Who chooses the judges (and should they)?

The selection of adjudicators in investor-state dispute settlement

In the context of global discussions on Investor-State Dispute Settlement reform, the OECD’s David Gaukrodger looks at why adjudicator selection is attracting attention

In a vigorous policy debate over investor-state dispute settlement (ISDS) with many elements, adjudicator selection has emerged as an important new subject. With public expressions of dissatisfaction about a pool of ISDS arbitrators seen as dominated by commercial arbitrators, men, people from advanced economies or individuals from the upper reaches of “the top 1%”, proposals to address public concerns are multiplying.

Some have suggested that “appointing authorities” – who notably govern the choice of the all-important chair of a three-person ISDS arbitral tribunal if the disputing parties cannot agree on one – should be transparent about their appointments in order to help restore public confidence in ISDS. Others suggest changes to appointing authority practices to rectify regional, gender or other imbalances in the pool of ISDS arbitrators.

Some recent major treaties and government policies would entirely replace the current ISDS system of appointments — by disputing parties, their lawyers and appointing authorities — with government-appointed judges. Other governments have rejected ISDS entirely or for important treaties, preferring to rely on state-to-state dispute settlement.

OECD-hosted roundtables on investment, which regularly bring together representatives of more than 50 governments, have been evaluating ISDS since 2011. In 2016, an OECD working paper began investigating the core workings of investment treaty arbitration, starting with who pays for it and how.

A more recent OECD consultation paper considers appointing authorities and analyses five arbitration institutions with appointing authorities: two inter-governmental organisations (International Centre for Settlement of Investment Disputes (ICSID); and the Permanent Court of Arbitration); and three private-sector arbitration institutions that primarily administer commercial arbitration cases but that also seek to attract ISDS cases (the Arbitration Institute of the Stockholm Chamber of Commerce; the International Chamber of Commerce; and the Singapore International Arbitration Centre).

The consultation paper addresses the importance of appointing authorities and the differences between their role in contract-based commercial arbitration and treaty-based ISDS. It examines their nature and formal and informal modes of action, with a focus on the selection of the chair of tribunals.

Arbitration institutions and a diverse range of stakeholders and experts have commented on a number of preliminary observations and conclusions in the consultation paper:

  • The system is complex with many actors carrying out the same or similar functions but in different ways.
  • Appointing authorities in ISDS are in some ways at the apex of the system. They both appoint the chair in a significant proportion of ISDS cases and influence disputing party selections and negotiations.
  • Appointing authorities at the five arbitration institutions are very different in nature: Some are public officials selected by governments; others are generally private lawyers with a commercial arbitration background, selected by business organisations.
  • Limited disclosure and contrasting policies on transparency – appointing authorities in ISDS disclose little about their appointing activity, with the exception of ICSID.
  • Intense competition between arbitration institutions for ISDS cases, driven by different forces, such as the power of customers and suppliers, or the threat of new entrants or substitutes. The market is characterised by reciprocal relationships and by long-term lock-in for some but not for others.
  • Limited accountability of appointing authorities. No reasons are provided for appointment decisions and appeals appear to be rarely available. Parliaments or the media seldom report on how arbitration institutions operate or how ISDS tribunals are constituted. The market for cases allows for a degree of accountability. But questions arise about the possible broader accountability of appointing authorities in an ISDS system that addresses issues of public interest.

On-going inter-governmental work at the OECD has focused on the consultation paper and initial comments received and the issues also form part of discussions on possible reform of ISDS at UNCITRAL. Governments and stakeholders need to address adjudicator selection regardless of whether their goals are institutional reform, incremental reform or merely better explaining their policies to the public.

Further reading

OECD (2018), Appointing authorities and the selection of arbitrators in investor-state dispute settlement

OECD (2017), Adjudicator Compensation Systems and Investor-State Dispute Settlement

OECD-hosted Freedom of Investment Roundtable

UNCITRAL Working Group III on Investor-State Dispute Settlement Reform

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