In this week’s Forum Session, international arbitration experts discussed the evolving landscape of dispute resolution, focusing on ongoing cases related to the Ukraine conflict and significant reform proposals reshaping investment arbitration. Led by Matej Pustay, a partner at Squire Patton Boggs, and Velimir Zivkovic, Associate Professor and the University of Warwick School of Law, with colleagues, the Session discussed current trends and challenges in arbitration practice.

Ukraine Conflict: Enforcement Challenges

The conflict in Ukraine continues to generate significant arbitration activity, with cases related to Gazprom featuring prominently in the discussion. As Pustay noted, many recent awards have favoured companies suing Gazprom rather than vice versa. However, these successful claimants now face substantial enforcement challenges.

“Russia doesn’t need to do much,” Pustay explained, describing how Russian entities are “basically sitting there doing nothing, refusing to pay anything.” This has shifted the burden to successful claimants who must now pursue enforcement strategies outside Russia’s borders, as “there is zero chance of enforcing anything against Russia or Russian companies in Russia.”

This has led to increasingly creative enforcement approaches, with claimants seeking to identify and attach Russian assets worldwide. With traditional enforcement pathways blocked, practitioners are exploring alternative strategies involving “things like oil and gas moving around Europe and the world or some other assets.” However, Pustay acknowledged that this process remains challenging even with creative approaches.

Investment Arbitration Reform: The Standing Mechanism Debate

A significant portion of the discussion focused on the ongoing reform process of the investor-state dispute settlement (ISDS) system, particularly through the United Nations Commission on International Trade Law (UNCITRAL) Working Group III. The Moderators highlighted two major reform initiatives: the proposed standing mechanism (sometimes called a world investment court) and an advisory centre for developing countries.

The standing mechanism would potentially replace the current system of ad hoc tribunals with a permanent body featuring a dispute tribunal, appellate tribunal, and conference of parties. However, the experts expressed scepticism about whether this would effectively address the system’s perceived shortcomings.

Pustay questioned the necessity of such a mechanism, noting that while it aims to address criticisms about inconsistent decisions across ad hoc tribunals, it fundamentally changes how arbitration works by removing parties’ ability to appoint arbitrators of their choosing. “The ad hoc tribunals work the way they work because that’s how arbitration works,” he explained. “You have a case, you appoint the tribunal, and importantly, it is up to the parties to appoint the tribunal that they want.”

They suggested that rather than replacing the current system, the standing mechanism might better serve as an additional option alongside existing arbitration pathways. However, this approach carries its own challenges, potentially creating yet another layer of jurisprudence alongside ICSID tribunals, non-ICSID tribunals, and ad hoc arbitrations.

Furthermore, practical questions remain about how this body would function in relation to existing enforcement mechanisms like the New York Convention and ICSID Convention. As the experts noted, for the new mechanism to be effective, its decisions would need to qualify for enforcement under these established frameworks—requiring careful consideration of how the new body would be formally positioned.

Advisory Centre Supporting Developing Countries

The second major reform initiative discussed was the proposed advisory centre for developing countries involved in investment arbitration. This centre aims to address perceived imbalances in legal representation, helping states that may lack resources to engage top-tier legal counsel when facing claims from well-resourced investors.

Pustay expressed cautious support for this concept: “Generally I would say, why not? If there is a will and budget for it and someone is willing to do this and pay for it… I see that as a good idea.” He noted that for arbitration to function as intended, both parties need to understand the process, which requires expertise that comes at a cost. The advisory centre could help level this playing field.

However, he emphasised that significant questions remain about how such a centre would be financed and structured, and cautioned against expectations that it would eliminate the need for specialised counsel: “I don’t think it’s really feasible to come up with the idea that we will create the advisory centre and suddenly the states will handle their investment cases themselves.”

Evaluating Arbitration’s Effectiveness

The discussion also touched on the perennial debate about arbitration’s efficiency compared to court litigation. While acknowledging that international arbitration can be more expensive than a single instance of court proceedings, Pustay argued that when considering the likelihood of multiple court instances, arbitration often remains more efficient both in terms of time and overall cost.

He also highlighted a key advantage of arbitration: the potential to recover all costs. Unlike court litigation, where cost recovery is often capped, arbitration allows for full recovery of expenses when successful. “It might be costly, but you can get all the money back at the end of the day,” Pustay noted, framing the choice between arbitration and litigation as one that should be preserved rather than eliminated.

Evolution Rather Than Revolution

While significant reforms to international arbitration appear inevitable, the experts suggested that the outcome will likely be evolutionary rather than revolutionary. The proposed standing mechanism, if established, will likely exist as an option alongside traditional arbitration pathways rather than replacing them entirely. This would create what one expert described as a “marketplace of mechanisms” where different approaches compete based on their effectiveness.

The panel emphasised that much remains uncertain about how these reforms will ultimately be implemented and embraced by the international community. As one expert noted, achieving universal acceptance is unlikely, as “you don’t get universality about pretty much anything in international law, and investment law is not going to be an exception.”

For practitioners and students of international arbitration, these developments highlight the importance of staying informed about evolving approaches to dispute resolution while maintaining a clear understanding of the foundational principles that have made arbitration an effective mechanism for resolving cross-border disputes.