International arbitration in 2025

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.

Mediation’s particular features make it an attractive mechanism for resolving foreign investment disputes.

Fostering a forward-looking alignment of interests: mediation enables parties to exchange confidential information through a neutral mediator, creating a safe space to discuss the full range of issues impacting the investment relationship. This allows parties to develop innovative and creative solutions that go beyond legal considerations, focusing on a forward-looking alignment of interests, including non-financial value for both parties. This flexibility can present a key advantage in investor-state disputes, balancing investors’ commercial priorities – such as new investments – against states’ public interests - including job creation, local content and capacity building.

Efficiency: mediation can be both cost-effective and time-efficient compared to other dispute resolution methods. Arbitrations often impose significant financial and time burdens on both investors and states. In contrast, complex mediations typically conclude within six to nine months, according to CEDR’s experience with international commercial mediation (as reported in the CEDR Investor-State Mediation Guide). However, it is important to recognize that formal proceedings, such as arbitration, may need to progress before states are realistically ready to mediate.

Preservation of relationships: mediation enables parties to reach amicable settlements while preserving their ongoing relationship. By channeling discussions through a neutral mediator, mediation minimizes the risk of escalating the dispute or damaging the relationship.

Flexibility: mediation is flexible both in process and outcomes, enabling customisation to suit the parties’ particular needs and interests. Parties can mediate all or individual issues in dispute, retaining control over the scope of the resolution of their dispute. Mediation can also occur at any stage, either as a standalone process or alongside arbitration or other adjudicatory proceedings. In the investor-state context, mediation could potentially be conducted during “cooling-off periods,” a common pre-condition to arbitration in many investment treaties. It can also – sometimes more effectively, given the complexities of investor-state cases and the need for states to align multiple stakeholders – be pursued later in the proceedings, once the parties have made their position clear, or even after liability or quantum has been determined by an arbitral tribunal.

Despite these advantages, investor-state mediation is not without challenges, particularly in four key areas.

Confidentiality v. transparency: confidentiality is crucial in mediation, enabling participants to express their positions freely and facilitating mutually satisfactory solutions. However, in the ISDS context, confidentiality clashes with growing demands for transparency. Excessive confidentiality can hinder public accountability and elevate perceived corruption risks. In our experience, this challenge can be mitigated through robust formal processes that build public trust and address perceived corruption concerns. For instance, the ECT Secretariat’s Investor-State Mediation Guide suggests setting up “internal state monitoring mechanisms” to ensure regular reports on the mediation and strengthen its legitimacy. Similarly, some recent treaties, like the Netherlands Model BIT, balance confidentiality and transparency by requiring the publication of settlements while allowing the parties to designate and protect specific confidential information.

Authority to mediate: ensuring that government representatives have authority to negotiate and approve settlements – often involving significant compromises – is a critical challenge in investor-state mediation. This authority must be given and received free from fears of repercussions or corruption concerns. Historically, successful settlements have often depended on political will at the highest levels of government. For mediation to become a more common tool in resolving investment disputes, states should implement clear frameworks to establish authority and streamline approval mechanisms. This would ensure that government representatives can negotiate settlements effectively and confidently. The ICSID Mediation Rules address this challenge by requiring parties, at the first session, to “identify a person or entity authorized to negotiate and settle the issues being mediated”.

Lack of compulsion: mediation depends on the voluntary participation of both parties. This may be challenging in the ISDS context, where investors often fear inherent power imbalances with the state; meanwhile, states may hesitate to participate, in light of the potential perception by investors or the public of weakness. To address this issue, some recent investment treaties have mandated the recourse to mediation (or conciliation), often at the state’s discretion. For example, the Mauritius-UAE BIT and the Australia-Indonesia CEPA include provisions mandating mediation at the option of the state party.

Enforcement: settlement agreements resulting from successful mediations can generally only be enforced through breach of contract claims before the competent court or tribunal under the agreement. The Singapore Convention aims to address this issue by enabling the international recognition and enforcement of written mediated settlements before the courts of all state parties. However, since 2019, only 58 States have signed the Convention, and just 14 have ratified it. Additionally, States can reserve the right to exclude the Convention’s application to settlements involving the state or its agencies. Therefore, the Singapore Convention’s effectiveness in enhancing confidence in ISDS mediation remains uncertain.