ISDS and the Rule of Law

Wooden judge's gavel and calculator over some financial documentsISDS is governed by international rules, established by states. The governing rules can either be the Convention on Settlement of International Investment Disputes (the ICSID Convention) or other sets of arbitration rules, to name one is the UNCITRAL Arbitration Rules. These rules ensure the proper and fair functioning of the mechanism. Let’s take a look at these rules.

The ICSID Convention has been signed by 159 states and it has governed most ISDS cases. It provides, among others, that an arbitrator in an ISDS case can be disqualified if he or she shows lack of the qualities required to sit as an arbitrator. Awards rendered under this convention may be annulled, among others if arbitrators manifestly exceeded their authority.

The UNCITRAL Arbitration Rules is a result of the work of the United Nations Commissions on International Trade Law (UNCITRAL) which commenced in 1973. The General Assembly of the United Nations adopted the first version of UNCITRAL Arbitration Rules in 1976. The rules provide, among other things, that arbitrators can be challenged if there is any doubt about their impartiality and independence.

On the enforcement front, ISDS is safeguarded by the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. The Convention demands that all state parties enforce decision rendered in the other state parties. This means that ISDS decision is enforceable in 154 states, who are parties to this Convention.

Finally, domestic law is also one of the pillars which safeguards the functioning of ISDS. Domestic law may provide grounds for a domestic court to refuse enforcement of ISDS award, for example if a party to the dispute was unable to present its case in an arbitration proceeding.

ISDS supports and governed by rule of law. It is not a “private justice system” outside the legal system, as is sometimes incorrectly referred to. As explained above, states have always had strong involvement in establishing the rules governing the mechanism.