General overview and recent developments
Context of new Code
The review and reform of investor-state dispute settlement continues. This article explores the latest developments, in particular the latest draft of the Code of Conduct for Adjudicators in International Investment Disputes (the Code). A second draft of the Code has been prepared by the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL).
General overview and recent developments
As part of the review and reform of investor-state dispute settlement (ISDS) being undertaken by the UNCITRAL Working Group III (the working group), attention has turned to the preparation of a new draft of the Code.
A second draft of the Code, prepared by ICSID and UNCITRAL, was released on 19 April 2021. This second draft reflects the plethora of comments on the initial draft released in May 2020 and suggestions made by states and stakeholders. The working group is due to meet again in November 2022 to discuss the second draft and the feedback received from states and stakeholders.
Ultimately, the goal of the working group is to increase the efficiency and transparency of international arbitration. The Code seeks to enhance confidence in the independence and impartiality of ISDS tribunal members. There remain several key issues where agreement is yet to be reached; sticking points such as repeat appointments and "double hatting" will undoubtedly be the centre of attention at the working group's next meeting.
Repeat appointments occur when an arbitrator receives multiple appointments from either the same disputing party, the same counsel, law firm or the same disputing party type (ie, repeat appointments by the respondent state or by an investor).
On the one hand, a number of commentators have expressed concerns about permitting arbitrators to receive repeat appointments. These concerns include biased pre-judgment of a party's claims or defences, the ability to develop a loyalty to a disputing party who provides financial dependence, the lack of diversity and the increase in costs and delays as a result of arbitrators being appointed to multiple proceedings. On the other hand, some stakeholders believe the opposite, with repeat appointments increasing efficiency and cost savings, due to the arbitrator becoming more competent in certain types of disputes, and developing better case management skills. In addition, principles of party autonomy favour a party being permitted to appoint their chosen arbitrator.
As it stands, the current draft of the Code does not prohibit the repeat appointment of an arbitrator, subject to the arbitrator satisfying the independence and impartiality requirements of article 3. Furthermore, prior to accepting an appointment, adjudicators must disclose any previous and current appointments, as part of their continuing obligation to disclose.
This is a substantial deviation from the first draft of the Code, in which repeat appointments were prohibited in circumstances where they would hinder the arbitrator's ability to render their decision in a timely manner. That provision was ultimately removed on the basis of a perceived difficulty in assessing whether an adjudicator's availability actually would be obstructed, as this would come down to varying factors such as the complexity of the case, the capacity of the individual and the role played by the adjudicator.
"Double hatting" is the practice in which an individual acts in roles across at least two different ISDS cases, either simultaneously or within a short period of time. Article 4 of the Code was included in an attempt to limit multiple roles being performed by certain individuals. However, substantial changes have been made to the original draft.
First, amendments have been made to reflect the suggestion that double hatting could be acceptable with the informed consent of the disputing parties.
Second, the prohibition of double hatting has been narrowed. The first draft applied to multiple roles as counsel, expert, witness, judge, agent or any other relevant role, and proposed a prohibition or limitation for a period before or after being an adjudicator. The updated second draft permits double hatting in relation to witnesses, judges, agents and any other relevant role that is not as counsel or expert, and is limited to situations of multiple concurrent roles.
Finally, draft text in article 4, which likely will be a talking point in the forthcoming discussions, proposes a more lax prohibition of double hatting. Under the proposal, consent from disputing parties will only be required if an adjudicator is planning to be involved as counsel or expert in another case that has "the same factual background" and "at least one of the same parties or their subsidiary, affiliate or parent entity".
The overall objective of the new Code is to provide a uniform approach that harmonises and clarifies the existing standards. However, some states and commentators have expressed concerns about inconsistency between the new Code and existing standards such as the International Bar Association Guidelines on Conflict of Interest in International Arbitration (IBA Guidelines) and codes of conduct in free trade agreements. They are concerned this may be an impediment to the Code's overarching objective. For example, both the Comprehensive Progressive Agreement for Trans-Pacific Partnership and the Canada-European Union Comprehensive Economic and Trade Agreement prohibit appointed arbitrators from concurrently acting as counsel or party-appointed expert in any pending or new investment dispute under those agreements or under any other international agreement. This prohibition is not limited to cases with "the same factual background" and at least one identical or related party.
Some stakeholders have emphasised that deviating from existing standards, which reflect international consensus, should be exercised with considerable caution. They argue that not only will this generate uncertainty and confusion in the standards required but, to many, it may be perceived as a step backwards. In their view, this may result in a loss of confidence in the Code, and to questions regarding whether ICSID is the most appropriate institution to administer ISDS.
Similarly, some stakeholders have voiced their opinion that the revised draft undermines the existing IBA Guidelines, a long-standing international standard of best practice. For example, the disclosure obligations in the revised draft are considered by some as excessively wide.
The overall objective of the new Code is to provide a uniform approach that harmonises and clarifies the existing standards.
Additionally, concerns have been expressed that the revised Code appears to depart from international consensus by imposing new, ancillary arbitrator duties not previously reflected in the IBA Guidelines, including by requiring adjudicators to "refuse competing obligations" and imposing a duty to display high levels of competence. While it is expected that arbitrators display a high standard of competence, by elevating the characteristic to a duty, there are concerns that this could be used as a back-door entry to a right of appeal.
The development of the Code is an important step towards achieving the working group's overall objectives of ensuring an efficient and cost-effective ISDS process, which aims to simultaneously hold arbitrators to a high standard and strengthen confidence in and support for the system.
Whilst the work of ICSID and UNCITRAL is undoubtedly welcomed, multiple issues will still need to be fleshed out before the Code is finalised. In finalising the Code, states and stakeholders are likely to continue to direct the working group's attention towards ensuring that the new Code, to the extent practicable, does not contradict or cause disharmony with existing guidelines, codes and treaties.
For further information on this topic please contact Matthew Kirtland, Jo Feldman or Alyssa Glass at Norton Rose Fulbright by telephone (+1 202 662 0200) or email ([email protected], [email protected] or [email protected]). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.