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The Singapore Law Gazette

Could Mediation be the Solution for Sustainable Investor-State Dispute Settlement?

Alternative dispute resolution (ADR) has grown in popularity in recent years due to its expediency, flexibility, and synergy with disputants’ interests. Mediation, in particular, has received increasing attention as a proactive method of ADR because the process is more collaborative and cost-saving than adversarial dispute resolution tools and allows for parties to have their interests represented more fully.

Mediation seeks to enhance mutual understanding around a dispute. If conducted well, it can achieve resolution while preserving relationships for the future, minimising fallout and optimising outcome.

While these advantages would be important for any business relationship, this is especially so for Investor-State disputes as we enter an age with accelerated digitalisation, increased climate awareness and an evolving geopolitical landscape.

The Case for Mediation Enabling Effective ISDS

Investor-State disputes are highly complex in nature. In recent times, these disputes have arisen more frequently due to alleged violations of international investment agreements (IIAs). Such disagreements can eventually give rise to Investor-State Dispute Settlement (ISDS), a mechanism in which foreign investors can file a claim against governments (States).

Amicable dispute resolution tends to be faster, more cost-effective and less adversarial for effective ISDS. In fact, IIAs usually specify “cooling-off periods” before parties pursue arbitration to encourage amicable dispute resolution methods. Mediation, with its capacity to support both dispute prevention and resolution, is uniquely placed to serve as part of that period and become a viable form of ADR for Investors and States.

Mediation also involves the presence of a mediator to facilitate parties arriving at a mutually agreeable solution – with the mediator not making judgments themselves. An experienced mediator can support the parties in exploring the strengths and weaknesses of their views, interests and concerns, and to develop possible options for settlement. This can improve holistic understanding of the dispute among the parties and gives them more power to decide a favourable outcome instead of leaving the often high-stakes decision to a third party.

Crucially, outcomes in arbitration tend to be limited to monetary damages and restitution of property. However, this may not be an optimal solution for parties involved. With mediation, parties have ample room to negotiate acceptable agreements as part of ISDS, which could include everything from contract extensions and permit renewals to asset exchanges and deal-swapping to compensate for affected contracts and obligations. These options may better serve the interests of both Investor and State instead of simple monetary-based rewards.

The Path Towards Sustainable Mediation Frameworks for ISDS

There are several best practices that should be followed for the greatest chance to achieve successful mediation. Firstly, parties should agree on which rules to follow for mediation. They may also wish to consider if nations are signatories to the Singapore Convention on Mediation (the Convention) as the rules, in combination with the Convention, determine how the international mediated settlement agreements will be conducted, recognised and enforced, thus streamlining the mediation process and ensuring all parties are on the same page procedurally.

Parties need to agree on the choice of mediator and address any concerns about expertise, neutrality and more to avoid future conflict. Additionally, parties may wish the security of knowing that they may still pursue other forms of ISDS if mediation proves ineffectual – which is why it is typical for the “without prejudice” principle to be applied during mediation, which is an agreement that information presented or exchanged during the mediation will not be used by the other party in any other proceedings unless mutually agreed.

States can also improve confidence in the use of mediation in ISDS by setting out clear policies that underline the State’s approval of mediation, including anchoring it in their IIAs and making it available at any time in the investment lifecycle. In the commercial world, mediation tends to form part of a multi-tier dispute resolution clause. The “mediation, then arbitration” clause provides for parties to first attempt to reach an agreement through mediation, but if resolution is not achieved, the parties will then proceed to arbitration. However, the option to pursue mediation typically remains available at any point of the arbitration process.

Mediation in Future ISDS

The scale and complexity involved in most Investor-State disputes often require them to be addressed with nuance and sensitivity to minimise disproportionate impact and damage – both monetary and reputational. The collaborative nature of mediation thus presents it as an excellent tool for ISDS to help both parties achieve best outcomes, as well as to keep the doors open for a future business relationship (and thereby retention and attraction of investment), including taking into account geopolitical implications ISDS disputes might have.

Meditation is beginning to gain traction in global ISDS, but much work remains for it to become a mainstream dispute resolution method. However, it is encouraging to see the ongoing discussions within UNCITRAL, the United Nations Commission on International Trade Law, on expanding its use through improved provisions on framing to meet State, Investor and public needs with mediation becoming hopefully a cornerstone of successful ISDS.

Legal Officer
UNCITRAL Secretariat