Symposium: 125 years of the Permanent Court of Arbitration: A Retrospective and exploration of New Frontiers
A PCA for the Next Century
by Wenlan Yang
Published on 12 December 2024
The third panel of the commemorative event held in Singapore on 25 July 2024 for the 125th anniversary of the Permanent Court of Arbitration (PCA) featured a conversation moderated by Dr Hab. Marcin Czepelak, Secretary-General of the PCA, with Ms Elizabeth Exposto and Mr Toby Landau KC. Ms Elizabeth Exposto is Chief of Staff to the Prime Minister of the Democratic Republic of Timor-Leste and CEO of the Land and Maritime Boundary Office. She was Deputy Agent for Timor-Leste in the PCA-administered conciliation between Timor-Leste and Australia. Mr Landau KC is a practitioner at Duxton Hill Chambers with experience in inter-State, investor-State, and complex commercial arbitrations administered by the PCA, serving as counsel, appointing authority, and arbitrator.
The session, entitled ‘A PCA for the Next Century’, was intended to shed light on the PCA’s development in the coming century, drawing on the guests’ extensive professional experience in international dispute settlement, particularly in PCA-administered proceedings. Dr Czepelak started by asking about their first encounters with the PCA. Mr Landau noted that his first case came from a faxed instruction (thus demonstrating how long ago this was) to act for a party in a PCA-administered arbitration. Over time, he became increasingly involved, taking up more cases as counsel, arbitrator, and appointing authority in PCA proceedings.
Ms Exposto shared with the audience her experience representing Timor-Leste in its efforts to commence compulsory conciliation proceedings pursuant to the 1982 United Nations Convention on the Law of the Sea (UNCLOS), a mechanism that had never been used before. She noted the long-standing maritime boundary dispute in the Timor Sea between Timor-Leste and Australia, which had persisted for decades. Since Timor-Leste’s hard-earned independence in 2002, the two parties had been unable to reach agreement with regard to their maritime boundary in the Timor Sea, an area rich in oil and gas deposits. As a young developing country, Timor-Leste needed certainty as to its maritime space and resources for development.
Ms Exposto recognised the risk associated with initiating the conciliation process, given that the UNCLOS procedure had not been previously used and that Australia might have chosen not to participate. However, due to Australia’s efforts to exclude its maritime boundary dispute from international jurisdiction (see here and here), she admitted that there was no possibility for Timor-Leste to seek a judicial settlement with Australia, leaving compulsory conciliation as the only viable alternative. She commended the fact that, while Australia initially challenged the competence of the Conciliation Commission pursuant to Article 13 of Annex V of UNCLOS, it ultimately committed to participating in the procedure after the Commission upheld its competence. Ms Exposto also praised the Commission’s proposal on a series of confidence-building measures, which were accepted by both parties and facilitated subsequent negotiations. Ms Exposto also noted the role of international counsel in guiding Timor-Leste to choose the PCA as the appropriate forum for utilising the compulsory conciliation procedure.
Dr Czepelak noted that following the success of conciliation between Timor-Leste and Australia, there has been a widespread enthusiasm for the potential of using conciliation/mediation for disputes involving States; however, the practice remains limited. He then asked Mr Landau whether he thought the successful experiences of the Timor-Leste/Australia conciliation could be transferrable to other contexts, such as investor-State dispute settlement.
Mr Landau responded positively. He observed that while international arbitration often leads to successful outcomes, there has been widespread dissatisfaction with international arbitration as an optimal mechanism for resolving disputes. Moreover, he pointed out that many treaties require a cooling-off period during which parties could explore non-binding mechanisms before initiating arbitration, which provides a window for the parties to explore conciliation or mediation. He also noted instances of great success in using non-binding determinations in the investor-State field. These factors, in his view, should have led the parties to more frequently use non-binding procedures such as mediation and conciliation. He commented that conciliation and mediation should be attractive to both the investor and the host State, because in arbitration they may have to face high costs, uncertain outcomes and unwelcome consequences brought by an adverse award.
To explain the limited use of conciliation and mediation, Mr Landau referred to a report titled Survey on Obstacles to Settlement of Investor-State Disputes (September 2018) prepared by the Centre for International Law and identified five major impediments. First, he noted that when faced with an international investment claim, governments often lack awareness and experience in using non-binding methods, which is exacerbated by the common lack of institutional memory within legal departments. Second, he emphasised that parties often miss the critical moment to turn to conciliation and mediation due to the time-consuming process of intra-governmental and inter-agency consultations and the difficulty of obtaining budgetary approval. Third, he pointed out that political sensitivities surrounding investor-State dispute settlement often cause government officials to avoid conciliation and mediation, fearing public scrutiny and criticism, whereas arbitration, which involves a third-party adjudicator, would allow officials to defer responsibility for the award. Fourth, he noted the fear amongst governments that using conciliation and mediation for what they perceive as unjustified claims may be seen as setting a precedent and thus opening the gate to more frivolous claims. Fifth, he highlighted the issue of unrealistic inflated claims, which make negotiation, mediation, and conciliation less attractive. He concluded that these impediments primarily affect respondent governments in investor-State disputes, rather than the investors themselves.
Dr Czepelak recalled his conversations with attorneys general and legal advisors of the PCA’s Contracting Parties during the Third Congress of the PCA Members of the Court, which echoed Mr Landau’s views, and invited Ms Exposto to respond.
Ms Exposto shared Timor-Leste’s experience in bringing a conciliation request as a sovereign country. She emphasised that her government undertook extensive groundwork before commencing conciliation, including establishing the boundary dispute settlement as a national priority and maintaining governmental unity on the issue. She mentioned that these efforts extended beyond political opposition to include civil society. More specifically, she highlighted the establishment of the Maritime Boundary Office, which was dedicated solely to resolving the maritime boundary dispute and directly answered to the Prime Minister. In her view, this showcased the importance of settling the dispute for Timor-Leste and helped the country navigate the conciliation process.
Subsequently, Dr Czepelak referred to the ongoing discussions at the United Nations Commission on International Trade Law Working Group III on the reform of the current investor-State dispute settlement system and asked the speakers’ views on the role the PCA could play in a reformed system. Mr Landau recalled some of the reform proposals that have been made during Working Group III meetings, including the establishment of an appellate body, the creation of a multilateral standing court, and improvements to the existing arbitration system. In his view, the PCA is well-positioned to support all these initiatives, given its 125-year history, institutional memory, leadership in the field, and expertise in various forms of international dispute resolution. He also highlighted the PCA’s diverse membership, global presence, and reputation for trustworthiness. Mr Landau emphasised the PCA’s unique tradition of neutrality, noting that as an independent intergovernmental organisation, it is not affiliated with other organisations that might be subject to political sensitivities or prejudice.
More specifically, he considered the PCA to be particularly well-equipped to help improve the current investor-State arbitration system, citing its experience in pioneering novel procedural rules and innovations in the appointment of arbitrators. Additionally, he regarded the PCA as the obvious candidate to support and assist in developing the new institutions under consideration by Working Group III, such as an appellate body or a multilateral court, due to its qualifications and expertise. Lastly, Mr Landau noted that, with its well-established rules for alternative dispute resolution — such as conciliation and fact-finding — the PCA could also play a significant role if the international community opts to establish a system that departs from the current adversarial arbitration process.
Ms Exposto acknowledged that foreign investors require certainty when making investment decisions but emphasised the dilemma faced by developing countries: while they are in urgent need of foreign investment for domestic development, they often lack the resources and expertise to manage investment disputes. She suggested that institutions like the PCA could assist developing countries by offering capacity-building programs and helping to strengthen their legal systems.
As the event drew to a close, Dr Czepelak asked the two guests what changes they believed the PCA should implement to better serve the international community and prepare for the years to come. Mr Landau highlighted the trust placed upon the PCA over 125 years and suggested that the PCA should continue to build trust in the international community and increase its geographical reach. He also emphasised the PCA’s responsibility to uphold international law in response to widespread, ill-informed scepticism against international law. Ms Exposto noted the PCA’s value and role in conflict management and dispute resolution in a time of rising geopolitical tension, and suggested the PCA should continue to advertise its services and attend conferences and events in developing countries, where potential service users may not be able to reach The Hague.
This report was prepared by Dr Wenlan Yang, Assistant Legal Counsel at the Permanent Court of Arbitration, Singapore.