Investor-State Dispute Settlement (“ISDS”) has been criticized for the lack of an appellate mechanism and the inconsistency and unpredictability of certain arbitration awards that are rendered.
Opponents of ISDS claim that, as decisions that may ultimately affect public interests are at stake, it is undesirable that wrong decisions taken by arbitral tribunals cannot be appealed. They also argue that the current mechanisms, either annulment decisions under the ICSID rules, or the possibility of setting-aside decisions with recourse to national courts under the UNCITRAL rules, cannot be regarded as sufficient systems to correct poor awards as their foundations are highly restricted.
The criticism of an absence of an appeal mechanism is closely linked to the criticism of the lack of consistency and predictability of arbitration awards rendered in ISDS.
It has been stated that investment tribunals with ad-hoc panels, which are established under various arbitration institutions and rules, issue contradictory decisions, even when faced with “the same or similar legal or factual” issues. This leads to the question as to whether the current ISDS is well-designed or if the creation of an appeal mechanism as proposed by the United Nations Commission on International Trade Law (UNCITRAL) and the European Commission is necessary.
It may seem incontestable that a degree of consistency in outcomes would be desirable not only to ensure the legitimacy of the system, but also its “credibility”. Although there is no binding precedent in investment arbitration, nor in public international law, the reality shows that, not infrequently, arbitral tribunals do make reference to previous cases. Consequently, one can argue that an appeal mechanism aligned with this trend of arbitral tribunals referring to previous decisions will allow ISDS to achieve a more “consistent body of decisions”.
A disperse system composed of some 3,000 different Bilateral Investment Treaties (“BIT’s”) has generated beliefs that some degree of inconsistency will be inevitable. In fact, it might be difficult to resolve similar issues in a similar way when the reality is that BIT’s are negotiated by different Sates, in different circumstances and with different interests and arbitral tribunals are bound to make their decisions based on the respective treaty and on a case-by-case basis.
These treaties contain broad definitions of substantive standards, such as fair and equitable treatment and expropriation, with the goal of providing protection so as to ultimately attract foreign investments. Arbitral tribunals will necessarily have to interpret definitions in coherence with the respective treaty, the way it was negotiated and in accordance with the provisions of the Vienna Convention on the Law of Treaties (“VCLT”). As stated in Article 31 VCLT: “[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” In addition, Article 32 of the VCLT further clarifies that the context of a treaty should comprise “the preparatory work of the treaty and the circumstances of its conclusion.” A similar conclusion was reached by the Methanex Corporation v United States of America arbitral tribunal, which stated:
As to the third general principle, the term is not to be examined in isolation or in abstracto, but in the context of the treaty and in the light of its object and purpose.
Thus, it would be reasonable to expect that treaties’ interpretations by arbitral tribunals may give rise to multiple interpretations, without jeopardising any problem of lack of consistency or predictability since treaties concern different States’ interests, including interests of developing countries that need to attract more foreign investment and therefore apply a broader language of definitions.
It has been emphasised that an appellate body may bring disadvantages since it puts into question the finality of the decisions and increases the costs and delays of the proceedings, which are already too slow and too expensive. The possibility of being able to appeal tempts any losing party to do so, in order to convince a second tribunal of the rightness of its position. Consequently, the proceedings would become lengthier, despite already lasting a number of years.
It is curious to see that, in the White & Case and Queen Mary 2015 survey, the question whether there should be an appeal mechanism on the merits, specifically for investment treaty arbitration, was answered negatively by 61% of respondents among the arbitration community.
It ultimately lies with the users of the system, and especially States, to decide what suits them more: a final decision, less expensive and faster, or a decision of potentially higher quality, but even more costly and lengthy.
States tend nowadays to limit and clarify the scope of investors and investment protection provisions, providing “clearer solutions to most recurrent legal issues” and, consequently creating greater predictability and consistency in arbitration awards. While the system is imperfect, this approach may be wiser than increasing the already great time and cost of ISDS.
 C. Tietje et al., ‘The Impact of Investor-State-Dispute Settlement (ISDS) in the Transatlantic Trade and Investment Partnership’ (Reference MINBUZA-2014.78850, 2014) 112, p. 242.
 Tietje, p. 243.
 D. Gaukrodger et al., ‘Investor-state dispute settlement: A scoping paper for the investment policy community’ (OECD Working Papers on International Investment No 2012/3, OECD Investment Division 2012), p. 58.
 D. Kim, ‘The Annulment Committee’s Role in Multiplying Inconsistency in ICSID Arbitration: The Need to Move Away from an Annulment-Based System’ New York University Law Review (2011) 86, pp. 242-279, 275.
 G. Kaufmann-Kohler at al., ‘Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap’ (2016) CIDS Research Paper, p. 13.
 G. Kaufmann-Kohler, ‘Arbitral Precedent: Dream, Necessity or Excuse?’ (2007) 23(3) Arbitration International, p. 368. See also, Jeffery P Commission, ‘Precedent in Investment Treaty Arbitration a Citation Analysis of a Developing Jurisprudence’ (2007) 24(2) Journal of International Arbitration, p. 131.
 N. Lavranos et al., ‘TASK FORCE PAPER Regarding the Proposed International Court System (ICS)’ (2016) EFILA draft paper, p. 48.
 Gaukrodger, p. 61.
 G. Alvarez et al., ‘A Response to the Criticism against ISDS by EFILA’ (2016) 33(1) Journal of International Arbitration 1, p. 8.
 Alvarez et al., p. 8.
 Methanex Corporation v United States of America, UNICTRAL (Final Award of the Tribunal on Jurisdiction and Merits) 3 August 2005, Part II, Chapter B, para. 16.
 Gaukrodger et al., p. 61.
 Gaukrodger et al., p. 53.
 K. Sauvant, ‘The Evolving International Investment Law and Policy Regime: Ways Forward’ (Policy Options Paper, E15Initiative, International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum 2016) p. 29.
 Kaufmann-Kohler et al, p. 47.
 Queen Mary University of London (QMUL) and White & Case LLP, ‘2015 International Arbitration Survey: Improvements and Innovations in International Arbitration’ (2015), p. 8.
 Kaufmann-Kohler et al., p. 18; G. Kaufmann-Kohler, ‘Annulment of ICSID Awards in Contract and Treaty Arbitrations: Are there differences?’ in Emmanuel Gaillard and Yas Banifatemi (eds), Annulment of ICSID Awards (IAI Series nº 1, JurisNet 2004), p. 220.
 Alvarez et al., p. 4. Examples are the FTA’s negotiated by the European Commission (CETA, EU- Singapore).
 Lavranos et al., p. 21.