By Param Bhalerao[1]

Introduction

UNCITRAL Working Group III has been deliberating the reform of investor-State dispute settlement (ISDS) since 2017. In October 2025, the UNCITRAL Working Group III circulated two working papers that represent the most ambitious attempt yet to restructure how international investment disputes are resolved.

Working Paper 259 (Statute of the Permanent Tribunal) establishes a Permanent Tribunal for International Investment Disputes, intended to serve as a standing first-instance adjudicatory body. Working Paper 260 (Statute of the Permanent Appellate Tribunal) establishes a Permanent Appellate Tribunal for International Investment Disputes, designed to hear appeals from awards rendered by the Permanent Tribunal and, potentially, from other first-instance bodies including ad hoc arbitral tribunals. Together, they are conceived as protocols to a broader Multilateral Instrument on ISDS Reform (MIIR), which would provide the opt-in architecture through which States bring their existing investment treaties within the jurisdiction of these new bodies. This also means that a State may join one without joining the other, such that the Permanent Appellate Tribunal could operate as a standalone appellate mechanism above the existing ad hoc/institutional investor-State arbitration system. The Working Group agreed that while the two bodies should be separate, opportunities to cooperate and coordinate to promote harmonization and maximum efficiency should be explored.

The justifications offered in the preambles of both statutes are familiar: high costs and long duration of proceedings, lack of diversity among arbitrators, and the absence of coherence, correctness, consistency and predictability in arbitral awards. These are real and well-documented concerns (see, e.g., Langford, Malcolm et al. (2020)). But the question that both statutes leave inadequately answered is whether the mere creation of a permanent body, however carefully designed, actually provides a holistic solution, or whether some of the same structural problems persist.

The Permanent Tribunal

The Statute of the Permanent Tribunal establishes a body composed of a Conference of the Contracting Parties, a Registry headed by a Registrar, and the Permanent Tribunal itself. Members of the Permanent Tribunal must be persons of “high moral character, enjoying the highest reputation for fairness and integrity with recognized competence in public international law or international investment law and the resolution of international disputes.” However, reputation for fairness and integrity, as a practical matter, limits the eligible pool to existing senior arbitrators and sitting or former judges, which is precisely the demographic whose lack of diversity has been a central concern of the reform process. Moreover, the high moral character requirement introduces a standard that is inherently subjective, particularly in a politically polarised international environment where morality itself is contested. The composition of the decision-making forum, at least in the near future, is therefore unlikely to differ substantially from what currently exists.

Article 2 requires the Permanent Tribunal, as an institution, to be “independent and free from undue external influence […] [including from its donors]”. The corresponding obligation on individual members appears in Article 7(1). Those members are, simultaneously, salaried employees of an institution funded by the very Contracting Parties whose conduct they adjudicate. In usual investor-State arbitration, the claimant’s party-appointed arbitrator is funded by the claimant and is expected to be independent and impartial, but the party nonetheless had some assurance that its case would be fully understood. Under the permanent tribunal model, that assurance is replaced by institutional independence that is, in practice, financially dependent on State contributions. This is not necessarily fatal, but it is a departure from the usual practice of claimants not having to submit their disputes solely before State-funded arbitrators that deserves acknowledgment.

The procedure for removal of members from the Permanent Tribunal (akin to removal from a roster) under Article 13 requires the President of the Permanent Tribunal to recommend removal before a three-fourths majority vote can proceed. The President is therefore the first deciding body in what is effectively a disciplinary process. In usual investor-State arbitrations, members of the arbitral tribunal are appointed by the Parties afresh every time. There is no limited pool to choose from, as is the case with the Permanent Tribunal. As such, the two step removal of members does not have an equivalent. Even when it comes to the ICSID Panel of Arbitrators, where the nominated members are first in line for appointment only in case of disagreement between the Parties on their own arbitrators; the parties retain the freedom to choose arbitrators from an unrestricted pool.

Article 14 governs the jurisdiction of the permanent tribunal and raises perhaps the most consequential interpretive questions. It is not entirely clear whether both the State and the investor must independently consent for every dispute submitted before the tribunal, or whether consent is perfected upstream, through the listing mechanism envisaged in the MIIR. Article 14(2) itself governs only exclusive jurisdiction; the listing architecture on which the design depends sits outside the statute altogether, so Article 14 cannot be read on its own. If a home State of the investor has listed a bilateral investment treaty (BIT) under the statute, does the investor lose the right to choose a different forum under that BIT? This has significant implications for the nature of investors’ rights.

For context, there are two competing theories of the nature of investors’ rights under international investment law. The derivative rights theory, rooted in diplomatic protection, argues that investors have only a procedural right to bring claims against the responsible State, without holding any substantive rights, and without becoming privy to the inter-State relationship. The direct rights theory, which has found more support in scholarship and case law, argues that investment protection treaties are understood to vest direct substantive rights in investors. These include the right to choose the forum for their disputes under the BIT against States. If the listing mechanism under the MIIR operates to convert those rights into derivative rights, i.e. rights which otherwise belong to their home State, exercisable only through the standing mechanism, this is a fundamental change to the architecture of investment law that deserves explicit acknowledgment.

The contradiction becomes sharper when one considers that the EU’s own submission (WP.257) proposes that the jurisdiction of the permanent tribunal extend to counterclaims by States against investors. Counterclaims governed by international law presuppose that investors are full subjects of international law with direct obligations and also direct rights. A system that treats investors as derivative claimants for jurisdictional purposes but as direct subjects for liability purposes is internally inconsistent.

Article 16 excludes nationals of either disputing party from serving on the Panel hearing a dispute. In ad hoc arbitration, party-appointed arbitrators with knowledge of the relevant legal system have often been considered an asset rather than a liability. A deeper understanding of the domestic legal system in which an investment was made is not self-evidently a disqualifying characteristic.

Article 16(6) provides that additional members may be appointed upon the joint request of disputing parties. If one additional member is to be added to a three-member Panel, the result is an even number, which creates obvious difficulties for majority decision-making. The statute does not explain how this is to be resolved, and the omission looks inadvertent: Article 16(5) expressly requires the number of members to remain odd where the Presidency enlarges a Panel of its own motion, but that proviso is absent from Article 16(6).

Article 17 sets out the grounds for disqualification of Panel members but does not include issue conflict, that is, the circumstance where a member has previously expressed a public position on a legal issue central to the case. This is a recognized and significant ground for challenge, and its absence from a permanent body, where members will hear many cases over time and will inevitably develop and express views on recurring legal questions, is a notable gap. The general standard of justifiable doubts in the chapeau might be stretched to accommodate it, and the enumerated grounds are in any event still bracketed, but a ground of this significance ought not to be left to implication.

Article 19(5) envisages that the panel may at any stage provide guidance on mediation, but does not specify who shall mediate or under what rules.

Article 23 provides that decisions shall be treated as binding and enforced as if they were final judgments of a court in each contracting party. States such as India have declined to accede to the ICSID Convention precisely because of equivalent provisions that remove domestic court supervisory jurisdiction. Article 23(3) goes further still, deeming a decision of the Permanent Tribunal to be an arbitral award within the meaning of Article I of the New York Convention for the purposes of recognition and enforcement in the territory of a non-contracting party. However, many States have acceded to the New York Convention with a commerciality reservation, limiting its application to commercial arbitration awards. Accession to this new statute does not amend those reservations. The statute cannot resolve, by its own terms, what the New York Convention’s commerciality reservation means for a non-contracting State.

Finally, Article 29(2) provides that regional economic integration organizations (REIOs) may exercise voting rights equal to the number of their constituent member States that are contracting parties. The voting rules applicable to particular decisions are a crucial element of institutional design and will affect whether control mechanisms operate collectively or give rise to the possibility of unilateral control by a subset of Member States. As drafted, Article 29(2) prevents such an organization from voting where any of its member States votes, and vice versa. While REIOs may coordinate on their collective voting as a part of their participation in this international organization that is the Permanent Tribunal, including this possibility explicitly gives shape to the possibility of blocs forming, with the REIO acquiring an effective veto, particularly since decisions at the conferences of the contracting parties require a four-fifths majority as per Article 4(8). In an institution meant to represent the interests of all contracting parties equally, there needs to be further protection for parties not part of such REIOs. The drafters may do so by harmonizing the minimum majority requirement with a limitation on collective REIO votes in the text of the Statute.

The Appellate Tribunal

The preamble to the Appellate Tribunal statute identifies long duration of proceedings as one of the concerns it is intended to address. This is difficult to reconcile with the operational reality of the mechanism. Article 23(1) provides that once a request for appeal is registered, the award subject to appeal shall not be final and binding and shall not be subject to annulment, set aside, recognition or enforcement. Article 22 provides that ongoing first-tier proceedings may be suspended pending the appellate decision. Given that Article 18 permits appeals of a wide range of interlocutory determinations, including decisions confirming jurisdiction, decisions relating to the constitution of the first-instance tribunal, decisions on challenges to arbitrators, orders for security for costs, and grants of interim measures, each of which remains in square brackets, and so unagreed, the potential for successive appeals at every procedural stage is significant. The grounds of appeal under Article 20 are correspondingly broad, including errors in the application or interpretation of law, manifest errors in the assessment of facts, improper constitution of the tribunal, departure from fundamental rules of procedure, and failure to state reasons. As such, duration concerns that are among the driving forces behind the formation of the permanent mechanisms are seemingly ignored by this architecture for appeal. Rather, the risk is that nothing ever truly settles, and the first-tier proceedings suffer from due process paranoia.

Article 14 extends the jurisdiction of the appellate tribunal to appeals of awards rendered by “an arbitral tribunal or a decision of an adjudicatory body.” The definition of first-tier tribunal in Article 14(1) appears broad enough to encompass domestic courts adjudicating investment disputes. If domestic court decisions on matters arising out of international investments can be appealed to the permanent appellate tribunal, this raises questions about the relationship between the appellate mechanism and domestic legal orders. Article 14(3) provides that the appellate tribunal shall have exclusive jurisdiction over appeals of first-tier tribunal decisions where both relevant contracting parties have so consented. If first-tier tribunals include domestic courts, this contemplates a mechanism that overrides domestic civil procedure and appellate mechanisms. It is not obvious that mere treaty consent can achieve this without corresponding changes to domestic law. The Working Group has since begun to close this reading off, as discussed below, although the text as it stands still permits it.

Article 20 provides grounds of appeal including error in the application or interpretation of law. The statute does not specify which law, and it is not clear whether this includes municipal law. If it does, the appellate tribunal becomes a body with authority to also review the correctness of domestic legal interpretations, which is a significant expansion of its jurisdiction as an international judicial organ.

Article 20(f) makes a first-tier tribunal’s failure to state reasons a ground of appeal only where the disputing parties have not agreed otherwise, which is to say that the parties may contract out of the reasoned-award guarantee. If public interest is a genuine concern motivating the reform, and if consistency of jurisprudence is among the objectives, it is not clear why parties should be permitted to opt out of reasoned awards. Transparency and the publication of reasoning are among the instruments that should be integrated into reformed dispute settlement fora precisely because they support accountability and reduce the risk of bias in decision-making.

Article 24(3) provides that any joint interpretation by the contracting parties of the applicable law or instrument shall be binding on the chamber. This raises the question of whether such joint interpretations can be made after the investment is concluded under an unmodified treaty, and whether investors with direct substantive rights vested at the time of investment can be affected by subsequently adopted joint interpretations. If the direct rights theory of investors holds true, then rights in accordance with the text of an investment treaty are vested in the investor at the time the investor made an investment. In such case, a subsequent interpretation by contracting parties has to be examined to determine whether it truly is an interpretation which fills gaps in the treaty text, or whether it has the effect of modifying the treaty text and in turn, the direct rights acquired by the investor. Making joint interpretations of the contracting parties binding on the chamber removes the discretion to examine whether they are in fact interpretative and not modificatory. As noted above, this question runs through both statutes.

Developments since the working papers

Both statutes have been discussed further since October 2025, and the developments address some of the concerns set forth above.

In the fifty-third session (New York, 12–16 January 2026), Draft Provision 10 of the Draft provisions on procedural and cross-cutting issues, on counterclaims, was discussed in terms that do little to resolve the tension identified above. The claimant’s submission of a claim is deemed to constitute its consent to counterclaims. This is in contrast to the approach under the ICSID Convention’s Article 46, which effectively requires investors’ consent to counterclaims, and does not presume it. Concerns were rightly raised on whether procedural rules could spell out consent to counterclaims, when it ordinarily lies in the instrument of consent, as well as on whether such deemed consent to counterclaims could be permitted when they effectively modify direct rights of investors which had already been acquired by virtue of their investment already having been made.

Notably, the reliance on domestic law as the basis of counterclaims was discussed. This acknowledges the direct and derivative debate on investors’ rights, suggesting that the discussants lean towards the investor not having international legal subjectivity under the investment treaty to make direct treaty claims in its own capacity, and commensurately, may not be subject to counterclaims based in international investment law. Counterclaims in domestic law, however, would not necessarily give rise to this issue, and would imply an acceptance of the derivative rights approach. What was approved, however, is language which is broad and potentially incorporates counterclaims arising out of the investment treaty. Perhaps the draft as it stands seeks to avoid taking any position, indirectly, on the nature of investors’ rights.

The fifty-fourth session (Vienna, 23–27 March 2026, A/CN.9/1240) discussed the statutes.

On Article 24 of the Statute of the Permanent Tribunal, there was support for diversifying the funding of the Tribunal to include user fees as the primary source of income. However, this was not done to address the concern regarding a perception of impartiality raised above, but simply to ensure availability of adequate funding. That said, other concerns about independence were raised. It was agreed that user fees should not remunerate the members deciding the dispute, precisely to avoid conflicts of interest. Doubts were expressed about voluntary contributions to the Permanent Tribunal altogether due to potential implications for impartiality and the risk of conflicts of interest.

On consent, it was “widely felt that consent to exclusive jurisdiction should be express and not be presumed, deemed or implied”, and that both treaty parties must consent to ensure a “perfect match”. Delegations cautioned that curing imperfect consent after the fact “might cause uncertainty for claimants, as they would not know the available dispute settlement options when they made the investment”, and that this would be “particularly problematic in the case of exclusive jurisdiction”. It was also said that a treaty party should not be able to modify a treaty unilaterally. As such, the question about the legal character of the investor’s rights remains alive.

On voting, the point about regional economic integration organizations is now openly in issue. It was suggested that such an organization, itself a Contracting Party and an expected respondent, should vote in addition to its member States. Others replied that “there should be no duplication or amplification of voting power”, and the matter was deferred.

On enforcement, the Working Group agreed that Article 23(1) is to be confined to “pecuniary” obligations, in order to ensure alignment with Article 54(1) ICSID Convention and “limit enforcement to decisions on “monetary compensation””. It will now read as “Each Contracting Party shall recognize a decision by the Permanent Tribunal as binding and enforce the pecuniary obligations imposed by that decision within its territories as if it were a final judgment of a court in that Contracting Party.” This is not to say that a tribunal cannot order non-pecuniary relief, for non-pecuniary obligations would still bind disputing parties.

Furthermore, the deeming language in Article 23(3) softened from “shall be treated” to “is considered” on the express understanding that the statute cannot bind non-Contracting Parties. Accordingly, this provision will read as, “[f]or the avoidance of doubt and for the purposes of recognition and enforcement in the territory of a non-Contracting Party, a decision by the Permanent Tribunal shall be treated is considered as an “arbitral award” as defined in article I of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.”

Article 23(4), which would have allowed enforcement to be refused on listed grounds, was agreed to be deleted as inconsistent with appeal being the exclusive recourse (para. 126). For States whose objection to the ICSID model is premised on the removal of domestic supervisory jurisdiction, the one route back to maintain domestic court supervision over investment treaty decisions has now been closed.

Conclusion

The draft statutes represent a serious and detailed attempt to institutionalize investment dispute settlement. They contain provisions that reflect years of careful deliberation. But the fundamental questions about whether a permanent body will produce fairer, more consistent and more efficient outcomes, whether it adequately protects public interest through transparency obligations, whether it respects the direct rights of investors vested under existing treaties, and whether it is compatible with domestic legal orders that have not acceded to analogous mechanisms, remain insufficiently answered.

The reform process has identified the right problems. Whether these statutes solve them, or merely relocate them to a permanent institution, is a question that practitioners, States, investors and legal scholars will need to examine carefully before the protocols are opened for signature.

[1] Param Bhalerao is a doctoral researcher at the University of Vienna focused on international investment law, and an international disputes lawyer with extensive arbitration and sanctions experience.