Mediation, as a third-party facilitated negotiation controlled by the parties, has the potential to reinvigorate investor-state dispute resolution in the years ahead. With mounting criticisms of investor-state arbitration – including high costs, lengthy proceedings and entrenched binary positions– mediation is increasingly emerging as a compelling alternative.
By Sylvia Noury KC, Will Thomas KC, Nicholas Lingard, Santiago Gatica and Camille Strosser
New institutional rules, mediation-friendly investment treaty provisions, and enforcement mechanisms like the Singapore Convention (see link below) now provide a framework positioning mediation as a viable method of resolving investor-state disputes amicably and more efficiently. States and investors alike should be aware of these developments and how best to benefit from them.
While international arbitration has traditionally been the primary method of resolving investor-state disputes, its lengthy timelines (averaging four years), high costs (averaging more than US$6m per party—and often vastly more), and binary outcomes are prompting both investors and states to seek more efficient, mutually beneficial solutions. Against this backdrop, investor-state mediation is gaining traction as a viable alternative.
As early as 2012, the IBA issued Rules on Investor-State Mediation, followed by the Energy Charter Treaty (ECT) Secretariat’s 2016 Guide on Investment Mediation, which aimed at facilitating recourse to mediation to settle disputes under the ECT. In turn, the Centre for Effective Dispute Resolution (CEDR) issued an Investor-State Mediation Guide in 2019 and, in 2022, the International Centre for the Settlement of Investment Disputes (ICSID) introduced the ICSID Mediation Rules specifically designed for investment-related disputes. Meanwhile, the UNCITRAL Working Group III, which was specifically tasked with reforming current investor-state dispute resolution mechanisms, adopted, in 2023, draft provisions on the use of mediation in ISDS (including draft model provisions to include in investment treaties) and guidelines for investment mediation.
Investment treaties themselves are also evolving in this direction. References to amicable settlement through “non-binding third party procedures”—or mediation—are increasingly frequent in new investment treaties. A recent study shows a steady rise in mediation references in investment agreements, from 0.83 percent in 2004 to 17.4 percent in 2018. Agreements like the Netherlands Model BIT and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership explicitly encourage (or even require) mediation as part of their dispute resolution provisions. Another key driver of this trend is the adoption of the Singapore Convention on Mediation, which ensures the global enforceability of settlement agreements, giving parties greater confidence in the mediation process. The ICSID Mediation Rules have been drafted to ensure compliance of mediated settlements with the Singapore Convention.
These developments establish a robust framework for investor-state mediation, the appeal of which will continue to grow in the coming years.
Arbitration will remain central to resolving investor-state disputes, but the growing interest in mediation marks a significant and meaningful evolution in the ISDS framework. Mediation is poised to play a more prominent role in 2025 and beyond, as states continue to promote – or even mandate – its use.
Of course, mediation is not a universal solution and may be unsuitable in cases where the investor has been expelled from the country, such as through expropriation, or the investor-state relationship has otherwise irretrievably broken down.
Nevertheless, mediation should be viewed as a valuable tool for investors and states, to be deployed when appropriate. At the onset of a dispute, the parties should proactively assess whether mediation could be the most suitable resolution mechanism. Tools like the mediation decision trees developed by the Inter-Pacific Bar Association can support this evaluation. This approach may allow investors and states to seize optimal windows for mediation – whether before the commencement of an arbitration or during the proceedings – facilitating faster, cost-effective, and relationship-preserving settlements.
Critics of the legitimacy of investor-state arbitration should consider the advantages of mediation. In a mediation, it is the parties – not a third party – who decide the outcome of the dispute. This process allows the host state to shape a resolution that balances the investor’s commercial interests with the state’s geopolitical and public priorities.
Sylvia Noury KC
Partner (accredited CEDR mediator)
Martina Polasek, the new ICSID Secretary General, recently commented on the potential for greater use of mediation in ISDS, given the high settlement rate in ICSID arbitration, noting that ”ICSID involvement [under the new ICSID Mediation Rules] has helped parties to put amicable settlement negotiations on new footing. I am optimistic that this is a trend that will continue”.
If you are exploring mediation as a solution for investor-state disputes, we invite you to connect with the authors of this trend to discuss how our expertise can help navigate the process effectively and achieve constructive outcomes.
