* Mercy McBrayer sits as a neutral observer to UNCITRAL WG III representing the Chartered Institute of Arbitrators
In 2024, the 70 plus member States of the United Nations Commission on International Trade Law ("UNCITRAL") took significant steps towards the creation of an Advisory Centre for States in disputes in the Investor State Dispute Settlement ("ISDS") system. In this Legal Update we look at how this aspect of UNCITRAL's ISDS reform initiative came to fruition and what role it is expected to play in the ISDS system, particularly in regard to its expected role in advising States in ISDS disputes.
Background
In 2017, the member States of UNCITRAL Working Group ("WG") III tasked the group with examining possible avenues for reforming the ISDS system due to a variety of factors that they saw as causing issues and which, left unaddressed, could undermine public perceptions of its legitimacy. One of the possible avenues of reform was the establishment of a dedicated advisory centre for ISDS disputes under the auspices of the UN system. After receiving broad support among both investors and States, the WG began the work of scoping the details of the proposed centre and, in April 2024, the Statute of the Advisory Centre on International Investment Dispute Resolution ("Statute") creating the centre in principle was adopted.
Development and Purpose: 2 Tracks
During the exploratory discussions, two clear options emerged for how the centre could contribute to the functioning of the global ISDS system, namely:
- As a capacity building resource which would provide education, training, and technical expertise on the ISDS system (particularly on arbitration and investment treaty law); and
- As a provider of legal advice in pending or ongoing ISDS disputes, particularly to parties without the logistical or financial means to engage such services on the required scale for themselves.
While the former was seen as the most popular and broadly supported option among observers and investors, as well as many States, it was later decided by the States of the WG that capacity building serviceswould be limited to members of the centre, with centre membership limited to States and regional economic integration organisations ("REIO"), though certain services may also be provided to non-member states under agreement with member States. Additionally, the more controversial role of providing legal advice was ultimately adopted as a key function of the centre.
It was also decided after vigorous debate that no private entity, including micro, small, and medium investors, whether from a member State or not, will be allowed access to any of the services of the centre, except those which are public andlimited towhere the centre operates as a "forum for the exchange of information and sharing of best practices" (Art 6.1(d) of the Statute).
Proposed Membership Structure
States wishing to become members of the centre will be expected to fund its operation; but in practice the States most likely to need the services of the centre may lack the budgetary capacity to pay for membership.
The WG sought to address this issue in two ways:
- Classification of States into three annexes based on the amount of contribution they are able to make.Each annex would reflect the level of services to which those in the annex would have access.The specifics of the annexes have yet to be finalised but will be further discussed in an operationalisation meeting in Armenia, in May 2025.
- Allowing REIOs to take membership on behalf of their member States.However, at present, it is unclear whether such organisations would fall into the annex system and, if so, be able to confer the services of the annex to which they belong to all of their member States.
Advisory Role
While several additional aspects and logistical considerations have yet to be decided by the WG, there is indication that the advisory centre will begin operations within the next few years. The extent of the role it will play in the ISDS system is a matter of speculation at this point.
At this juncture, of particular interest are the provisions under Art 7.1(a)-(e) of the Statute, found here. These provisions allow the centre to act as a legal representative of its members in ISDS disputes though activities such as providing advice, preparing pleadings, and representing members at hearings, indicating that the centre is intended to function much as law firm within the UN system. This would make it a novel creation. Its impact within the ISDS system, however, will depend on how many and which States ultimately choose to take membership and make use of such services. This development may have important implications for both investors and States within the ISDS system.
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