "owns" implied majority ownership and whether minority shareholders could sue, and the Group resolved this by aligning with Draft Provision 15: "A shareholder may submit a claim against a Contracting Party on behalf of its locally established enterprise in that Contracting Party." Paragraph 2, which requires evidence of ownership or control, was approved unchanged. Paragraph 3, the waiver of parallel proceedings, was kept despite overlap with Draft Provision 15 because the Draft Provisions must work standalone, and it now binds both the shareholder and its locally established enterprise. Paragraph 4 was approved unchanged, after delegates noted that expropriation claims would normally be brought under Draft Provision 18.

Draft Provision 19 began with a debate over whether it belonged in the Working Group's mandate at all. Some delegations said it touches the substantive balance of investment treaties and should go to the Commission, or become a horizontal clause of the multilateral instrument rather than an opt-in. Others stressed that the mandate is broad enough to cover it. The Group then turned to the two alternatives. Alternative B, which would shield non-discriminatory, good-faith measures, was criticised as working like a general exception that undermines investment protection and cannot be applied without looking at the merits of the claim.

Alternative A became the basis for a compromise. Delegates suggested softening or removing "high level of deference", deleting "inherent", and referring to compliance with international law. The list of policy objectives, covering human rights, the environment and security, proved contested, and the Group removed it. It clarified that this does not mean those objectives fall outside "legitimate policy objectives". The approved text reads: "When assessing the alleged breach by a Contracting Party of its obligation under the Agreement, the Tribunal shall take into account the State's inherent right to set its legislative and regulatory priorities and to regulate to protect legitimate policy objectives."

Draft Provision 20, on damages and compensation, was the most contested item and remains open. Paragraphs 1, 3 and 5 were approved. Paragraph 3 limits recovery to loss that would not have occurred but for the breach and was directly caused by it. The Tribunal weighs contributory fault, failure to mitigate, and repeal or modification of the measure. Corruption in making the investment was excluded as a jurisdictional issue rather than a damages factor.

Paragraph 2, on interest, produced a proposed text making simple interest at a "reasonable risk-free rate" the default, with another rate or method, such as compound interest, allowed only if specifically justified. Open questions include whether to require "clear and convincing evidence" for departing from the default, whether "another rate or method" is too vague, and whether a risk-free rate could fall below inflation and under-compensate claimants. Paragraph 4, on valuation, divided delegates most. They disagreed on the evidence needed to show damages are not speculative, on limiting discounted cash flow methods to investments with a profit record, and on capping recovery at sunk costs, which supporters saw as aiding predictability and critics as a route to under-compensation. The Group agreed to return to these issues.