News | December 19, 2020

UNCITRAL Working Group III pre-intersessional meeting on the use of mediation in ISDS

On November 9, 2020, the Asian Academy of International Law hosted a virtual event on the use of mediation in investor–state dispute settlement. This event is one of several being organized by UNCITRAL in parallel to the formal meetings of the Working Group III on investor–state dispute settlement reform.

Mediation refers to a process “whereby parties attempt to reach an amicable settlement of their dispute with the assistance of a third person or persons (‘the mediator’) lacking the authority to impose a solution upon the parties to the dispute.”^[1] The objective is for the mediator to assist the parties in reaching a mutually acceptable settlement that resolves their dispute. If the parties cannot reach an agreement, either party may then continue with efforts to resolve the dispute through some other process—for example, investor–state arbitration. Mediation is something of a “hot topic” in international economic law at the moment: in 2016 the Secretariat of the Energy Charter adopted the Guidance on Investment Mediation;^[2] in 2018 ICSID commenced work on a new set of rules for investor–state mediation;^[3] in September 2020 the Singapore Convention on Mediation entered into force.^[4] In the context of UNCITRAL Working Group III, both developed and developing states have supported greater use of mediation in investor–state disputes.

The event organized by the Asian Academy of International Law comprised more than 20 speakers spread over six hours, and supported by four lengthy background papers.^[5] Despite the number of speakers, several common themes ran across the event. Speakers generally agreed that greater use of mediation in investor–state disputes would be a good thing. Mediation was said to be quicker, cheaper, and more flexible than investor–state arbitration. It was also said to allow investors and host states to keep “sensitive” investor–state disputes confidential, in contrast to the trend for increased transparency in investor–state arbitration. Most importantly, mediation was said to be more likely to lead to “win–win” outcomes as compared to investor–state arbitration.

This positive account of mediation presents something of a paradox. There are only a handful of publicly known instances of investor–state mediation. In contrast, there are now more than a thousand known cases of investor–state arbitration. Why isn’t investor–state mediation used more widely?

The answer, according to many of the speakers, is that there are several obstacles to greater use of investor–state mediation, primarily obstacles to states’ ability and willingness to participate. These include:

The lack of an explicit legal mandate under investment treaties and national law to engage in mediation.
Government officials’ lack of familiarity with mediation.
Bureaucratic challenges, such as the difficulty in coordinating multiple government agencies that may be involved in a dispute and ensuring that individuals representing the state in a mediation have the authority to negotiate and settle a dispute on behalf of the state.

There was discussion across multiple panels of how these obstacles might be addressed, as well as more detailed technical discussion about how the process of mediation should interface with investor–state arbitration.

This discussion illustrated an underlying assumption of the event: that mediation should be made more widely available as an additional option alongside investor–state arbitration (or, in the case of the EU’s proposal, as an additional option alongside the possibility of bringing an investor–state dispute before a multilateral investment court). One speaker, for example, pointed to the possibility of multibillion dollar ISDS claims and explained that a state facing such a claim could benefit from agreeing to a mediated settlement for a fraction of that amount. However, there was no discussion of alternative options to reduce the risks associated with large ISDS claims, such as substantive reform to the content of investment treaties, or of the key question of whether greater use of mediation should be encouraged in preference to, or in conjunction with, such reforms.

This reflected a wider lack of engagement with potential downsides of greater use of mediation in investor–state disputes. The fact that some investor–state disputes are not suitable for mediation—for example, those involving significant public interests—was mentioned by some speakers, but the practical challenges that arise from the fact that public interests and commercial considerations are often bound up together in investor–state disputes was not substantively addressed. The tension between mediation, which is generally confidential, and the push for greater transparency in ISDS was identified by several speakers but not resolved. The possibility that some “obstacles” to state participation in mediation might serve important public interest functions was overlooked—for example, limits on government officials’ ability to authorize the transfer of funds to foreign investors following conclusion of a settlement agreement might serve an important function in reducing corruption, even if they also make mediation more cumbersome than would be the case in a purely commercial context.

None of this is to say that the use of mediation in investor–state disputes should be discouraged. Instead, states evaluating the role that mediation should play in investor–state disputes should consider both the potential benefits and the potential risks related to its uses.