Confidence in the Investor - State Arbitration: Analysis of Reform Proposals

Edita Marić

(Edita Marić is a Legal Research Associate at Alchemy Capital and is based in Sarajevo, Bosnia and Herzegovina. She holds an LL.M degree from University College London, University of London and an LLB degree in International and Comparative Law from American University in Bosnia and Herzegovina. She can be contacted at

At times of heightened criticism and in the light of recent reform proposals, it is reasonable to question to what extent has the investment arbitration regime cured its legitimacy crisis. Namely, extensive rule revisions have been proposed at the International Centre for Settlement of Investment Disputes ("ICSID"), or leading institution for the resolution of international investment disputes. It is significant to observe that on August 3, 2018, ICSID has announced a very challenging task – amending its Regulations and Rules. For the purpose of this article, the focus will be on the rules aimed towards enhancing the impartiality and independence of arbitrators, as the main actors in the system. In specific, it was announced that the process for arbitrators’ challenges will be revised, with an additional option of expedited challenge filling.

Independence and impartiality of arbitrators as well as other decision-makers are of paramount significance for the rule of law. Specifically, ICSID Convention contains rules and procedures on the independence and impartiality of arbitrators, such as arbitrators’ obligation of disclosure and the right of the disputing parties to remove arbitrators.[1] Article 57 of the ICSID Convention in conjunction with Article 14 provide grounds for challenging an arbitrator, on the basis of “of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14”.[2] Regarding the disclosure, as per the Rule 6(2) of the ICSID Arbitration Rules, arbitrators shall disclose any previous circumstances or relationships that ‘‘might cause the arbitrator's reliability for independent judgment to be questioned by a party’’.[3]

By the analysis of these provisions, it can be concluded that the bar for disqualification of arbitrators is too high, in comparison to other rules governing arbitration procedure such as UNCITRAL Arbitration rules. For instance, the ground for disqualification or disclosure under UNCITRAL Arbitration Rules are any circumstances or relationship that would raise ‘’justifiable doubts as to arbitrator’s impartiality and independence‘’.[4] Significantly, the same standards are applicable and replicated in other national arbitration legislations as well as in other institutional arbitration rules and regulations.

Also, the timing for these reforms is interesting due to concerns raised by the arbitration community on the matter as well as increasing interest in the concept of multilateral investment court. Since the multilateral investment court is aimed at strengthening public confidence and predictability by abolishing some of the existing arbitration features, ICSID has to safeguard its legitimacy and its decision-makers’ accountability. Namely, as rightly pointed out by Walter in terms of ensuring greater independence and impartiality, numerous issues arise from the method of appointment of arbitrators.[5] It is still striking that double hatting (arbitrator-counsel) as well as repeat appointments are tolerated in the international investment arbitration, while the future adjudicators at multilateral investment court are seen as non-renewable and fully independent with no options of changing their ‘hats’ easily.[6]

In order to grasp on current system’s inefficiencies, it is important to make a reference to the party – appointments of arbitrators. As Paulsson[7] argues, the party - appointments should be abolished as they inherently contradict the very notions of impartiality and independence. Moreover, as correctly pointed out by Horvatz and Berzero[8], double hatting in terms of serving as an arbitrator and counsel is also problematic as it is incompatible with duty of impartiality and independence. Ultimately, Cleis suggests alternatives such as: arbitrators’ appointment by a neutral body as well as party-appointment by roster.[9] However, there might be potential flaws in these recommendations. For instance, ICSID Secretariat/Secretary General, can be perceived as political and autocratic appointing body due to potential lack of arbitrators’ independence or neutrality. Also, with regards to the party-appointment from a roster, size of the roster can be problematic as it may limit the parties’ freedom of choice or even arbitrators’ selection in case the roster is too large.[10] Quite contrary than promoting transparency, the core issues such as repeat appointments, double hatting as well as ruling on similar subject matter would be common.

Apparently, the overlap and the tension exist between the party - appointment and the party autonomy in selecting arbitrator for a given dispute as one of the greatest advantages of the international arbitration.[11] Still, party autonomy is the essential element in the international arbitration and as such shall not be prejudiced, but rather alternatives other than suggested shall be delivered. In terms of innovating ICSID, by means of amending Rules and Procedures, clear rules on arbitrators’ impartiality and independence and their effective enforcement can cure deficiencies and the overall perceptions on legitimacy and transparency.

As emphasized by Sands, bias apprehension is particularly raised in ‘’a situation where the appearance of an individual as an arbitrator in one ICSID case who acts as counsel as expert in another ICSID case may give rise to a perception of bias, in the sense that his or her role might be perceived to inform actions in the other”.[12] Although ‘role confusion’ or double hatting is highly controversial, yet it is debatable whether its total or partial ban as suggested by proponents of future multilateral investment court would be beneficial. In terms of already small pool of investment arbitrators, it may be counterproductive and resulting in inevitable repeat appointments, loss of diversity and to an extent reducing the number of arbitrators as they might opt for counsel’s positions. Hence, provisions on double – hatting on determining the correlation between the two roles ie. arbitrator – counsel shall have to be well-drafted, detailed and clear.

Finally, due to high and ambiguous threshold of the arbitrator challenges and thus excessive burden of proof on the side of challenging party (Amco Asia[13], OPIC[14]), one of the recommendations has been to include explicit provision in the ICSID Arbitration Rules that would allow parties to jointly modify current ICSID’s test for disqualification.[15] In particular, there is an apparent gap in interpretation of Article 57 and the disqualification test, so the parties but the community too are deprived of predictability and consistency of the arbitral decisions. Accordingly, inconsistent challenge threshold implies no standard whatsoever, so the clarification and interpretation of the standard, i.e. whether it refers to the standard to be established or to the seriousness of the lack of qualities prescribed, is urgent.[16] One of the additional recommendations would be to apply justifiable doubts standard as a threshold in order to avoid issue conflict and even enlarge the pool of investment arbitrators and encourage new appointments of qualified practitioners. This seems as a rather solid reform proposal, particularly due to the application of a more lenient threshold in some of the previously rendered decisions. (Vivendi[17])

If the above-mentioned issues are not adequately addressed, the multilateral investment court may become an alternative to investor-state arbitral tribunals. No case demonstrates it better than recent Slovak Republic v. Achmea BV (Case C‑284/16)[18], where it was ruled that arbitrations under bilateral investment treaties between European Union Member States are incompatible with European Union (EU) law. Finally, attractiveness of the international investment arbitration as means of settling disputes shall not be taken for granted. Without exaggeration, ICSID Rule Amendment project and proposed amendments can have a historical impact on the future of Investor-State arbitration.

[1] Stefanie Schacherer, Independence and Impartiality of Arbitrators A Rule of Law Analysis, 2018, 7.

[2] ICSID Convention, art. 14.

[3] ICSID Rules of Procedure for Arbitration Proceedings (‘ICSID Arbitration Rules’) (April 2006).

[4] UN Doc. A/RES/31/98; 15 ILM 701 (1976) (‘UNCITRAL Rules’) art.12.

[5] Munia El Harti Alonso, Kluwer Arbitration Blog, Topical Issues in ISDS: Review of Recent Developments in the European Union, 2019.

[6] ibid.

[7] Jan Paulsson, Moral Hazard in International Dispute Resolution, ICSID Review - Foreign Investment Law Journal, Volume 25, Issue 2, Fall 2010, Pages 339–355, <>

[8] Horvath G.J and Berzero R, ‘Arbitrator and Counsel: the Double-Hat Dilemma’ (TDM 2013),<>

[9] Maria Nicole Cleis, The Independence and Impartiality of ICSID Arbitrators: Current Case Law, Alternative Approaches, and Improvement Suggestions, (Brill 2017), 198.

[10] ibid.

[11] UNCTAD, ‘Investor-State Dispute Settlement’, UNCTAD Series on Issues in International Investment Agreements II, (United Nations, Geneva, 2014) 93.

[12] Stefanie Schacherer, Independence and Impartiality of Arbitrators A Rule of Law Analysis, 2018, 7,12

[13] Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, <>

[14] OPIC Karimum Corporation v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/14, <>

[15] Yarik Kryvoi, ICSID Arbitration Reform: Mapping Concerns of Users and How to Address Them, Kluwer Arbitration Blog 2018.

[16] James Crawford, Confronting Global Challenges: From Gunboat Diplomacy to Investor- State Arbitration, PCA Peace Palace Centenary Seminar, 11 October 2013.

[17] Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3 (formerly Compañía de Aguas del Aconquija, S.A. and Compagnie Générale des Eaux v. Argentine Republic) , <>

[18]Achmea B.V. v. The Slovak Republic, UNCITRAL, PCA Case No. 2008-13 (formerly Eureko B.V. v. The Slovak Republic), <>

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