By Sam Thyne, Associate, Fenwick Elliott
The United Nations Commission on International Trade Law (“UNCITRAL”) and the International Centre for Settlement of Investment Disputes (“ICSID”) released, in September 2021, their third iteration of a Draft Code of Conduct for Adjudicators in International Investment Disputes (the “Code”).
For the uninitiated, investor state dispute settlement (“ISDS”) is a system whereby investors that provide foreign direct investment into a country can sue that country if practices that are discriminatory to said foreign direct investment are introduced.
A very simple and crude example, relevant for construction, would be if an international contractor invests significantly in a country (that is party to an applicable investment treaty) with the intention of carrying out construction work in that country for the next decade. However, after mobilising in the country, laws are introduced which apply an additional tax on foreign companies carrying out construction works. Such laws could severely impact the contractor’s investment, making them uncompetitive in the market and, ultimately, costing them. Under the ISDS scheme, the contractor could attempt to recover losses from the country. The rationale behind the system is that it benefits both the country and investors, and the protection given to investors encourages them to make foreign direct investment in countries where they might otherwise not.
ISDS is not without its share of controversy and critics. Detractors argue that ISDS threatens democracy and the rule of law as it may prevent countries passing legislation that addresses public concerns, such as health and environmental issues. Also, the lack of transparency (with decisions rendered being confidential) is counter to the staples of a regular judicial process. Concerns around the lack of impartiality of arbitrators are also levelled at ISDS, with critics pointing to a systemic bias whereby arbitrators benefit from an increase in claims, which can only be made by investors and not states.
UNCITRAL, and ICSID are both arbitration institutes whose function includes facilitating the resolution of investor state disputes. UNCITRAL is part of the United Nations, and ICSID is part of the World Bank Group. The Code has been jointly prepared by the Secretariats of UNCITRAL and ICSID, and has emerged out of an initiative for ISDS reform dating back several years.
The Code was developed with the benefit of a comparative review of the standards found in codes of conduct in investment treaties, arbitration rules applicable to ISDS, and codes of conduct of international courts. The goal of the Code was to provide a uniform approach to requirements applicable to adjudicators handling international investment disputes and at giving more concrete content to broad ethical notions and standards found in the applicable instruments. ICSID and UNCITRAL have also stated that commentators have requested that the Code be “balanced, realistic, and workable.”
The Code establishes an obligation that Adjudicators (defined as Arbitrators and Judges) shall be independent and impartial. This encompasses an obligation not to:
In the previous iterations of the Code, the obligation to act impartially read:
“Adjudicators shall be independent and impartial and shall take reasonable steps to avoid bias, conflict of interest, impropriety, or appearance of bias.” [Emphasis added].
Commentators on previous versions of the Code had suggested deletion of the underlined text above as it raised questions about whether they are additional, and stand-alone, ethical obligations of Adjudicators or whether they are simply examples of the general requirement to be independent and impartial. The drafters of the Code note that these criteria are not intended to be independent or stand-alone obligations and, accordingly, made the deletion noted to make it clear that there is one core obligation of independence and impartiality. The removal of the requirement to “take reasonable steps to avoid” also assists in makes the obligation clearer – i.e. they must be independent and impartial; simply taking reasonable steps to avoid partisanship is not sufficient.
The Code also includes further requirements that are apposite to all Adjudicator functions in terms of good conduct. In particular, the Code:
The explanation of changes that accompany version three of the Code tells the story of the drafters’ attempts to take account of submitters’ views on the details of each article. While a position has been reached on many of the articles, there remains several significant issues that remain outstanding.
For instance, following submissions, three separate options have been proposed for dealing with whether an Adjudicator can act in multiple roles (called “double hatting”), i.e. an IID arbitrator on one case, and a legal representative or expert witness in another case relating to the application or interpretation of the same (or any) investment treaty. The options to deal with this issue run the gambit from restrictive in approach to more laissez-faire. They are:
Another outstanding issue where options have been provided is the application of the Code where the treaty upon which the consent to adjudicate is based contains a Code of Conduct for IID pursuant to that treaty. The options provided are:
There are likely to be strong opinions on these issues, in particular regarding the double hatting options. ICSID and UNCITRAL have invited comment on the latest version so the text as it currently stands, along with the proposed versions, which can be further reviewed.
The Code is a laudable step, as any reform that increases confidence in ISDS decision makers’ impartiality and clarifies their other obligations will assist in addressing criticisms of the system. The devil is, of course, always in the detail, and the drafters still have a fair amount of detail to iron out. The full text of the Code can be reviewed here [1], and details about submitting comment on the current version can be found here [2].
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Links
[1] https://icsid.worldbank.org/sites/default/files/documents/Code_of_Conduct_V3.pdf
[2] https://icsid.worldbank.org/news-and-events/communiques/icsid-and-uncitral-release-version-three-draft-code-conduct
[3] https://fenwickelliott.co.uk/research-insight/newsletters/international-quarterly/cost-increases-construction-contracts
[4] https://fenwickelliott.co.uk/research-insight/newsletters/international-quarterly/force-majeure-mur-shipping