Introduction
The United Nations Commission on International Trade Law (UNCITRAL), acting through its Working Group III on Investor-State Dispute Settlement (ISDS) Reform, has released two important draft working papers proposing a major institutional restructuring of how investor-state disputes are resolved. These drafts, A/CN.9/WG.III/WP.259 and A/CN.9/WG.III/WP.260, set out proposed statutes establishing a permanent first-instance tribunal and a permanent appellate tribunal for investor-State disputes, respectively, marking a departure from traditional reliance on ad hoc arbitration.
Investor-State dispute settlement allows foreign investors to bring claims directly against host States under international investment agreements. While this mechanism has played a central role in investment protection, States have increasingly expressed concerns regarding inconsistent awards, limited transparency, high costs, and the absence of any meaningful appellate review. In response, UNCITRAL mandated Working Group III in 2017 to examine whether systemic reform was required and, if so, to develop concrete and workable reform solutions. The two draft statutes form part of this solution-oriented phase and reflect a collective effort by States to move towards a more structured, predictable, and institutionalised ISDS framework.
Key Proposed Reforms
Draft Statute for a Permanent First-Instance Tribunal:
The draft statute proposes a standing first-instance tribunal to hear investor-State disputes, moving away from the current case-by-case arbitration model. Instead of ad hoc arbitral panels for individual cases, adjudicators would be appointed for fixed terms, fostering institutional continuity and consistency in decision-making.
The tribunal’s statute emphasises independence, impartiality, fairness, and procedural efficiency as guiding principles for all dispute resolution activities. The draft sets out how the permanent tribunal would be organised, including the qualifications and composition of its members, procedural arrangements, and administrative support.
Draft Statute for a Permanent Appellate Tribunal:
The draft proposes a permanent appellate tribunal with authority to review first-instance tribunal decisions, addressing the current system’s lack of meaningful appellate oversight. The appellate tribunal would consist of adjudicators appointed for fixed terms, with rules governing their qualifications, tenure, and independence to ensure consistent review standards.
The appellate body’s review would focus on legal errors, interpretation issues, and certain procedural deficiencies, helping to harmonise outcomes and reduce conflicting jurisprudence across cases. While separate, the appellate tribunal is designed to coordinate with the first-instance tribunal, promoting coherence between initial decisions and appellate review outcomes.
Conclusion
The release of these two draft working papers represents a significant milestone in UNCITRAL’s ongoing efforts to reform investor-State dispute settlement. By proposing the establishment of permanent adjudicatory bodies, Working Group III has advanced a comprehensive institutional model to address long-standing concerns about inconsistent decisions, legitimacy, and the absence of structured appellate oversight within the existing ISDS framework. The drafts reflect a deliberate effort to create a more coherent and predictable system for resolving international investment disputes.
While the proposed statutes remain subject to further intergovernmental negotiations and are not yet binding, they signal a clear policy shift toward greater institutionalisation of investor-State dispute resolution. The framework does not seek to automatically displace existing treaties or dispute settlement mechanisms, but instead offers States an additional multilateral option based on voluntary participation. The drafts are expected to be discussed further at the fifty-fourth session of UNCITRAL Working Group III, scheduled to take place from 23 to 27 March 2026 in Vienna, where States will continue deliberations on unresolved issues and the future shape of the proposed tribunals.
Expositor(s): Adv. Shreya Mishra, Aditi Singh (Intern)
