Authors: Sebastian Wuschka /Laura Peters
The reform of investor-state dispute settlement (ISDS) has been on the agenda of Working Group III of the United Nations Commission on International Trade Law (UNCITRAL) since 2017. An intermediate product of this reform process is the draft of a Code of Conduct for Adjudicators in Investor-State Dispute Settlement, which has already been much discussed over the course of this year. UNCITRAL presented this Code of Conduct together with the International Centre for Settlement of Investment Disputes (ICSID) in May 2020. The two institutions have invited comments on this proposal by the end of November 2020. Reason enough to take a closer look at the current draft.
The settlement of investment disputes before arbitral tribunals has repeatedly been the focus of – not always well-founded – public criticism, particularly during the negotiations relating to the transatlantic free trade and investment protection agreements TTIP and CETA. Yet, also arbitration practitioners have increasingly suggested the creation of uniform standards for ISDS decision-makers. The draft presented by ICSID and UNCITRAL takes up these suggestions. It represents the first general set of rules for decision-makers – adjudicators – in investment disputes.
Up to now, such rules have only been included in individual, partly still unratified free trade and investment protection treaties (e.g. CETA, CPTPP and - as a basis for negotiations - the Dutch Model BIT of 2019). In addition, institutional guidelines such as the IBA Guidelines on Conflicts of Interest in International Arbitration set general standards, yet only in the quality of so-called soft law. The ICSID-UNCITRAL draft is the result of a comparison of these existing ethical standards, which are developed further by the Code of Conduct. Its ultimate legal nature – should it be adopted – will also depend on the outcome of the entire UNCITRAL reform process. On a general level, UNCITRAL Working Group III is also discussing, among other things, the establishment of an appeals tribunal for investment arbitration and the establishment of the multilateral investment court advocated for by the EU Commission.
In the short term, however, there is the possibility that a first version of the Code could be applied in ICSID investment arbitration. The ICSID Arbitration Rules give the ICSID Secretariat the possibility to pre-formulate the declarations of acceptance to be signed by arbitrators for their mandate. In the context of the currently ongoing ICSID Rules amendment process, the ICSID Secretariat has taken the position that the Code of Conduct could become binding for all ICSID arbitrators (and members of annulment committees) by reference in their declarations of acceptance.
The Code of Conduct establishes a number of duties for adjudicators. In addition to ensuring their independence and impartiality and thus avoiding conflicts of interest, the Code regulates issues such as competence, availability and confidentiality. In particular, the so-called double hatting – i.e. acting both as arbitrator and counsel in investment disputes – is addressed in a separate provision.
Under the current draft, the Code of Conduct’s scope of application in Article 2 is limited to decision-makers – adjudicators. Other actors – in particular counsel and expert witnesses – are not covered by the Code. Nevertheless, the Code’s scope is already problematic, as it encompasses both arbitrators appointed for the individual case and permanently appointed decision-makers. The latter are already foreseen, inter alia, for the investment court systems of the EU’s free trade and investment protection agreements and would also include the judges of the multilateral investment court envisaged by the EU Commission.
The starting points for ensuring independence and impartiality are, however, very different for decision-makers in permanent institutions and those appointed for individual cases. While independence from the parties will be the most important criterion for the individually appointed arbitrator, institutional independence will play a greater role in permanent adjudicatory bodies. At the same time, a previous legal position by an adjudicator might be considered problematic in the individual context especially due to the selection of that adjudicator by (one of) the parties. In the framework of permanent institutions, such previously voiced legal opinions are likely to meet with fewer reservations – similarly to the constant jurisprudence of certain judges or courts on the domestic level.
As regards the individual provisions of the Code of Conduct, it is also to be expected that these will be subject to even more intensive revision or further elaboration. The possibility of a general ban on double hatting, for example, has already been critically commented on in many places, as it presupposes that decision-makers are in a position to choose "one side". However, many young practitioners in the field of arbitration simply cannot give up their work as party representatives for one proposed arbitrator mandate. In the same way, a ban on double hatting could have a negative impact not only on the age mix of the adjudicators, but also on gender equality and diversity according to geographical origin. In that regard, it should be noted here that many of the Code's provisions have not yet been conclusively formulated. Rather, with regard to double hatting, the current version in Article 6 only gradually suggests different possibilities by means of text modules. The exact wording of the provision will need to reconcile all the aforementioned concerns with the interest in neutral dispute resolution.
The regulation of double hatting is further closely related to the problem of the so-called issue conflict – the conflict of interests resulting from the prior involvement with a relevant legal question. Here, the Code takes a different approach than, for instance, the IBA Guidelines, according to which a published legal opinion – written or spoken – falls under the categories of the "Green List", meaning they generally do not warrant disclosure (see section 4.1.1). By contrast, Article 5.2(d) of the Code of Conduct specifically provides for such disclosure. In practice, this will not pose major problems for arbitrators and parties, since a list of publications can be transmitted quickly and in many cases accessed online anyway. The commented version of the Code of Conduct (p. 15, para. 59) also points out that challenges of arbitrators on the basis of issue conflicts have rarely been successful. Nevertheless, the indicative effect of the broad disclosure obligation with respect to the legal relevance of previous legal opinions for an adjudicator’s independence and impartiality should not be underestimated. After all, only a prima facie suitable reason for the challenge of an adjudicator should also justify a disclosure obligation. The formal increase of transparency could thus also lead to a lowering of the standard for challenges on the basis of alleged issue conflicts – and thereby to an undesired and unjustified increase of successful challenges overall.
Finally, as far as the enforcement of the Code’s provisions is concerned, the draft currently refers to the already applicable rules for challenges of arbitrators. Furthermore, it does not (yet) establish its own sanctioning system, but explicitly leaves this open to suggestions from commentators. So far, fines, disciplinary measures and so-called reputational sanctions, such as the publication of a list of the names of adjudicators violating the Code, have been discussed. In any case, the concrete implementation of the Code of Conduct largely depends on which reform proposals – e.g. the establishment of an appeals instance or the multilateral investment court that the EU Commission propagated as the only sensible solution – are pursued further.
The initiative by ICSID and UNCITRAL in form of the Code of Conduct is specifically intended – as is the ISDS reform process within UNCITRAL in general – to address legitimacy deficits that criticism of ISDS repeatedly references. The creation of clear standards for ISDS decision-makers is certainly of particular importance in this context, as descriptions such as "secretive tribunal[s] of highly paid corporate lawyers" are only too often used by critics.
However, ICSID and UNCITRAL are likely to receive a significant number of comments on the concrete design and implementation of the Code of Conduct by the end of this month. The current draft is certainly not its latest version, especially in light of the still unclear outcome of the overall UNCITRAL ISDS reform process as such.