CAUSATION, STANDARDS OF PROOF AND VALUATION UNDER UNCITRAL WORKING GROUP III: Reducing Uncertainty and Decisional Subjectivity
By José Manuel Alvarez Zárate
The assessment of damages has been one of the areas in which States participating in UNCITRAL Working Group III have expressed concerns about inconsistency, unpredictability and the correctness of ISDS awards. The successive versions of the draft provision on damages were intended to address those concerns. The revised Draft Provision 20 in WP.268 have incorporated a but-for test, requires loss or damage to be directly caused by the breach, replaces the former requirement of satisfactory evidence with a reasonable degree of certainty, and, for certain future damages, proposes a clear and convincing evidence standard. These developments, however, do not fully resolve the evidentiary and causal problem. Identifying who bears the burden of proof does not determine how much uncertainty that party must overcome before a factual proposition may be treated as established. Nor does reasonable degree of certainty, without further criteria, explain how the evidence should be assessed or what a tribunal must identify before concluding that the standard has been satisfied. This still leaves substantial room for subjective and divergent approaches to causation and quantum to Tribunals.
This paper argues that Draft Provision 20 should distinguish more clearly between the existence of the alleged loss, factual causation, legal compensability and quantification. Causation should determine which alleged economic losses are attributable to the breach before questions of legal compensability and valuation arise. For each material head of loss, the tribunal should identify the alleged causal mechanism, the relevant counterfactual, the material factual propositions on which it depends and the material alternative explanations for the same economic outcome before the loss proceeds to valuation. The paper proposes that a material factual proposition necessary to establish the existence of loss and factual causation should be treated as proven only where the evidentiary record provides an objective and verifiable basis for that finding. The tribunal should identify the evidence supporting and contradicting the proposition, assess its reliability, contemporaneity, source independence, corroboration, consistency and completeness, address material competing explanations supported by the record, and explain why the evidence establishes the proposition despite the residual possibility of error. Quantification should likewise rest on identified factual inputs and assumptions supported by the record, and the amount awarded should remain within the limits that the evidence can support.
The purpose is to make the exercise of adjudicative judgment transparent, disciplined and objectively reviewable. Findings on loss and causation should be capable of being reconstructed from the evidence, and the loss ultimately valued should correspond to the loss established as caused by the breach and determined to be compensable under the applicable law.
Beyond Amicus Curiae: Rethinking the Role of Third-Party Participation in Investment Arbitration and Environmental Governance
By Paulina Kuehme, Lakshmi Swathi Ganti, Brian Kelly Nyaga, Mattia Semenza
Supervisor: Prof. Elena Cima
Prepared for the South Centre as part of the Geneva Graduate Institute’s LL.M. Legal Clinic Programme, International Environmental Law and Governance Stream
This document examines third-party participation in Investor-State Dispute Settlement (ISDS), with a particular emphasis on environmental considerations. It investigates how to ensure procedural fairness and enable meaningful involvement of affected communities in cases concerning environmental protection. The study assesses the scope and challenges of such participation, including the ability to present evidence and legal arguments related to environmental impacts. It also explores the potential role of third-party involvement in shaping counterclaims against investors for environmental damage, and its possible influence in mitigating compensation by introducing arguments and evidence related to environmental costs. Through this analysis, the project aims to support a more balanced and sustainable ISDS framework – one that protects both investors and the environment – while fostering community empowerment and strengthening accountability for environmental harm.
The South Centre: 30 Years Advancing towards a Fair and Responsible International Investment Regime
By Daniel Uribe
This paper examines the South Centre’s 30-year effort to reform the international investment law (IIL) regime, advocating for a shift from a self-contained system to one integrated with human rights, environmental protection, and sustainable development. It analyses how the Investor-State Dispute Settlement (ISDS) mechanism has led to “regulatory chill” and legal fragmentation, disproportionately impacting developing nations. The South Centre promotes aligning investment with national development strategies through technical assistance, treaty renegotiation, and policy frameworks that emphasise investor obligations and State sovereignty. Ultimately, the paper calls for a paradigm shift in global governance to address emerging challenges such as climate change and the digital divide, thereby ensuring a more equitable and responsible investment landscape.
The Constitutional Shield: How Colombia’s Judiciary Shapes Investment Treaties Through Joint Interpretation
By Daniel Uribe Teran
This policy brief examines an innovative judicial approach by the Colombian Constitutional Court in response to an increase in investor-state dispute settlement (ISDS) claims. The Court introduced a doctrine called ‘conditional constitutionality’ (exequibilidad condicionada), which mandates the executive to negotiate binding joint interpretative declarations prior to ratifying an International Investment Agreement (IIA). This process aims to clarify ambiguous language and ensure that IIA provisions align with constitutional principles, particularly concerning the sovereign right to regulate and the protection of human and environmental rights.
The analysis examines the “constitutional shield” doctrine established by this domestic mechanism, emphasising its legal basis in Article 31.3(a) of the Vienna Convention on the Law of Treaties. However, it highlights a significant discrepancy: the uncertain acknowledgement of these subsequent agreements within the international investment arbitration framework. The brief notes that arbitral tribunals, which often function as autonomous legal systems, may not consistently respect such domestic constitutional provisions. This creates ongoing tension between national sovereignty and arbitral independence. The policy brief concludes by addressing the limitations of relying solely on domestic solutions and calls for systemic reforms at the international level, such as within the United Nations Commission on International Trade Law (UNCITRAL) Working Group III.
Inputs to Inform the Thematic Report of the Special Rapporteur on the Promotion and Protection of Human Rights in the Context of Climate Change to the Human Rights Council 59th session
South Centre
February 2025
The South Centre calls for a Just Transition away from fossil fuels, centering the rights of marginalized communities & the principle of common but differentiated responsibilities.
Inputs to the Expert Mechanism on the Right to Development Study on Climate Justice, Sustainability, and the Right to Development
February 2025
The South Centre inputs to the Expert Mechanism on the Right to Development Study on Climate Justice, Sustainability, and the Right to Development makes a call for upholding Common but Differentiated Responsibilities and Respective Capabilities (CBDRRC) in ensuring a just transition, protecting the human rights of the most affected populations and reforming Investor-State Dispute Settlement (ISDS) mechanisms that threaten climate action.
South Centre inputs to the Secretary-General’s synthesis report on opportunities, best practices, actionable solutions, challenges and barriers relevant to a just transition and the full realisation of human rights for all people
December 2024
A just transition requires urgent action! The South Centre calls for increased climate finance, reform of Investor-State Dispute Settlement (ISDS), and upholding Common but Differentiated Responsibilities and Respective Capabilities (CBDRRC) to ensure a sustainable and equitable future for all.
Ensuring A Balanced Approach in UNCITRAL Working Group III
co-organized by Gobierno de Colombia, Diplomatische Akademie Wien, Universidad Externado de Colombia, and the South Centre
Views from the Global South on the Multilateral Investment Court and Procedural and Cross-cutting Issues in Investor-State Dispute Settlement (ISDS) Reform.
24 September 2024
Diplomastiche Akademie Wien,
Festsaal, Favoritenstrasse 15a,
1040 Vienna, Austria
FIRST DISCUSSIONS ON DAMAGES IN THE INVESTOR-STATE DISPUTE SETTLEMENT SYSTEM AT UNCITRAL WORKING GROUP III
By José Manuel Alvarez Zárate
This paper summarises the history of initial discussions within UNCITRAL Working Group III (WG.III) on the reform of investor-state dispute settlement (ISDS) regarding the lack of correctness, consistency and predictability of compensation awards. It covers the period up to 2022, beginning with the initial concerns expressed by some countries of the Global South regarding the methodologies used to assess damages and the Draft on Damage Assessment and Compensation prepared by the UNCITRAL Secretariat, which served as the basis for subsequent discussions among the members of WG.III. It then describes the comments made by some states and observers on this draft and the discussions that ensued, including the discussion of damages as part of the issues of ISDS reform. A second paper on this topic will describe the period from September 2022 to the publication by the Secretariat of the second draft of procedural and cross-cutting issues on July 8, 2024.
The purpose of this paper is to provide Global South States with a track record of the main concerns expressed by States on various aspects of damages during the discussions in UNCITRAL WG.III, which have often been lost at some point during the long process of discussions on ISDS reform.
Ensuring a Balanced Approach for the Global South in UNCITRAL Working Group III
By José Manuel Alvarez Zarate
This paper examines the ongoing efforts of the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WG III) to reform the Investor-State Dispute Settlement (ISDS) system. It argues that the current approach prioritises the concerns of developed countries over those of the Global South. The document highlights the disproportionate focus on the Permanent Multilateral Investment Court (MIC) and related issues, while neglecting procedural and cross-cutting concerns crucial for developing nations. The paper proposes concrete actions to rebalance the discussions, including prioritising procedural reforms and ensuring equitable representation in the MIC’s structure and appointment process. It emphasises the need for transparency, depoliticisation, and genuine consideration of the Global South’s concerns to achieve a genuinely legitimate and balanced ISDS reform.
Discussions on Draft Provisions on Damages in the Investor-State Dispute Settlement System in UNCITRAL Working Group III
By José Manuel Alvarez Zárate
This paper summarizes the discussions within the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WG III) on the reform of investor-state dispute settlement (ISDS) regarding the two draft provisions on damages prepared by the UNCITRAL Secretariat as part of the two drafts on procedural and cross-cutting issues. It covers the period from September 2022 to July 8, 2024. It describes the draft provisions on damages and related provisions on procedural and cross-cutting issues of document A/CN.9/WG.III/WP.231, dated 26 July 2023, as well as the comments made on it by some members of WG III and observers. It also describes the changes to the above document contained in the second draft on the procedural and cross-cutting issues, dated July 8, 2024, contained in document A/CN.9/WG.III/WP.244.
The purpose of this paper is to provide an overview of the comments made by some States on the draft provisions on damages, the substantive changes made by the Secretariat to the first draft, mostly based on the comments made by some States, and the exclusion of important aspects highlighted by some Global South States in their interventions. In the light of this review, countries of the Global South may consider commenting on document A/CN.9/WG.III/WP.244 to ensure that their concerns are effectively taken into account.
