­c hapter 3

Mediation to Address Drawbacks of Arbitration

in the Investor-​State Dispute Settlement Regime

3.1 Introduction

Growing dissatisfaction with isds, centred on isa, paved the way for the pro-
motion and integration of ism into the current isds regime. More stakeholders
of isds have started to believe that mediation can serve as a time-​and cost-​
saving dispute resolution mechanism, which is also more likely to preserve
investment relationships between investors and states. On 12 September 2020
the Singapore Convention on Mediation entered into force.1 The number of
the new-​generation iia s with express reference to mediation is also on the rise,
which is atypical for older generation bits.2 These cooperative efforts reflect an
unprecedented ‘treatification’ of ism.3
This chapter examines the need for ism by first analysing the current factors
impacting isa. It outlines the progression of isa from its conception to the pres-
ent day. It then examines three major drawbacks of isa: high costs, prolonged
arbitral process, and the so-​called ‘legitimacy crisis’. It concludes by discussing
current steps taken by isds stakeholders to tackle these issues and, in particular,
the incentive of integrating mediation into isds.

1 It was signed by 46 nations on the first day. This marks the highest number of signatories on
the first day in the history of UN trade conventions. However, it has only been ratified by 6
States so far. Singapore Convention on Mediation (n 14 in ch 1).
2 Titi (n 8 in ch 1). For example, art 8.20 of the Comprehensive Economic and Trade Agreement
(ceta) (n 9 in ch 1) is dedicated to mediation. The EU-​Singapore ipa (n 21 in ch 1) provides a
whole annex for mediation between investors and states (Annex 6 in ch 1). Article 9.18(1) of
the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (cptpp) (n 21
in ch 1) provides a voluntary conciliation and mediation step before arbitration. See also Fan,
‘Mediation of Investor-​State Disputes: A Treaty Survey’ (n 26 in ch 1); James Claxton, ‘Faithful
Friend and Flattering Foe: How Investment Treaties Both Facilitate and Discourage Investor-​
State Mediation’ (2 November 2020) ssrn, available at <https://​pap​ers.ssrn.com/​sol3/​pap​ers
.cfm?abst​ract​_​id=​3690​682>.
3 Stacie Strong, ‘The Role of Empirical Research and Dispute System Design in Proposing and
Developing International Treaties: A Case Study of the Singapore Convention on Mediation’
(2018) 20(4) Cardozo Journal of Conflict Resolution 1103.

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58  Chapter 3

The chapter then investigates the current role of ism in isds. It starts by
defining mediation.4 It then proceeds with examining the benefits of media-
tion, especially over arbitration in isds. This is followed by an analysis of the
current steps and incentives that have been taken towards the promotion of
ism in isds. The Chapter concludes that the current isds regime will benefit
most if mediation is incorporated as a mandatory prerequisite of isa rather
than made a voluntary step in the dispute resolution process.

3.2 Investor-​State Arbitration

In the second half of the twentieth century, isa as a new form of international
arbitration was becoming increasingly popular alongside international com-
mercial arbitration. The isds regime had been designed and developed under
the strong influence of burgeoning international commercial arbitration,
with procedural regulation, particularly through icsid.5 Since the late 1960s,
most iia s have provided investor-​state dispute resolution clauses in addition
to state-​to-​state dispute resolution provisions. These isds clauses carried the
advance consent of a sovereign state to settle disputes with foreign investors
under specific arbitration or conciliation procedures. The increased number
of bits (and later free trade agreement (fta) investment chapters) that con-
tained isds clauses opened the doors for foreign investors to bring claims
against host states.
After a slow start, the number of new isa cases has increased annually,
especially from the beginning of the 21st century. The size and complexity of
claims grew considerably with the progression of socio-​economic relations
and investments over time. Especially over the last decade or so, arbitration of
investor-​state disputes has become a time-​and cost-​consuming dispute resolu-
tion process. Factors contributing to prolonged isa procedures are, for exam-
ple (a) sparsity of procedural rules limiting the volume of materials submitted
to tribunals by the parties and the experts; and (b) common practice of billable
hours of lawyers and (some) arbitrators who consequently become invested
in delayed proceedings.6 Calls have been made for rebalancing the existing

4 As mentioned in Chapter 1, the terms mediation and conciliation are used interchange-
ably throughout this book.
5 Mark Clodfelter, ‘The Future Direction of Investment Agreements in the European Union’
(2013) 12(1) Santa Clara Journal of International Law 159.
6 Nick Papadimos and Sebastian King, ‘Australian Arbitration Week Recap: Re-​assessing
Australia’s Bilateral Investment Treaty Practices’ (29 October 2020) Kluwer Arbitration

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Addressing Drawbacks in Investor-state Arbitration 59

isds regime, especially through dispute prevention and adr mechanisms.7

In 2017, uncitral Working Group iii was tasked with identifying concerns
regarding isds and developing reform solutions. Among these proposals is to
increase dispute prevention and mitigation through adr mechanisms such as
mediation.8

3.2.1 Promotion of Investor-​State Arbitration

The growth of trade and commerce among nations led to the spread of foreign
investments initially from Europe to non-​European countries. It expanded
through various channels and instruments such as European imperialism
(colonialism) and the conclusion of treaties and investment agreements,
namely bilateral friendship, commerce and navigation (fcn) treaties, and
then standalone bits, ftas and multilateral regional treaties.9
The peaceful 18th and 19th centuries in Europe, which are associated with
the post-​Napoleonic Wars, the industrial revolution, and newly emerged lib-
eral economic theory facilitated the metamorphosis of the international econ-
omy.10 That economy required regulation though, so states began concluding
fcn treaties.11 However, these treaties mostly focused on the protection of
property rights rather than investments.12
The principles of foreign investment protection were developed with the
primary goal of protecting the investment rights of capital-​exporting states
and the investors who were nationals of these states.13 The first case that very

Blog, available at http://​arbi​trat​ionb​log.kluwer​arbi​trat​ion.com/​2020/​10/​29/​aus​tral​ian

-​arbi​trat​ion-​week-​recap-​re-​assess​ing-​aus​tral​ias-​bilate​ral-​inv​estm​ent-​tre​aty-​practi​ces/​;
Luke Nottage, ‘In/​formalisation and Glocalisation of International Commercial Arbitration
and Investment Treaty Arbitration in Asia’ in Joachim Zekoll, Moritz Bälz, and Iwo
Amelung (eds), Formalisation and Flexibilisation in Dispute Resolution (Brill 2014) 211.
7 Official Records of the General Assembly, Seventy -​second Session, Supplement No. 17 (A/​
72/​17) paras. 263 and 264; uncitral Working Group iii, Possible reform of investor-​State
dispute settlement (isds) –​Dispute prevention and mitigation –​Means of alternative
dispute resolution a/​c n.9/​w g.iii/​w p.190; Franck, ‘The Legitimacy Crisis in Investment
Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions’
(n 2 in ch 1) ch 1.
8 Schill (n 5 in ch 1).
9 Miles (n 8 in ch 2) 19–​31.
10 Chester Brown, ‘The Evolution of the Regime of International Investment
Agreements: History, Economics and Politics’ in Marc Bungenberg et al (eds), International
Investment Law (1st ed, Nomos Verlagsgesellschaft mbH & Co kg 2015) 153.
11 Ibid.
12 Kenneth J. Vandevelde, The First Bilateral Investment Treaties: U.S. Postwar Friendship,
Commerce, and Navigation Treaties (Oxford University Press 2017).
13 Muthucumaraswamy Sornarajah, The International Law on Foreign Investment (Cambridge
University Press 2010) 6.

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60  Chapter 3

much resembles modern-​day isa took place as early as the 19th century: Suez
Canal Co. v Egypt.14 The arbitral proceeding was initiated on the basis of a con-
cession agreement between the company and Egypt in 1864. The arbitrators for
the case were appointed by the Emperor of France, Napoleon iii.15
The peaceful period did not last long. The catastrophic consequences of
two World Wars were reflected both on the domestic economies of directly
affected countries as well as the international economy in general. In the first
half of the 20th century, the uncertainties of customary international law on
investment protection principles became impossible to ignore. Developed and
developing states struggled to agree on standards of treatment, compensa-
tion for expropriation, and rights of investors to sue states.16 On the one hand,
capital-​exporting states believed that the standard of treatment of foreign
investors should have been the international minimum standard provided
by customary international law. On the other hand, capital importing states
tended to give foreign investors the standard of treatment as defined under
national laws.17 Some states supported the ‘Hull formula’ for compensation for
expropriation, according to which compensation should be ‘prompt, adequate
and effective’. Others believed that fitting one formula to all cases would not be
fair and instead favoured the idea of considering further factors, for example, a
state’s financial situation.18
Another issue for debate was the lack of legal personality for investors under
international law.19 In the early days, investors were not attributed with the
right to bring claims against host states directly.20 The later versions of fcn
treaties at most provided for inter-​state arbitration.21 Therefore, investors had
two options: try their luck before the national courts or turn to their home
state for diplomatic protection. None of these measures was reliable for inves-
tors. Firstly, the national courts of host states often favoured their own states.22

14 Jason Yackee, ‘The First Investor-​State Arbitration: The Suez Canal Company v Egypt
(1864)’ (2016) 17(3) Journal of World Investment & Trade 401.
15 Ibid.
16 Jeswald Salacuse, The Law of Investment Treaties (oup Oxford 2015) 46.
17 Brown (n 10).
18 Ibid.
19 Ibid.
20 Daniel Meyers, ‘In Defense of the International Treaty Arbitration System’ (2008) 31(1)
Houston Journal of International Law 47.
21 American Society of International Law, ‘Thailand and United States: Treaty of Amity and
Economic Relations’ (1966) 5(5) International Legal Materials 876.
22 See generally Doak Bishop, Michael Reisman and James Crawford, Foreign Investment
Disputes: Cases, Materials and Commentary (Kluwer International 2005).

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Addressing Drawbacks in Investor-state Arbitration 61

Secondly, home states seldom reacted to their investors’ appeals, to avoid

escalation of diplomatic sanctions into an armed conflict between two states.
Moreover, even when countries engaged in diplomatic negotiations regarding
the matter in dispute, investors had little to no say in those dispute resolution
procedures.23
As a result, investors avoided investing in foreign states due to unreliable
and unfavourable means for safeguarding their investment rights.24 This cre-
ated a strong belief within the international community that without a proper
and functioning system of international investment dispute resolution, there
would be no proliferation of international investment relations.25 For this pur-
pose, lawyers and legal scholars came to an understanding that the creation
of a unified convention regulating investment disputes between states would
facilitate world peace and encourage more foreign direct investments.26 There
have been multiple unsuccessful attempts of concluding multilateral invest-
ment treaties throughout modern history.
The 20th century was an active period for draft proposals of investment
conventions such as the Abs-​Shawcross Draft Convention of 1959, the Harvard
Draft Convention of 196127 and the oecd Draft Convention on the Protection
of the Foreign Property of 1962.28 These incentives did not eventuate into a
successful multilateral investment treaty. However, the attempted drafts did
contribute towards the development of modern-​day standards of treatment in
international investment law and were reflected in the texts of future bits.29
On 18 March 1965, with the efforts of Mr Aron Broches, the General Counsel
of the World Bank, the icsid Convention opened for signature.30 The icsid
Convention entered into force in 1966, thereby establishing icsid.31 The first

23 Ibid.
24 Meyers (n 20).
25 See generally Lauge Poulsen, Bounded Rationality and Economic Diplomacy: The Politics of
Investment Treaties in Developing Countries (Cambridge University Press 2015).
26 Jonathan Bonnitcha, Lauge N Skovgaard Poulsen and Michael Waibel, The Political
Economy of the Investment Treaty Regime (Oxford University Press 2017) 9.
27 Brown (n 10).
28 Andrew Paul Newcombe and Lluís Paradell, Law and Practice of Investment Treaties:
Standards of Treatment (Wolters Kluwer Law & Business 2009) 30.
29 Joachim Karl, ‘The Negotiations on the OECD Multilateral Agreement on Investment’
in Marc Bungenberg et al (eds), International Investment Law (1st ed, Nomos
Verlagsgesellschaft mbH & Co kg 2015) 342; John Gaffney and Zeynep Akçay, ‘European
Bilateral Approaches’ in Marc Bungenberg et al (eds), International Investment Law (1st
ed, Nomos Verlagsgesellschaft mbH & Co kg 2015) 186.
30 Brown (n 10); The icsid Convention (n 6 in ch 1).
31 Brown (n 10); The icsid Convention (n 6 in ch 1).

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62  Chapter 3

versions of the icsid Arbitration Rules and the icsid Conciliation Rules were
adopted in 1967. They were later amended in 2006. The first country to sign the
icsid Convention was Tunisia and the first to ratify it was Nigeria (in 1965).32
As of December 2020, there are 163 signatory and contracting states to the
Convention.
The unique feature that distinguishes dispute resolution under the icsid
Convention from such resolution under any other instrument is that arbitra-
tion under icsid is ‘delocalised’. This means that awards are not subject to the
laws and courts of any seat. Domestic courts do not have the authority to set
aside, or review awards rendered under the icsid Convention. The awards may
only be annulled according to self-​contained annulment procedures provided
by the Convention itself. Awards are also treated like final judgments of courts
in the member state, where enforcement may be sought by the award creditor.
This explains why foreign investors generally prefer to invoke this Convention
regime, and the related icsid Arbitration Rules, if advance consent to those
Rules is provided by the host state and both it and the foreign investor’s home
state have ratified the icsid Convention.
By contrast, the icsid Additional Facility Rules only apply when either the
host state or the home state of the investor is a party to the icsid Convention.
The arbitral awards rendered under these rules are not subject to icsid annul-
ment procedures. Instead, they are subject to domestic court review at the
seat of arbitration. In addition, arbitral awards rendered under the icsid
Additional Facility Rules are typically enforced via the New York Convention
on the Recognition and Enforcement of Foreign Arbitral Awards.
icsid is not a judicial body and does not itself perform arbitration proce-
dures, but instead administers the registration and rules of arbitration.33 The
consensus on the text of the Convention was reached only because, unlike
previous efforts, the icsid Convention is a framework convention, addressing
only procedural aspects for the resolution of investment disputes, and indeed
requiring separate advance consent to arbitration administered by icsid to be
provided by the host state (typically nowadays through a bit or fta with the
foreign investor’s home state). This way, the fiercely disagreed issues of sub-
stantive characters, such as applicable standards of treatment, were bypassed,
and significant steps were made towards the goal of establishing a unified sys-
tem of international investment dispute resolution.

32 Meg Kinnear and Geraldine R Fischer, Building International Investment Law: The First 50
Years of ICSID (Kluwer Law International bv 2015) ii.
33 The icsid Convention (n 6 in ch 1) art 1(2).

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Addressing Drawbacks in Investor-state Arbitration 63

Standards of treatment are still separately provided in national laws on for-

eign investment, investor-​state contracts and especially nowadays iia s.34 These
iia s provide the consent of a state under which the latter waives its sovereign
immunity against enforcement (but not necessarily execution), and often sub-
jects itself to investor-​state dispute resolution under the icsid Convention.35
According to Article 25(1) of the icsid Convention:

The jurisdiction of the Centre shall extend to any legal dispute arising
directly out of an investment, between a Contracting State (or any constit-
uent subdivision or agency of a Contracting State designated to the Centre
by that State) and a national of another Contracting State, which the
parties to the dispute consent in writing to submit to the Centre. When
the parties have given their consent, no party may withdraw its consent
unilaterally.36

The first modern bit was signed by Germany and Pakistan in 1959, which
was followed by other countries concluding bit s in subsequent years.37 bit s
initially only provided state-​to-​state dispute resolution opportunities.38 In

34 See, for example, the asean Comprehensive Investment Agreement, signed 26 February
2009, entered into force 24 February 2012, and asean+​agreements, such as the asean-​
Australia-​New Zealand Free Trade Agreement, signed 27 February 2009, entered into
force 1 January 2010 (aanzfta).
35 Carolyn Lamm, Hansel Pham and Alexandra Meise Bay, ‘Consent and Due Process in
Multiparty Investor-​State Arbitrations’ in Christina Binder et al (eds), International
Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford
University Press 2009) 54; Luke Nottage, ‘Do Many of Australia’s Bilateral Treaties Really
Not Provide Full Advance Consent to Investor-​State Arbitration? Analysis of Planet
Mining v Indonesia and Regional Implications’ (2015) 12(1) Transnational Dispute
Management available at <https://​www.transn​atio​nal-​disp​ute-​man​agem​ent.com/​arti​
cle.asp?key=​2177>; Antonio Parra, ‘Advancing Reform at ICSID’ (2014) 11(1) Transnational
Dispute Management, available at <https://​www.transn​atio​nal-​disp​ute-​man​agem​ent
.com/​arti​cle.asp?key=​2031>; Andreas F Lowenfeld, ‘The ICSID Convention: Origins and
Transformation’ (2009) 38(1) Georgia Journal of International and Comparative Law 47.
36 The icsid Convention (n 6 in ch 1).
37 France and Switzerland in 1960, the Netherlands in 1963, Italy and the Belgium–​
Luxembourg Economic Union in 1964, Sweden and Denmark in 1965, Norway in 1966, the
United Kingdom in 1975, Austria in 1976, and Japan and the US in 1977. See Brown (n 10).
38 Gaffney and Akçay (n 29).

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64  Chapter 3

1968, the first bit with an isds clause was concluded between Indonesia and
Netherlands.39 Article 11 of the bit stated:40

The Contracting Party in the territory of which a national of the other

Contracting Party makes or intends to make an investment, shall assent
to any demand on the part of such national and any such national shall
comply with any request of the former Contracting Party, to submit, for
conciliation or arbitration, to the Centre established by the Convention
of Washington of March 18, 1965, 1 any dispute that may arise in connec-
tion with the investment.41

However, the first bit to have included an unqualified consent, unlike the
Indonesia-​Netherlands 1968 bit, was the Chad-​Italy bit, concluded in 1969.42
Ironically, 50 years later, Indonesia was the first to announce that it would allow
its bits to lapse in order to possibly renegotiate them and omit or reformulate
any isds provisions. The first bit Indonesia terminated was the one it had
with the Netherlands.43 It also terminated its 1992 bit with Australia, which
was replaced by a new fta in 2020; the Indonesia-​Australia Comprehensive
Economic Partnership Agreement (ia-​c epa).44 The ia-​c epa will coexist with
the asean-​Australia-​New Zealand fta, both of which have an isds provision.
However, the ia-​c epa multi-​tier isds clause has an element that is not nor-
mally found in other treaties (a similar exceptional provision is found in the

39 Chester Brown, ‘Introduction: The Development and Importance of the Model Bilateral
Investment Treaty’ in Chester Brown (ed), Commentaries on Selected Model Investment
Treaties (Oxford University Press 2013) 8.
40 Gaffney and Akçay (n 29).
41 Netherlands and Indonesia Agreement on Economic Cooperation, signed 7 July 1968,
entered into force 7 July 1971, art 11 (Indonesia-​Netherlands bit).
42 Agreement Between the Republic of Chad and the Republic of Italy to Protect and
Promote Investment Capital, signed 11 June 1969, entered into force 11 June 1969, art 7
(Chad-​Italy bit); Anthea Roberts, ‘State-​to-​State Investment Treaty Arbitration: A Hybrid
Theory of Interdependent Rights and Shared Interpretive Authority’ (2014) 55(1) Harvard
International Law Journal 1, fn 4 and 44.
43 Michael Ewing-​Chow and James Losari, ‘Indonesia is Letting its Bilateral Treaties Lapse
so as to Renegotiate Better Ones’ (15 April 2014) Centre for International Law-​National
University of Singapore, available at <https://​cil.nus.edu.sg/​wp-​cont​ent/​uplo​ads/​2010
/​12/​Ewing- ​Chow+​Los​ari-​FT-​Arti​cle-​Indone​sia-​is-​lett​ing-​its-​bilate​ral-​treat​ies-​lapse
-​15Apr2​014.pdf>; Alvin Yeo and Smitha Menon, ‘Indonesia-​Arbitrating with Foreign
Parties: A Closer Look at Indonesia’s Approach to Investor-​State Dispute Settlement’
(2016) 18(3) Asian Dispute Review 124.
44 Indonesia-​Australia Comprehensive Economic Partnership Agreement, signed 4 March
2019, entered into force 5 July 2020 (ia-​c epa).

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Addressing Drawbacks in Investor-state Arbitration 65

Hong Kong-​United Arab Emirates bit, Armenia-​United Arab Emirates bit,

Serbia-​United Arab Emirates bit, Estonia-​United Arab Emirates bit and the
Jordan-​United Arab Emirates bit).45 According to the isds provisons of these
treaties, apart from the Jordan-​u ae bit, once mediation (conciliaton) is initi-
ated by a disputing party, it becomes mandatory for the claimant investor –​a
unilaterally mandatory mediation provision as a pre-​condition to arbitration.46
A more detailed analysis of these isds provisions is provided in Chapter 4.
Since the dissolution of the Soviet Union and Eastern communist bloc in
1991, newly formed, developing countries emerged on the international arena
eager to attract foreign direct investments (fdi) and engage in the global
investment economy.47 They began concluding numerous bits, signing and
ratifying as many treaties as they could.48 Poulsen and Aisbett argue:

For most Western States, the treaties were designed and negotiated
primarily to protect their investors abroad, whereas for most States in
Africa, Latin America, Asia and Eastern Europe the treaties were entered
into primarily in the expectation that it would help them attract foreign
investment.49

45 Agreement Between the Government of the Hong Kong Special Administrative Region
of the People’s Republic of China and the Government of The United Arab Emirates for
the Promotion and Reciprocal Protection of Investments, signed and entered into force 6
March 2020 (Hong Kong-​uae bit); Agreement Between the Government of the Republic
of Armenia and the Government of The United Arab Emirates for the Promotion and
Reciprocal Protection of Investments, signed 22 July 2016, entered into force 21 November
2017 (Armenia-​uae bit); Agreement Between the Government of the Republic of Serbia
and the Government of The United Arab Emirates for the Promotion and Reciprocal
Protection of Investments, signed 17 February 2013, entered into force 25 December 2014
(Serbia-​uae bit); Agreement Between the Government of the Republic of Estonia and the
Government of The United Arab Emirates for the Promotion and Reciprocal Protection
of Investments, signed 20 April 2011, entered into force 21 March 2012 (Estonia-​u ae bit);
Agreement Between the Hashemite Kingdom of Jordan and the United Arab Emirates for
the Promotion and Reciprocal Protection of Investments, signed 15 April 2009, entered
into force 12 February 2010 (Jordan-​uae bit).
46 Ubilava and Nottage (n 18 in ch 1); The Jordan-​uae bit is only available in Arabic, how-
ever, an English translation was provided to the tribunal in Itisaluna Iraq LLC and others v
Republic of Iraq (Award), (icsid Arbitral Tribunal, Case No. arb/​17/​10, 3 April 2020, 60.
47 Brown (n 39).
48 Kenneth Vandevelde, ‘Of Politics and Markets: The Shifting Ideology of the BITs’ (1993)
11(2) International Tax & Business Lawyer 159; Kenneth Vandevelde, ‘A Brief History of
International Investment Agreements’ (2005) 12(1) uc Davis Journal of International Law
& Policy 157.
49 Lauge Poulsen and Emma Aisbett, ‘Diplomats Want Treaties: Diplomatic Agendas and
Perks in the Investment Regime’ (2016) 7(1) Journal of International Dispute Settlement 72.

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66  Chapter 3

Developing countries believed that by creating a welcoming and safe envi-

ronment for foreign investors, fdi flows would increase to their benefit.50
Hence they undertook to treat foreign investments in compliance with the
requirements of bits, granting investors substantive rights and increasingly
adding an isds provision to the treaties.51
In 1992, the North Atlantic Free Trade Agreement (nafta) was concluded
between the United States, Mexico and Canada. Chapter Eleven of nafta,
which regulated the investment part of the fta, also included an isds clause for
investment protection purposes, with the Unites States believing such a clause
was necessary given Mexico’s unstable political situation.52 Ironically, a few
years later it was the US and Canada who also became regular respondents of
isa under nafta, not just Mexico. Throughout the years, nafta generated 63
isa cases which also contributed to the interpretation of national treatment,53
the minimum standard of treatment (fair and equitable treatment (fet))54
and unlawful expropriations.55 Due to being quite frequent respondents
to isa, the US and Canada adapted their investment agreement templates or
Model bits, developing unusually detailed provisions and voluminous sub-
sequent investment agreements.56 Such ‘nafta +​’ provisions in turn heavily
influenced the bits and then ftas signed by other Asia-​Pacific states.57 In
2020 nafta was replaced by the United States-​Mexico-​Canada Agreement
(usmca) that entered into force on July 1, 2020. According to the new usmca,
Canada is no longer part of the isds regime and overall, investor access to isds
has been reduced considerably compared to its predecessor, nafta.58

50 Ibid.
51 Franck (n 2 in ch 1).
52 Andrew Newcombe, ‘The Americas’ in Marc Bungenberg et al (eds), International
Investment Law (1st ed, Nomos Verlagsgesellschaft mbH & Co kg 2015) 202.
53 Pope & Talbot Inc. v The Government of Canada (Award on the Merits of Phase ii), 10 April
2001, [79]; Methanex Corporation v United States of America (Final Award), 7 August 2005,
Part iv Ch B [18] and [22].
54 Christopher Thomas, ‘Reflections on article 1105 of NAFTA: History, State Practice and the
Influence of Commentators’ (2002) 17(1) icsid Review 21.
55 Newcombe (n 52); Andrea K. Bjorklund, ‘NAFTA’s Contributions to Investor-​State Dispute
Settlement’ in Marc Bungenberg et al (eds), International Investment Law (1st ed, Nomos
Verlagsgesellschaft mbH & Co kg 2015) 261.
56 Newcombe (n 52); Bjorklund (n 55).
57 Wolfgang Alschner and Dmitriy Skougarevskiy, ‘The New Gold Standard? Empirically
Situating the Trans-​Pacific Partnership in the Investment Treaty Universe’ (2016) 17(3)
Journal of World Investment & Trade 339. However, nafta was renegotiated under the
Trump Administration and the isds provisions were heavily curtailed.
58 nafta, Agreement Between the United States of America, the United Mexican States,
and Canada 7/​1/​20.

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Addressing Drawbacks in Investor-state Arbitration 67

In 1998, the Energy Charter Treaty (ect) entered into force, which built on
the principles of the 1994 European Energy Charter.59 Under the ect, only
transit disputes are referred to conciliation procedures. All other types of
investor-​state disputes are settled under isa.60 ect has over fifty states and the
EU as signatories. As of the latest report of December 2020, ect has contrib-
uted 135 isa cases to the total number of the known treaty-​based isds cases of
the unctad database.61
Treaty-​based disputes have not been the only investor-​state disputes known
to history. The origins of contract-​based investor-​state disputes can be traced
back to the 19th century.62 This is when a contract concluded between a for-
eign investor and a sovereign state, regardless of the existence of an interna-
tional investment agreement, refers the dispute to arbitration instead of to the
national courts of the host state.63 In such cases, the substantive provisions of
the dispute are not the standards of treatment under an investment treaty but
instead consist of the substantive obligations that are contained in those indi-
vidual investor-​state contracts. Modern-​day investor-​state contracts may con-
tain ad hoc instead of institutional arbitration clauses. This means that apart
from the uncitral Arbitration Rules, the contracts may also provide prior
consent to the icc, the lcia, the American Arbitration Association (aaa), the
Arbitration Institute of the Stockholm Chamber of Commerce (scc), and most
importantly the icsid Arbitration or Additional Facility Rules.64 According to
the icsid database, the oldest known investor-​state contract arbitration case

59 The Energy Charter Treaty (ect), opened for signature December 1994, entered into force
April 1998; Richard Happ, ‘The Energy Charter Treaty’ in Marc Bungenberg et al (eds),
International Investment Law (1st ed, Nomos Verlagsgesellschaft mbH & Co kg 2015) 240.
60 Energy Charter Secretariat, ‘The International Energy Charter Consolidated Energy
Charter Treaty’, 2016; Energy Charter Secretariat, ‘Decision of the Energy Charter
Conference’, 2016.
61 International Energy Charter, ‘List of Cases’, available at <https://​www.ener​gych​arte​rtre​aty
.org/​cases/​list-​of-​cases/​>; unctad, ‘Investment Policy Hub’ (n 2 in ch 1).
62 André von Walter, ‘Investor-​State Contracts in the Context of International Investment
Law’ in Marc Bungenberg et al (eds), International Investment Law (1st ed, Nomos
Verlagsgesellschaft mbH & Co kg 2015) 80.
63 Ibid. Arthur Nussbaum, ‘Arbitration Between the Lena Goldfields Ltd. and the Soviet
Government’ (1950) 36(1) Cornell Law Quarterly 31.
64 Morris Besch, ‘Typical Questions Arising within Negotiations’ in Marc Bungenberg
et al (eds), International Investment Law (1st ed, Nomos Verlagsgesellschaft mbH & Co kg
2015) 93. Moreover, icsid also offers model icsid arbitration clauses, which are publicly
available on its website. See icsid, ‘Model ICSID Arbitration Clauses’, available at <http://​
ics​idfi​les.worldb​ank.org/​icsid/​icsid/​stat​icfi​les/​model-​clau​ses-​en/​main-​eng.htm>.

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68  Chapter 3

is Holiday Inns S.A. and others v Morocco, which was discontinued in 1978 due
to party settlement after an award on jurisdiction.65
The final attempt for multilateralization took place between 1995 and
1998 under the auspices of the Organisation for Economic Co-​operation and
Development (oecd). Despite the apparent readiness of international soci-
ety for such a step, the Multilateral Agreement on Investment (mai) failed, for
several reasons.66 The mai was based on three main pillars: investment liber-
alisation, protection, and dispute settlement. While participants in the nego-
tiations agreed on these major points, there was much disagreement on the
content of the individual provisions.67
The first problem was encountered at the very beginning, when the negoti-
ators failed to define the term “investment”.68 Secondly, each negotiator party
presented its own list of industries that were excluded from the investment
liberalisation provisions, causing asymmetry in commitments that became
impossible to harmonise. Thirdly, some countries were against allowing pre-​
establishment disputes to be covered by mai, whereas others fully opposed the
inclusion even of post-​establishment disputes.69 Moreover, non-​governmental
organisations (ngos) were strongly against the whole concept of isds and
started protests against mai, thereby pressuring the delegates. Many of these
ngos had earlier mobilised unsuccessfully against trade and (services) invest-
ment liberalisation under the World Trade Organisation (wto) (established
in 1994 and officially commenced in 1995).70 Additionally, the already agreed
parts of the negotiations were constantly renegotiated and more topics further
overloaded the negotiation agenda. There was also a lack of political support

65 Holiday Inns S.A. and others v Morocco (Discontinued) (icsid Arbitral Tribunal, Case No
arb/​72/​1, 17 October 1978).
66 The Multilateral Agreement on Investment: Draft Consolidated Text, daffe/​m ai(98)7/​
rev1; The Multilateral Agreement on Investment: Commentary to the Consolidated Text,
daffe/​m ai(98)8/​r ev1. See also the database containing documents from the negotia-
tions oecd Database, available at <http://​www1.oecd.org.ezpr​oxy.libr​ary.syd​ney.edu.au
/​daf/​mai/​index.htm>; Karl (n 29); Newcombe and Paradell (n 28) 55.
67 See generally, David Henderson, The MAI affair: A Story and its Lessons (Royal Institute of
International Affairs 1999).
68 Pierre Sauve, ‘Multilateral Rules on Investment: Is Forward Movement Possible?’ (2006)
9(2) Journal of International Economic Law 325.
69 Jurgen Kurtz, ‘A General Investment Agreement in the WTO? Lessons from Chapter 11 of
NAFTA and the OECD Multilateral Agreement on Investment’ (2002) 23(4) University of
Pennsylvania Journal of International Economic Law 713.
70 Jeswald W Salacuse, ‘Towards a Global Treaty on Foreign Investment: the Search for a
Grand Bargain’ in Norbert Horn and Stefan Kroll (eds), Arbitrating Foreign Investment
Disputes (Kluwer Law International 2004) 51.

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Addressing Drawbacks in Investor-state Arbitration 69

from the higher echelons of participating countries. For example, mai, unlike
nafta, was not publicly promoted by the then US president (Bill Clinton)
and many politicians of European countries started criticising and distancing
themselves from mai.71 Negotiations were conducted by experts in the field
who lacked political authority. Due to pressure particularly from civil society,
France announced that it would no longer take part in the oecd mai negoti-
ations. The EU followed France as it could not stay in the project without the
latter, and hence the whole negotiations came to an end.72
Despite the failed attempts to adopt a multilateral convention, efforts to
create regional multilateral treaties have been more successful.73 In 2009, the
Association of Southeast Asian Nations (asean) member states signed the
asean Comprehensive Investment Agreement (acia), which entered into
force in 2012. The original aim of asean was the promotion of security, then
trade. Gradually, its major objective shifted to include the facilitation of mutual
investment within the region through acia. During the time of its signature
and entry into force, asean also entered into ftas with Korea, Japan, China,
Australia-​New Zealand, and India (asean Plus Agreements). Meanwhile,
from 2012, asean began working on a unified fta, a Regional Comprehensive
Economic Partnership (rcep) to include ten asean states and the six asean
Plus Agreement countries.74 rcep was signed on 15 November 2020, and while
India declared it would not sign the treaty, it still represents the world’s larg-
est fta.75 The initial leaked draft of rcep in 2015 included isds provisions.76
However, according to the announcement in late 2019 and the final signed text,
rcep does not have isds provisions. However, within two years of coming into
force, there will be further negotiations to consider adding isds. Regardless,

71 Ibid.
72 Karl (n 29).
73 August Reinisch, ‘The Future of Investment Arbitration’ in Christina Binder et al (eds),
International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer
(Oxford University Press 2009) 894.
74 Vivienne Bath and Luke Nottage, ‘The ASEAN Comprehensive Investment Agreement
and ‘ASEAN Plus’–​The Australia-​New Zealand Free Trade Area (AANZFTA) and the PRC-​
ASEAN Investment Agreement’ in M. Bungenberg et al (eds), International Investment
Law: A Handbook (Nomos Verlagsgellschaft 2015) 283.
75 Amokura Kawharu and Luke Nottage, ‘Models for Investment Treaties in the Asian
Region: An Underview’ (2017) 34(3) Arizona Journal of International and Comparative
Law 461.
76 The leaked rcep draft can be found at <https://​www.keionl​ine.org/​23065>.

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70  Chapter 3

almost all pairs of 15 rcep states already have at least one isds-​backed iia in
force between them.77
It was not until the mid-​2000s that investor-​state treaty-​based arbitration
cases started to increase, with foreign investors invoking various investment
agreements and treaties as well as investor-​state contracts. While the explo-
sion of bits, ftas and multilateral investment treaties made investor-​state
claims possible, other events also facilitated the growth of isa cases. A notable
example is Argentina’s financial crisis, which alone has generated 59 known
isa cases since 1997.78 As of December 2020 (the latest report), there have been
1104 registered treaty-​based isa cases, with 797 already concluded.79 According
to the unctad database, of these 797 cases, 298 were decided in favour of the
state, 227 were decided in favour of the investor, 155 were settled before the
final award was rendered, 98 were discontinued, and in 19 cases liability was
found but no damages were awarded.80
With extensive practice and growing experience in conducting isa pro-
ceedings, arbitration started to show the same weaknesses in the new field
of international investment dispute settlement as it had on the international
commercial dispute resolution platform. Notwithstanding the structural dif-
ferences between international commercial arbitration and isa –​one is based
on the contracts governed by national law between private parties, and the
other (between investors and states) is based mainly on treaties as public inter-
national law instruments –​they are still part of the same family: arbitration.81
This extensive common ground is why these two forms have some similar pos-
itive and negative traits.

77 Luke Nottage and Bruno Jetin, ‘New Frontiers in Asia-​Pacific Trade, Investment and
International Business Dispute Resolution’ in Luke Nottage et al (eds), New Frontiers in
Asia-​Pacific International Arbitration and Dispute Resolution (Wolters Kluwer 2021) 1.
78 Christoph Schreuer, ‘The Future of International Investment Law’ in Marc Bungenberg
et al (eds), International Investment Law (1st ed, Nomos Verlagsgesellschaft mbH & Co
kg 2015) 1904; unctad, ‘Investor-​State Dispute Settlement: Review of Developments
in 2015’, 2016 (iia Issue Note, No. 2, 2016); Cédric Dupont, Thomas Schultz and Merih
Angin, ‘Political Risk and Investment Arbitration: An Empirical Study’ (2016) 7(1) Journal
of International Dispute Settlement 136.
79 unctad, ‘Investment Policy Hub’ (n 2 in ch 1).
80 My database, which is analysed empirically in Chapter 5, consists of 656 concluded isa
cases as of December 2019.
81 Gus Van Harten and Martin Loughlin, ‘Investment Treaty Arbitration as a Species of
Global Administrative Law’ (2006) 17(1) European Journal of International Law 121.

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Addressing Drawbacks in Investor-state Arbitration 71

3.2.2 Investor-​State Arbitration Drawbacks

The 2013 qmul focusing on Energy, Financial Services and Construction indus-
tries found that 22% of respondents believed cost was the major drawback of
arbitration, while 17% considered arbitration extremely time-​consuming.82 In
a more recent (2018) qmul survey, the costs and delays of isa continued to be
arbitration’s worst features among other issues, such as ‘the lack of effective
sanctions during the arbitral process’ and the ‘lack of power in relation to third
parties’.83 Issues with delays and costs (party costs, tribunal costs and damages
awarded) are not only evident in investor-​state dispute settlement but also in
international commercial dispute settlement.84 However, these drawbacks are
particularly important in isa rather than in international commercial arbitra-
tion. As much as corporate interests may be infringed by time-​consuming and
costly arbitration proceedings, both the public interest and legitimate con-
cerns caused by the alleged ‘regulatory chill’ of state legislators are of greater
importance.85

3.2.2.1 Arbitration Costs

There is rising dissatisfaction with the magnitude of costs associated with
international arbitration.86 Arbitration costs include party costs (for exam-
ple, expert and especially legal counsel fees, travel expenses), tribunal costs

82 qmul (n 170 in ch 2).

83 qmul, ‘International Arbitration Survey: The Evolution of International Arbitration’,
2018; Nottage (n 6).
84 wipo Arbitration and Mediation Center, ‘Results of the WIPO Arbitration and Mediation
Center International Survey on Dispute Resolution in Technology Transactions’ (2013);
International Chamber of Commerce Commission Report, ‘Controlling Time and Costs in
Arbitration’ (2018)icc Publication 861–​2 eng; Matthew Hodgson, ‘Costs in InvestmentTreaty
Arbitration: The Case for Reform’ (2014) 11(1) Transnational Dispute Management, avail-
able at <https://​www.transn​atio​nal-​disp​ute-​man​agem​ent.com/​arti​cle.asp?key=​2088>;
Susan Franck, ‘Rationalising Costs in Investment Treaty Arbitration’ (2011) 88(4)
Washington University Law Review 769.
85 uncitral Working Group iii, ‘Possible Reform of Investor-​State Dispute Settlement
(ISDS) –​Cost and Duration’ UN Doc a/​c n.9/​w g.iii/​w p.153; Nottage, ‘A Weather Map
for International Arbitration: Mainly Sunny, Some Clouds, Possible Thunderstorms’ (n 41
in ch 2).
86 Robert Smit and Tyler Robinson, ‘Cost Awards in International Commercial
Arbitration: Proposed Guidelines for Promoting Time and Cost Efficiency’ (2010) 20(3)
The American Review of International Arbitration (aria) 267; Jean-​ Claude Najar,
‘Inside Out: A User’s Perspective on Challenges in International Arbitration’ (2009) 25(4)
Arbitration International 515; Loukas Mistelis and Crina Baltag, ‘Trends and Challenges
in International Arbitration: Two Surveys of In-​House Counsel of Major Corporations’
(2008) 2(5) World Arbitration and Mediation Review 83.

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72  Chapter 3

(administrative fees and arbitrator remuneration), and the size of damages

(claimed and awarded). Some commentators argue that international arbitra-
tion is often more expensive than litigation or any other dispute resolution
procedure.87
An exceptional case, which resulted in the largest award so far of all pub-
licly available cases, is Yukos v Russia. That award was rendered by a tribunal
sitting in the Hague under the auspices of the pca.88 The claimants were three
former shareholders of Yukos, a company whose assets Russia had unlawfully
expropriated. In the final three awards rendered on 18 July 2014, the Russian
Federation was ordered to pay damages in excess of usd50 billion to the
claimants, plus usd60 million in legal fees (75% of the incurred costs of the
proceedings) and usd9,165,047 for arbitration costs.89 Another isa with a sig-
nificantly large amount awarded was Tethyan v Pakistan, where the tribunal
ordered Pakistan to pay to the claimant over usd5.9 billion in compensation
(including interest and usd62 million for the legal costs of both parties).90
In Crystallex v Venezuela,91 the icsid tribunal awarded damages of usd1.2
billion plus pre-​and post-​award interest. Crystallex sought an award in the
amount of usd30.4 million in its party expenses, whereas Venezuela sought

87 Franck (n 84); Hugues Arthur, ‘Where do We Stand? Where Should We Go? An Assessment
of Recent Costs Allocation Trends in International Commercial and Investment
Arbitration’ (2015) 12(6) Transnational Dispute Management, available at <https://​www
.transn​atio​nal-​disp​ute-​man​agem​ent.com/​arti​cle.asp?key=​2279>; David D Caron and
Lee M Caplan, The UNCITRAL Arbitration Rules: a Commentary (Oxford University Press
2013) 840; Lucy Reed, ‘Allocation of Costs in International Arbitration’ (2011) 26(1) icsid
Review 76.
88 The award was appealed by Russia and set aside by the District Court of the Hague on
April 20, 2016. Yukos filed an appeal and on 18 February 2020, the Court of Appeal in
The Hague overturned the previous annulment decision of 2016, reviving the awards ren-
dered in July 2014. See Veteran Petroleum Limited (Cyprus) v The Russian Federation (Final
Award) (pca, Case No 2005-​05/​a a228, 18 July 2014); Yukos Universal Limited (Isle of Man)
v The Russian Federation (Final Award) (pca, Case No 2005-​04/​a a227, 18 July 2014); Hulley
Enterprises Limited (Cyprus) v The Russian Federation (Final Award) (pca, Case No 2005-​
03/​a a226, 18 July 2014).
89 Applying the average 2014 eur to usd exchange rate as the original award amount was
in Euros. See Chester Brown, ‘The End of the Affair? Hulley Enterprises Ltd (Cyprus)
v Russian Federation; Yukos Universal Ltd (Isle of Man) v Russian Federation; Veteran
Petroleum Ltd (Cyprus) v Russian Federation, uncitral, pca Nos aa 226, 227, 228, Final
Awards, 18 July 2014 (Yves Fortier, Charles Poncet, Stephen Schwebel)’ (2016) 17(1) Journal
of World Investment & Trade 126.
90 Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan (Award) (icsid
Arbitral Tribunal, Case No arb/​12/​1, 12 July 2019).
91 Crystallex International Corporation v Bolivarian Republic of Venezuela (Award) (icsid
Arbitral Tribunal, Case No arb(af)/​11/​2, 2 April 2016).

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Addressing Drawbacks in Investor-state Arbitration 73

usd14.3 million. Each party paid their own party costs.92 In Palma Consortium
v Bulgaria, and Pey Casado v Chile, legal costs were over usd15 million.93
The above are extreme cases with exceptionally high costs and do not
reflect the real costs of isa. Some commentators even argue that the empirical
research in this field is limited and that costs of arbitration are more reason-
able than those of litigation. They therefore state that the benefits offered by
isa outweigh the costs.94
Nevertheless, in uncitral Working Group iii, deliberations on multilat-
eral isds reform, which have been underway since late 2017, it was widely felt
that costs and length of isa were grounds for concern. This was especially
true for both developing states with limited financial capacity and small to
medium-​sized enterprises (claimants).95 Recent studies show that party costs
represent 90% of the total cost of arbitration, averaging usd six million for the
claimant and usd five million for the respondent.96 The average tribunal costs
amount to usd one million, usually split between the disputants.
The cause for increasing arbitration costs (as well as delays) can be found
in the way legal counsel usually charge their clients.97 It is common practice
to charge clients by billable hours for the services of legal counsel. It may well
be in the interests of such counsel to prolong the dispute resolution process
and thereby charge more billable hours. The fees of legal counsel do not have a
cap in isa. That could be introduced through the relevant arbitration rules or
iia s, but this is very unlikely, especially for the iia s to cover the details of legal
counsel costs, since the topic is beyond the treaty regulation scope.98
The costs conundrum continues with the inconsistency in how they are dis-
tributed between the parties.99 This makes awards on costs very unpredictable

92 Luke Peterson, ‘In-​Depth: Arbitrators in Crystallex Case Sidestep Debate Over Lawful vs
Unlawful Expropriation, and Accept Validity of Two of Four Damages Valuation Methods’
(9 April 2016) IAReporter, available at <https://​www-​iar​epor​ter-​com.ezpro​xy1.libr​ary
.usyd.edu.au/​artic​les/​24957/​>.
93 Victor Pey Casado and President Allende Foundation v Republic of Chile (Award) (icsid
Arbitral Tribunal, Case No arb/​98/​2, 2 May 2008).
94 Chiara Giogetti, ‘Is the Truth in the Eyes of the Beholder-​The Perils and Benefits of
Empirical Research in International Investment Arbitration’ (2013) 12(1) Santa Clara
Journal of International Law 263; Susan Franck, ‘Empirically Evaluating Claims About
Investment Treaty Arbitration’ (2007) 86(1) North Carolina Law Review 1.
95 uncitral Working Group iii, ‘Possible Reform of Investor-​State Sispute Settlement
(ISDS) –​Cost and Duration’ (n 85).
96 Langford, Behn and Létourneau-​Tremblay (n 21 in ch 1).
97 Nottage (n 6).
98 Ubilava and Nottage (n 18 in ch 1).
99 Franck (n 84).

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 newgenrtpdf

table 1 Average arbitration costs from recent empirical studies

74 

Empirical study Study Arbitral rules Sample Average Sample Average Sample Average
period claimant costs respondent costs tribunal costs

Behn and Daza, 1987–​2019 icsid & 169 6,067,184 177 5,223,974 193 947,622
(2019)a uncitral
Franck, (2019)b 1987–​2012 icsid & 161 5,000,000 161 4,100,000 160 800,000
uncitral
Hodgson and 2013–​2017 icsid & 96 7,414,000 96 5,188,000 89 1,118,000
Campbell, (2017)c uncitral
Commission and 2011–​2017 icsid 90 6,043,915 88 5,217,247 68 922,087
Moloo, (2018)d 2010–​2017 uncitral 36 6,077,585 41 4,596,807 48 960,641

a Daniel Behn and Ana Maria Daza, ‘The Defense Burden in Investment Arbitration’ (2019) PluriCourts Working Paper.
b Susan Franck, Arbitration Costs: Myths and Realities in Investment Treaty Arbitration (Oxford University Press 2019) 135.
c Matthew Hodgson and Alistair Campbell, ‘Damages and Costs in Investment Treaty Arbitration Revisited’ (14 December 2017) Global Arbitration Review,
available at <https://​glob​alar​bitr​atio​nrev​iew.com/​dama​ges-​and-​costs-​in-​inv​estm​ent-​tre​aty-​arbi​trat​ion-​revisi​ted>.
d Jeffery Commission and Rahim Moloo, Procedural Issues in International Investment Arbitration (Oxford University Press 2018) 187.
source: ana ubilava and luke nottage, ‘novel and noteworthy aspects of australia’s recent investment agreements and isds
policy: the cptpp, hong kong, indonesia and mauritius transparency treaties’ in luke nottage et al (eds), new frontiers in asia-​
pacific international arbitration and dispute resolution (wolters kluwer 2021) 115
Chapter 3

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Addressing Drawbacks in Investor-state Arbitration 75

for the parties, which could increase the settlement prospects of a dispute.100
However, unpredictability may work either way. Disputants may prefer to set-
tle their dispute on their own terms rather than wait for an unknown outcome.
Alternatively, they may push their luck with arbitration, hoping the other party
pays its fees.
There are two major cost distribution systems in the world.101 One is the
English system according to which the ‘costs follow the event’, otherwise known
as the ‘loser pays’ principle. Traditionally, at common law, parties to judicial
proceedings paid their own expenses.102 Over time, as common law traditions
evolved, England amended its rules and shifted to a new system where the
losing party bears all (reasonable) costs of the winning party, including legal
expenses.103 This system, although originally an element of judicial proceed-
ings, has largely been adopted by both civil and common law countries.104 The
other is the American system, according to which each party pays its own party
costs whilst the procedural costs are divided equally.105 In practice, tribunals
use their own discretion to allocate costs by applying either of the cost alloca-
tion systems, largely depending on individual case circumstances.106
The non-​existence of a uniform cost allocation system is also affected by
how the two most commonly applied rules to an isa, the icsid and uncitral
Rules, define the cost allocation principles for arbitration costs. According to
Rule 28 of the icsid Arbitration Rules:

Without prejudice to the final decision on the payment of the cost of

the proceeding, the Tribunal may, unless otherwise agreed by the parties,
decide: with respect to any part of the proceeding, that the related costs
(as determined by the Secretary-​General) shall be borne entirely or in a
particular share by one of the parties.107

By contrast, Article 42 of the uncitral Arbitration Rules, states that:

100 Franck (Table 1, n b 98); Arthur (n 87).

101 John Gotanda, ‘Consistently Inconsistent: The Need for Predictability in Awarding Costs
and Fees in Investment Treaty Arbitrations’ (2013) 28(2) icsid Review 420.
102 Christopher Koch, ‘Is There a Default Principle of Cost Allocation in International
Arbitration?’ (2014) 31(4) Journal of International Arbitration 485.
103 Arbitration Act 1996 (UK) s 61.
104 Arthur (n 87).
105 Ibid.
106 Hodgson and Campbell (Table 1, n c).
107 icsid, Rules of Procedure for Arbitration Proceedings (Arbitration Rules) (2006) (icsid
Arbitration Rules).

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76  Chapter 3

The costs of the arbitration shall in principle be borne by the unsuccess-

ful party or parties. However, the arbitral tribunal may apportion each
of such costs between the parties if it determines that apportionment is
reasonable, considering the circumstances of the case.108

Both sets of Rules provide discretion for arbitrators in awarding and allocating
costs, but the formulation of the uncitral Rules (used in one third of isa
cases) by default sets the principle for shifting the costs to the losing party.
While historically, isa tribunals more often applied the American cost
allocation system (where parties bear their own costs), a more recent prac-
tice shows increased application of the English system (where costs follow the
event).109 Several studies have shown that in practice, isa case law is shift-
ing towards the ‘loser pays’ principle or the English cost allocation system.110
A study by Hodgson found that 56% of arbitral tribunals ruled in favour of
the American system while 44% ordered only one party to fully or partially
bear both party costs as well as the tribunal costs: the English system.111 The
American system however has remained the most widely practised cost allo-
cation system for international law disputes used by the wto.112 Nonetheless,
sometimes, even if a party wins, it still ‘loses’ financially when not awarded full
legal costs. For example, in Philip Morris v Australia, despite winning, Australia
ended up paying millions in arbitration costs.113

108 uncitral Arbitration Rules, ga Res 31/​98, UN gaor, 31st sess, 99th plen mtg, Supp No
39, adopted 15 December 1976 (uncitral Arbitration Rules).
109 Hodgson and Campbell (Table 1, n c).
110 Thomas Webster, ‘Efficiency in Investment Arbitration: Recent Decisions on Preliminary
and Costs Issues’ (2009) 25(4)Arbitration International 469, n 15; Koch (n 102); Reed (n
87); Hodgson (n 84); Inna Uchkunova and Oleg Temnikov, ‘Allocation of Costs in ICSID
Arbitration’ (3 December 2014) Kluwer Arbitration Blog, available at <http://​arbi​trat​ion
b​log.kluwer​arbi​trat​ion.com/​2014/​12/​03/​all​ocat​ion-​of-​costs-​in-​icsid-​arbi​trat​ion/​>; adc
Affiliate Limited and ADC & ADMC Management Limited v The Republic of Hungary
(Final Award) (icsid Arbitral Tribunal, Case No arb/​03/​16, 27 September 2006) [531]-​
[533]; Gemplus, S.A., slp, S.A., and Gemplus Industrial S.A. de C.V. v United Mexican States
(Award) (icsid Arbitral Tribunal, Case No arb(af)/​04/​3, 16 June 2010).
111 Hodgson (n 84).
112 Noah Rubins, ‘The Allocation of Costs and Attorney’s Fees in Investor-​State Arbitration’
(2003) 18(1) icsid Review 109; Ben Hamida, ‘Cost Issue in Investor-​State Arbitration
Decisions Rendered Against the Investor: a Synthetic Table’ (2005) 2(5)Transnational
Dispute Management, available at <https://​www.transn​atio​nal-​disp​ute-​man​agem​ent
.com/​arti​cle.asp?key=​606>.
113 Hepburn and Nottage (n 5 in ch 1); Patricia Ranald, ‘When Even Winning is Losing. The
Surprising Cost of Defeating Philip Morris Over Plain Packaging’ (27 March 2019)The
Conversation, available at <https://​thec​onve​rsat​ion.com/​when-​even-​winn​ing-​is-​los​ing
-​the-​sur​pris​ing-​cost-​of-​defeat​ing-​phi​lip-​mor​ris-​over-​plain-​packag​ing-​114​279>.

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Addressing Drawbacks in Investor-state Arbitration 77

­f igure 1 
Annual number of investor-​state arbitration concluded cases and their length
Note: The case length is measured in years. Bars are average and dots are median
lengths of concluded cases

3.2.2.2 Delays
Arbitration is not as time efficient as initially anticipated. On average, isa takes
over four years to be concluded from the date of registration and the length of
arbitration is growing.114 If it took a little over three years to conclude an isa
case in 2009, ten years later the average length is four and a half years (Figure 1).
A 2015 qmul study attempted to determine what the participants of interna-
tional dispute resolution like and dislike in arbitration.115 The study found that
lengthy proceedings was one of the four main concerns respondents had: 68%
of respondents were dissatisfied with costs, 46% were concerned with the lack
of effective sanctions during the proceedings, 39% named arbitrators’ quali-
fications (or rather lack thereof) as a disadvantage, and 36% expressed their
concerns about delays and lengthy proceedings.116 The respondents expressed

114 Zachary Douglas, ‘19th International Arbitration Lecture: A Response to DFAT’s Review
of Australia’s Bilateral Investment Treaties’ (14 October 2020,) online lecture, available at
<https://​youtu.be/​bwhU​cDyB​WlY>.
115 qmul (n 203 in ch 2).
116 Ibid.

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78  Chapter 3

a willingness to work on ways to reduce arbitral timeframes. Nonetheless, in

practice, they were reluctant to compromise on any aspects of the proceedings,
such as limiting rounds of submissions or even the number of pages of submis-
sions. This is because when losing a case, legal counsel fears being blamed for
not exhausting the means available to them.117 Moreover, due to party auton-
omy, arbitrators often find it hard to press counsel to adopt more efficient pro-
cedures and therefore feel obliged to go along with counsel from each side who
may be choosing more conservative or even inefficient procedures.118
It is expected for a dispute resolution process to take some time from the
date of registration until the final award is rendered. However, the tribunal
should be able to rule on jurisdictional matters in relatively shorter periods of
time. The Academic Forum on isds found that a decision on jurisdiction on
average takes around two years and nine months, based on 635 cases from the
PluriCourt’s Investment Treaty Arbitration Database.119 It is hard to ascertain
what constitutes an excessive amount of time to resolve an isa dispute unless
each case is evaluated individually. For example, it took four and a half years
(2011 to 2015) for the Philip Morris v Australia case to be announced inadmissi-
ble on jurisdictional grounds. Nevertheless, during these four years, Australia
attracted tough resistance and anti-​isds movements from ngos with multiple
Parliamentary discussions and enquiries on the matter.120 If the arbitral tribu-
nal had taken less time to dismiss the case on jurisdictional grounds, it probably
would not have caused the chain of events that followed, with isds to the pres-
ent day remaining a controversial topic in Australia.
Time-​and cost-​inefficiency are two major drawbacks of both international
commercial arbitration and isa. This indicates that the cause for criticism is
rooted in the concept of arbitration itself, rather than the isds system involv-
ing investors claiming against states. Yet arbitration is not the only dispute
resolution mechanism available in the isds system. That also includes adr
mechanisms such as conciliation and ism. Rejecting isds due to the shortcom-
ings of arbitration, like anti-​i sds Bills tried to do in Australia and nz, would

117 Joerg Risse, ‘Ten Drastic Proposals for Saving Time and Costs in Arbitral Proceedings’
(2013) 29(3) Arbitration International 466.
118 Douglas (n 114).
119 Academic Forum on isds –​Working Group 2, ‘Duration of isds Proceedings’, Concept
Papers Project: Matching Concerns and Reform Options, Geneva Center for International
Dispute Settlement, available at <https://​www.cids.ch/​ima​ges/​Docume​nts/​Acade​mic
-​Forum/​2_​Du​rati​on_​-​_​WG2.pdf>.
120 Hepburn and Nottage (n 5 in ch 1).

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Addressing Drawbacks in Investor-state Arbitration 79

also remove investor-​state conciliation and ism options from the table.121 Yet
arbitration becoming costly and lengthy increases the chances of more ism.
It is in the interests of both parties to (a) reduce costs by quickly settling the
dispute and (b) have a say in cost attribution. Therefore, rejecting the whole
isds regime for one element (arbitration) seems unreasonable and excessive.

3.2.2.3 Legitimacy Crisis

A perceived legitimacy crisis is an issue that predominantly occurs in isa and
is a lesser concern in international commercial arbitration.122 There has been
intensive public debate and calls for fundamental changes to the isds system
due to its perceived legitimacy crisis.123 Apart from costs and delays associated
with arbitration, as mentioned above, three problematic aspects form part of
the legitimacy crisis. These are unpredictable and inconsistent awards, lack of
transparency, and constraints to legal sovereignty and allegations of ‘regula-
tory chill’.124

3.2.2.3.1 Unpredictable and Inconsistent Awards

There can be more than one forum entitled to arbitrate investor-​state disputes.
This sometimes contributes to fragmented and inconsistent decisions on sim-
ilar cases. isa disputes are often resolved by institutional and ad hoc tribu-
nals. Institutional arbitral tribunals are established under the procedural and
arbitral rules of particular institutions such as icsid, icc, and the scc. Ad
hoc tribunals are usually one-​off tribunals based on the uncitral Arbitration
rules. They are specifically created for certain disputes and cease to exist once
those disputes are resolved. Such independence of tribunals has caused con-
troversial decisions of different tribunals on relatively similar facts or treaty

121 Kawharu and Nottage (n 75); Amokura Kawharu and Luke Nottage, ‘Foreign Investment
Regulation and Treaty Practice in New Zealand and Australia: Getting it Together in the
Asia-​Pacific?’ in Julien Chaisse and Luke Nottage (eds), International Investment Treaties
and Arbitration Across Asia (Brill Nijhoff 2018) 443.
122 Franck, ‘The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public
International Law through Inconsistent Decisions’ (n 2 in ch 1). But see Luke Nottage,
‘International Arbitration and Society at Large’ in A Bjorklund, F Ferrari and S Kroell
(eds), Cambridge Compendium of International Commercial and Investment Arbitration
(Cambridge University Press 2022) forthcoming.
123 Philip Hainbach, ‘The EU’s Approach to Investor-​State Arbitration in the Comprehensive
Economic and Trade Agreement (CETA)’ (2016) 13(1)Transnational Dispute Management,
available at <https://​www.transn​atio​nal-​disp​ute-​man​agem​ent.com/​arti​cle.asp?key=​2315>.
124 Ibid.

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80  Chapter 3

provisions.125 Even within institutional arbitrations there are still possible

inconsistencies because arbitrations are independent.126
Inconsistent awards can be divided into two types.127 One type (although
rare) is when two or more investment tribunals reach different decisions on
the exact same dispute and legal issues. The most prominent inconsistent deci-
sions of this nature were the awards in the Lauder case(s). Two investment
arbitrations were initiated, one under the Dutch-​Czech Republic bit (which
was seated in Stockholm),128 and the other under the US-​Czech Republic bit
(which was seated in London).129 The two tribunals (which were differently
constituted) reached radically different decisions in a 10-​day interval despite
the similar investor protection provisions in both bits and the identical nature
of the dispute.130
The second type of inconsistent award is when investment tribunals issue
opposing awards on different cases even though the cases involve similar legal
issues.131 For example, sgs was the investor and party to investor-​state disputes

125 Julian Arato, Chester Brown and Federico Ortino, ‘Parsing and Managing Inconsistency
in Investor-​State Dispute Settlement’ (2020) 21(2–​3) Journal of World Investment &
Trade 336.
126 Eun Young Park, ‘Appellate Review in Investor-​State Arbitration’ in Jean E Kalicki and
Anna Joubin-​Bret (eds), Reshaping the Investor-​State Dispute Settlement System (Brill
Nijhoff 2015) 443; Republic of Equatorial Guinea v CMS Energy Corporation and others
(Report) (icsid Arbitral Tribunal, Case No conc(af)/​12/​2, 12 May 2015); LG&E Energy
Corp, LG&E Capital Corp and LG&E International Inc v Argentine Republic (Decision on
Liability) (icsid Arbitral Tribunal, Case No arb/​02/​1, 3 October 2006); Enron Corporation
and Ponderosa Assets, L.P. v Argentine Republic (Award) (icsid Arbitral Tribunal, Case No
arb/​01/​3, 22 May 2007); Sempra Energy International​v The Argentine Republic (Award)
(icsid Arbitral Tribunal, Case No arb/​02/​16, 28 September 2007).
127 Arato, Brown and Ortino (n 125); Lucy Reed, ‘Great Expectations: Where Does the
Proliferation of International Dispute Resolution Tribunals Leave International Law?’
(2002) 96(1) Proceedings of the Annual Meeting (American Society of International
Law) 219.
128 Mau (n 266 in ch 2).
129 Additional Protocol Concerning the Reciprocal Encouragement and Protection of
Investment, United States of America-​The Czech Republic-​Czech and Slovak Federal
Republic, signed 22 October 1991, entered into force 19 December 1992 (Czech Republic-​
United States of America bit).
130 cme Czech Republic B.V. v The Czech Republic (uncitral, Partial Award, 13 September
2001); cme Czech Republic B.V. v The Czech Republic (uncitral, Dissenting opinion of the
Arbitrator JUDr Jaroslav Hándl against the Partial Arbitration Award, 13 September 2001);
Agreement Between the Lebanese Republic and the Federal Republic of Germany on the
Promotion and Reciprocal Protection of Investments, signed 18 March 1997, entered into
force 25 March 1999 (Lebanon-​Germany bit).
131 Franck (n 2 in ch 1).

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Addressing Drawbacks in Investor-state Arbitration 81

in two icsid cases. One was against Pakistan, where the tribunal concluded
that the breach of the investment contract did not constitute a breach of the
investment treaty (bit) under the ‘umbrella clause’.132 The other case involved
the Philippines. There the tribunal reached a contradictory decision to the pre-
vious case against Pakistan and concluded that breaching contractual duties
by the host state may constitute a breach of the ‘umbrella clause’ in the bit.133
Inconsistent interpretations are also evident in a few nafta cases on min-
imum standard of treatment and the condition for exhaustion of local reme-
dies.134 In particular, tribunals have inconsistent approaches when it comes
to the pre-​condition of exhausting local remedies before going to arbitration
under customary international law. This is not surprising, considering that inter-
national investment is an area with multiple investment treaties and forums
but without a uniform tool for harmonising these individual elements.135

3.2.2.3.2 Lack of Transparency

Inconsistency in international investment arbitration awards has been aggra-
vated by an additional deficiency: lack of transparency. In the 1976 uncitral
Arbitration Rules, the requirement for transparency was very limited. Article
32(5) stated that an award would be publicly available only if both parties
consented.136 However, these rules did not otherwise include a confidential-
ity obligation on the parties. Therefore, in theory, parties could disclose infor-
mation about the arbitration unless precluded by confidentiality required
by the law of the seat, or unless the disclosure might impede the integrity of
the proceedings.137 The 2010 uncitral Arbitration Rules offered an upgrade
regarding transparency.138 Article 34(5) stated that a party had an opportunity

132 According to the tribunal: ‘the State may breach a treaty without breaching a contract,
and vice versa, and this is certainly true of these provisions of the BIT’. See sgs Société
Générale de Surveillance S.A. v Islamic Republic of Pakistan (Decision on Jurisdiction)
(icsid Arbitral Tribunal, Case No arb/​01/​13, 6 August 2003).
133 gs Société Générale de Surveillance S.A. v Republic of the Philippines (Decision on
Jurisdiction) (icsid Arbitral Tribunal, Case No arb/​02/​6, 29 January 2004).
134 Two tribunals reached radically different decisions in a 10-​day interval: Metalclad
Corporation v The United Mexican States (Award) (icsid Arbitral Tribunal, Case No
arb(af)/​97/​1, 30 August 2000); Bjorklund (n 55).
135 Franck (n 2 in ch 1).
136 uncitral Arbitration Rules (n 108).
137 Nottage (n 29 in ch 1).
138 James Harrison, ‘Recent Developments to Promote Transparency and Public Participation
in Investment Treaty Arbitration’ Working Paper No 2011/​01, University of Edinburgh
School of Law, available at <https:// ​ p ap ​ e rs.ssrn.com/​ s ol3/​ p ap​ e rs.cfm?abst​ ract​ _ ​ i d
=​1739​181>.

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82  Chapter 3

to publicise the arbitral award without the consent of the other party in case
the ‘disclosure is required of a party by legal duty, to protect or pursue a legal
right or in relation to legal proceedings before a court or other competent
authority’.139
These Rules were still limited in comparison to transparency requirements
under the icsid Arbitration Rules, which provide minimum transparency
regardless of party consent.140 When an isa case is registered, its existence
becomes publicly known.141 The publication of the award is solely a party
discretion and if they choose not to publish, the major contents of the award
remain confidential. Yet, regardless of party consent, the icsid Secretariat will
publish the excerpts of the award (but not other decisions, including decisions
on jurisdiction).142 This can put pressure on the parties to the dispute to agree
and publicise the whole award instead of just the excerpts.
While it is understandable that sensitive corporate and government infor-
mation requires confidentiality, minimum transparency is required to allow
public scrutiny of matters of public policy, such as environment and health.143
Some scholars speculate that states may be reluctant to join icsid because of
the relevant transparency requirements.144 The possibility of non-​publication
of full awards is also seen as problematic by some scholars. They believe that
this practice is detrimental to further case law development, which contrib-
utes to inconsistent awards on similar issues.145 A lack of transparency is also
problematic for international commercial law. Because confidentiality is a
characteristic strictly protected by stakeholders in international commercial

139 uncitral Arbitration Rules (as revised in 2010), ga Res 65/​22, UN Doc a/​r es/​65/​22 (10
January 2011, adopted 6 December 2010) art 34(5) (uncitral Arbitration Rules).
140 Harrison (n 138).
141 icsid, Administrative and Financial Regulations (2006) reg 22(1) (icsid Administrative
and Financial Regulations).
142 icsid Arbitration Rules (n 107) r 48(4). See almost identical text in icsid, Additional
Facility Rules (2006) r 53(3) (icsid Additional Facility Rules).
143 Karl-​Heinz Böckstiegel, ‘The Future of International Investment Law–​ Substantive
Protection and Dispute Settlement’ in Marc Bungenberg et al (eds), International
Investment Law (Nomos Verlagsgesellschaft mbH & Co kg 2015) 1863.
144 Emilie M Hafner-​Burton, Sergio Puig and David G Victor, ‘Against Secrecy: The Social Cost
of International Dispute Settlement’ (2017) 42(2) Yale Journal of International Law 279.
145 Ibid; Harrison (n 138). There are scholars who believe that isa awards should contribute
to case-​law, and scholars who do not. The latter claim that international investment law
is more of a code-​based system rather than a common law system and is therefore not
suitable for binding precedents. See Marc Bungenberg and Catharine Titi, ‘Precedents in
International Investment Law’ in Marc Bungenberg et al (eds), International Investment
Law (Nomos Verlagsgesellschaft mbH & Co. kg 2015) 1505.

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Addressing Drawbacks in Investor-state Arbitration 83

arbitration, awards are confidential and therefore do not contribute to the

development of substantive international commercial law. However, the need
to ensure transparency is especially strong in isa, where public interests are
directly affected by an arbitral award.146
In 2014, uncitral adopted the Rules on Transparency in Treaty-​based
Investor-​State Arbitration (Rules on Transparency).147 Yet these new rules
only apply to disputes that are based on treaties which were concluded after
2014.148 The Rules on Transparency can only be applied to uncitral arbitra-
tions conducted under older treaties if the parties opt in, which is less likely
to happen unless these rules are proposed in the form of a convention for
states to ratify.149 With this in mind, the same year, uncitral developed the
United Nations Convention on Transparency in Treaty-​based Investor-​State
Arbitration (New York, 2014) (the Mauritius Convention on Transparency).150
The Mauritius Convention on Transparency is an instrument which allows
acceding states to retrofit the Rules on Transparency to disputes arising out
of earlier iia s (if both parties to the relevant iia have acceded to it).151 The
Mauritius Convention has 23 signatories as of December 2020, and has been
ratified by seven states, most recently by Australia on 17 September 2020 and
Bolivia a month later. This type of instrument, which allows new provisions to
be retrofitted to earlier iia s, can also be used to incorporate potentially man-
datory ism provisions into already existing iia s without renegotiating thou-
sands of bits and ftas. More on the ways of incorporating ism into isds is
discussed in Chapter 6. However, the empirical analysis of concluded isa cases
provided in Chapter 5 of this book shows that overall, isa awards and awarded
amounts are publicly disclosed in over 95% of disputes.152

146 Nottage (n 29 in ch 1).

147 Nathalie Bernasconi-​Osterwalder and Diana Rosert, ‘Investment Treaty Arbitration:
Opportunities to reform arbitral rules and processes’ (12 March 2014) International
Institute for Sustainable Development, available at <https://​www.iisd.org/​publi​cati​ons
/​inv​estm​ent-​tre​aty-​arbi​trat​ion-​opport​unit​ies-​ref​orm-​arbit​ral-​rules-​and-​proces​ses>; Lise
Johnson and Nathalie Bernasconi-​Osterwalder, ‘New UNCITRAL Arbitration Rules on
Transparency: Application, Content and Next Steps’ (18 September 2013) Investment Treaty
News, available at <https://​www.iisd.org/​itn/​2013/​09/​18/​new-​uncit​ral-​arbi​trat​ion-​rules
-​on-​trans​pare​ncy-​appl​icat​ion-​cont​ent-​and-​next-​steps-​2/​>.
148 Bernasconi-​Osterwalder and Rosert (n 147); Johnson and Bernasconi-​Osterwalder (n 147).
149 Bernasconi-​Osterwalder and Rosert (n 147); Johnson and Bernasconi-​Osterwalder (n 147).
150 Mauritius Convention on Transparency (n 32 in ch 1).
151 Ubilava and Nottage (n 7 in ch 1).
152 The transparency rates are different for settled outcomes, as discussed in further detail in
Chapter 5.

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84  Chapter 3

3.2.2.3.3 Constraints on Sovereignty and Allegations of ‘Regulatory Chill’

International investment treaties are believed to draw a very narrow line
between the investment protection obligations of a state and its discretion to
issue new laws. For this reason, tribunals are given broad powers to possibly
interpret government’s non-​discriminatory legislative actions as breaches to
investment rights.153 The late 1990s case Metalclad v Mexico was the trigger for
the first wave of protests against isa accusing the system of imposing a regula-
tory chill on government policymaking.154 This was because Mexico had relied
upon environmental concerns when it denied construction of a waste landfill
and was consequently found to be in breach of the nafta standards of treat-
ment in isa.155
Similarly, the Philip Morris cases against Australia and Uruguay regarding
the countries’ tobacco regulations triggered strong criticism against the isds
system, even though claims failed respectively on jurisdictional grounds and
on the merits.156 In Australia, the anti-​isds movement was enriched by major
concerns towards isa. The movement claimed that isds provisions allowed
investors to challenge measures issued by a host state and therefore forced a
‘regulatory chill’ on the government, which would have to either compromise
on the necessary public measures or risk facing an investment dispute.157 The
anti-​isds movement re-​emerged once again around the inclusion of isds pro-
visions in the Trans-​Pacific Partnership agreement (tpp) due to the fear of the
litigiousness of US investors. This is because since 1987, US nationals have been
the claimants in 183 isa cases.158
On 30 November 2016, Australia’s Joint Standing Committee on Treaties
(jscot) addressed, among other key concerns regarding isds, the topic of

153 Caroline Henckels, ‘Protecting Regulatory Autonomy Through Greater Precision in

Investment Treaties: the TPP, CETA, and TTIP’ (2016) 19(1) Journal of International
Economic Law 27.
154 Nikos Lavranos, ‘The Deafening Silence of the Anti-​ISDS Groups After the Philip Morris
Decision’ (24 February 2016) Kluwer Arbitration Blog, available at <http://​arbi​trat​ionb​log
.kluwer​arbi​trat​ion.com/​2016/​02/​24/​the-​deafen​ing-​sile​nce-​of-​the-​anti-​isds-​gro​ups-​after
-​the-​phi​lip-​mor​ris-​decis​ion/​>; Hafner-​Burton, Puig and Victor (n 144).
155 Metalclad Corporation v The United Mexican States (n 134).
156 Hafner-​Burton, Puig and Victor (n 144); Hepburn and Nottage (n 5 in ch 1).
157 Gareth Hutchens, ‘Trans-​ Pacific Partnership Makes Australia Vulnerable to Court
Challenges, Report Claims’ (25 October 2016,) International Trade News, available at
<https://​www.theg​uard​ian.com/​busin​ess/​2016/​oct/​25/​trans-​paci​fic-​part​ners​hip-​makes
-​austra​lia-​vul​nera​ble-​to-​court-​cha​llen​ges-​rep​ort-​cla​ims>.
158 The number of claimants from different home states can be found using unctad’s search
engine. See unctad, ‘Investment Policy Hub’ (n 2 in ch 1).

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Addressing Drawbacks in Investor-state Arbitration 85

‘regulatory chill’ in its Report 165.159 According to the Report, investor claims
against the laws and regulations passed by a country would be unsuccessful
because the tpp has a carve-​out for public welfare protection regulations.160
Moreover, even if the isds claim were successful, it would only mean that
the regulation was faulty and the investor deserved legitimate compensation.
The Report did note the possibility of increased potential for inbound claims
from US investors, infamous, as just noted, for their litigiousness. However, the
Report also pointed out that litigiousness would not be a problem for a devel-
oped country such as Australia. Nottage points out that whilst US investors had
filed most of the investment claims made by the end of 2015, when evaluated
from a per capita standpoint, they were less litigious than, for example, inves-
tors from Canada and Germany.161
There have been reports of tobacco companies intimidating developing
host countries, mostly in Africa. They threaten those countries with lengthy
and costly investment arbitration disputes if the countries pass regulations
limiting the companies’ brand or marketing freedom or enforce such regula-
tions.162 Moreover, the economies being threatened are not only poor devel-
oping countries but also developed states. For example, Canada gave up on its
tobacco regulations twice, approximately 20 years ago. Whereas New Zealand
stated that it would wait for the outcome of Philip Morris v Australia before
issuing tobacco regulations similar to Australia.163 Therefore, one view is that
while big companies seem to influence states with weaker economies into lim-
iting their legislative incentives, developed countries too seem to avoid possi-
ble investment disputes, even at the cost of regulatory chill. However, unlike
Australia, New Zealand has very few bits. Therefore, it is arguable that New
Zealand waited for the outcome of Philip Morris v Australia due to its own isds

159 Joint Standing Committee on Treaties (jscot), Report 165 Trans-​Pacific Partnership
Agreement (Report No 165, 2016).
160 Jarrod Hepburn and Mark Huber, ‘An Assessment of Australia’s Parliamentary Report on
ISDS in the TPP’ (5 January 2017) Kluwer Arbitration Blog, available at <http://​kluwer​arbi​
trat​ionb​log.com/​2017/​01/​05/​reser​ved-​an-​ass​essm​ent-​of-​aus​tral​ias-​parlia​ment​ary-​rep​ort
-​on-​isds-​in-​the-​tpp/​>.
161 Luke Nottage, ‘Are US Investors Exceptionally Litigious with ISDS Claims?’ (14 November
2016) Kluwer Arbitration Blog, available at <http://​kluwer​arbi​trat​ionb​log.com/​2016/​11/​14
/​are-​us-​invest​ors-​except​iona​lly-​litigi​ous-​with-​isds-​cla​ims/​>.
162 Sabrina Tavernise, ‘Tobacco Firms’ Strategy Limits Poorer Nations’ Smoking Laws’ (13
December 2013) The New York Times, available at <http://​www.nyti​mes.com/​2013/​12/​13
/​hea​lth/​toba​cco-​indus​try-​tact​ics-​limit-​poo​rer-​nati​ons-​smok​ing-​laws.html>.
163 Krzysztof Pelc, ‘Does the International Investment Regime Induce Frivolous Litigation?’
(10 May 2016) ssrn, available at <https://​pap​ers.ssrn.com/​sol3/​pap​ers.cfm?abst​ract​_​id
=​2778​056>.

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86  Chapter 3

provisions in bits. But the more likely argument is that it waited for the out-
come because the evidence related to the case was connected to pending cases
before the wto. Therefore, any or some regulatory chill came from the wto
rather than isds.
In a 2011 study, Allee and Peinhardt researched the impact of states’ inter-
national investment treaty violations on fdi flows.164 They found that bits
were beneficial for those states whose actions were in compliance with treaty
requirements, but detrimental for those states whose actions led them to
isa because such actions resulted in the decline of their fdi inflows.165 The
authors explained that the negative effect of treaty violations on fdi inflow
was caused by a state’s stained reputation from being a respondent in an isa.
It was a signal that the state allegedly failed to comply with the standards of
treatment of an investor under its iia s. Therefore, if a state subjects itself to
the isds provisions under its iia s and then becomes a respondent to isa, its
reputation declines. Consequently, this adverse effect on a state’s reputation
results in reduced fdi, which is the opposite of the originally anticipated aim.
While such adverse effects of isds can be avoided if the state acts in com-
pliance with all of its obligations, states may still face frivolous isa claims.
Therefore, considering the concerns of the “regulatory chill” caused by isa, it
is in the interests of the respondent host state to resolve an investment dispute
on its own terms. This can be achieved through dispute resolution processes
that allow for the parties to have control over the outcome of their disputes,
such as ism.

3.2.3 Current isds Reform Proposals

The increasing dissatisfaction with isa laid grounds for various initiatives
towards rebalancing isds, and in particular isa and iia s.166 Countries have

164 Todd Allee and Clint Peinhardt, ‘Contingent Credibility: The Impact of Investment Treaty
Violations on Foreign Direct Investment’ (2011) 65(3) International Organization 401.
165 Ibid.
166 Kaj Hobér, ‘Does Investment Arbitration have a Future?’ in Marc Bungenberg et al (eds),
International Investment Law: A Handbook (1st ed, Nomos Verlagsgesellschaft mbH & Co
kg 2015) 1873; Böckstiegel (n 143); Luke Nottage, ‘Investor-​State Arbitration Policy and
Practice after Philip Morris Asia v Australia’ in Leon Trakman and Nicola Ranieri (eds),
Regionalism in International Investment Law (Oxford University Press 2013) 452; Nottage,
‘Rebalancing Investment Treaties and Investor-​ State Arbitration: Two Approaches’
(n 5 in ch 1); Kawharu and Nottage (n 75); Leon E Trakman and David Musayelyan,
‘The Repudiation of Investor–​State Arbitration and Subsequent Treaty Practice: the
Resurgence of Qualified Investor–​State Arbitration’ (2016) 31(1) icsid Review-​Foreign
Investment Law Journal 194.

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Addressing Drawbacks in Investor-state Arbitration 87

been implementing different measures to deal with the adverse effects of isds
provisions.
That isds has become a problem for some states is reflected in their treaty
drafting practices. For example, US international investment agreement policy
has been largely influenced by extensive nafta claims against the US despite
the fact that it has never lost an isa case.167 The US and Canadian iia templates
employ very detailed language for clarifying substantive and procedural clauses,
which makes them five times more voluminous in comparison to EU iia s (usu-
ally with shorter and more laconic texts).168
India took steps to bar easy access to isa though its new Model bit, and since
June 2016 has terminated many of its existing bits.169 The goal is to conclude
treaties based on its new Model bit, which was adopted in December 2015, with
its former bit or future fta counterparts. The new Model, while still includes
isds clauses, creates complex pre-​conditions before an investor is allowed to
proceed to isa.170 These pre-​conditions are the exhaustion of local remedies for
at least five years, and consecutive compulsory consultations/​negotiations or
(voluntary) mediation with additionally allocated time frame on top of an exist-
ing isds timeline.171 The Most-​Favoured-​Nation (mfn) clause is not included in
the new Model bit.
These steps could be rightly perceived as a response to the famous White
Industries v India case. An Australian investor tried to enforce a commercial
arbitration award in Indian courts for years.172 Eventually, the investor initi-
ated isa against India with the facilitation of the mfn clause in the Australia-​
India bit, which the tribunal interpreted as permitting it to incorporate a pro-
vision requiring states to provide “effective means” for enforcing rights in the
India-​Kuwait bit.173 This isa case was followed by a number of other investor
claims against India, invoking other Indian bits.174 Since White Industries,

167 Newcombe (n 52).

168 Ibid.
169 Model Text for the Indian Bilateral Investment Treaty 2015 (India) (India Model bit).
170 For example, the Australia-​India bit 2000 was unilaterally terminated by India on 23
March 2017. See Agreement Between the Government of Australia and the Government
of the Republic of India on the Promotion and Protection of Investments, signed 26
February 1999, terminated 23 March 2017, entered into force 4 May 2000 (Australia-​
India bit).
171 Kawharu and Nottage (n 75).
172 White Industries Australia Limited v The Republic of India (uncitral, Final Award, 30
November 2011) (White Industries Australia Limited v The Republic of India, uncitral).
173 Ibid.
174 Vodafone International Holdings BV v Government of India [I]‌(pca, Case No 2016–​35, 17
April 2014); Deutsche Telekom v India (pca, Case No 2014–​10, 2 September 2013); Jaivir

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88  Chapter 3

Indian bit s have become the centre of an unprecedented debate in the Indian
Parliament and other fora.175
The ia-​c epa signed in 2019 does have a largely cptpp-​style isds clause.176
Yet it adds an unconventional multi-​tier dispute resolution element, includ-
ing a form of mandatory ism.177 After a standard initial consultation phase, a
disputing party (being either the respondent or the claimant) may initiate a
conciliation step which becomes mandatory only for the investor.

If the dispute cannot be resolved within 180 days from the date of receipt
by the disputing Party of the written request for consultations, the dis-
puting Party may initiate a conciliation process, which shall be manda-
tory for the disputing investor …178

Arguably, this innovative proposal came from the Indonesian side, which
had been raising ism in uncitral reform deliberations over isds. Australia
did not include such a provision in its renegotiated bit with Hong Kong also
signed in 2019, along with a wider bilateral fta, but Hong Kong added a similar
provision in its bit signed in 2019 with the uae.179

Singh, ‘Indian Investment Treaty Practice: Qualitatively and Quantitatively Assessing

Recent Developments’ in Luke Nottage et al (eds), New Frontiers in Asia-​ Pacific
International Arbitration and Dispute Resolution (Wolters Kluwer 2021) 287.
175 Prabhash Ranjan, ‘India and Bilateral Investment Treaties: From Rejection to
Embracement to Hesitance?’ in Srinivas Burra and R Rajesh Babu (eds), Locating India in
the Contemporary International Legal Order (Springer 2018) 101.
176 Antony Crockett, ‘Indonesia’s Bilateral Investment Treaties: Between Generations?’ (2015)
30(2) icsid Review 437.
177 ia-​c epa (n 44); Ubilava and Nottage (n 7 in ch 1).
178 ia-​c epa (n 44) art 14.24.
179 James Claxton, Luke Nottage and Ana Ubilava, ‘Mandatory Investor-​State Conciliation
Before Arbitration in Asia-​Pacific Treaties: New Developments and Implications for India
and Australia’, (2021) 3 Indian Journal of International Economic 209; James Claxton,
Luke Nottage and Ana Ubilava, ‘Pioneering Mandatory Investor-​State Conciliation Before
Arbitration in Asia-​Pacific Treaties: IA-​CEPA and HK-​UAE BIT’ (5 September 2020) Kluwer
Arbitration Blog, available at <http://​arbi​trat​ionb​log.kluwer​arbi​trat​ion.com/​2020/​09
/​05/​pio​neer​ing-​mandat​ory-​inves​tor-​state-​conci​liat​ion-​bef​ore-​arbi​trat​ion-​in-​asia-​paci​
fic-​treat​ies-​ia-​cepa-​and-​hk-​uae-​bit/​>; Adrian Lai and Matthew Suen, ‘Background Paper
for Session 1 –​Overcoming Challenges to the Use of Mediation in ISDS’ (9 November
2020) Virtual Pre-​Intersessional Meeting on the Use of Mediation in isds, available at
<https://​aail.org/​uncit​ral-​wgiii-​virt​ual-​pre-​int​erse​ssio​nal/​>; David Ng, ‘Background
Paper for Session 4 –​“The Way Forward for Mediation as a Reform Option for ISDS”’ (9
November 2020) Virtual Pre-​Intersessional Meeting on the Use of Mediation in isds,
available at <https://​aail.org/​wp-​cont​ent/​uplo​ads/​2020/​11/​2020_​UNCITRAL_​WGIII​_​Bac​
kgro​und_​Pape​r_​Se​ssio​n_​4.pdf>.

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Addressing Drawbacks in Investor-state Arbitration 89

Some countries, such as Bolivia, Venezuela, and Ecuador, have decided to

withdraw from icsid while still keeping isds provisions under uncitral
Rules.180 On top of critiques such as absence of an appeals mechanism in local
courts, high costs, and unrealistic compensation awards, these countries also
accused icsid of being biased against them and favouring multinational cor-
porations.181 However, denouncing icsid does not mean the state has recalled
its consent for isa under other treaties. icsid simply provides an additional
procedural framework for investor-​ state dispute resolution. Denouncing
icsid means only that an investor would not be able to initiate isa under the
auspices of icsid. Yet these governments are parties to iia s where they had
already given prior consent to isa s. Therefore, an investor is not precluded
from initiating isa under the uncitral Rules through ad hoc tribunals. This
happens to be the case for Bolivia, with 11 uncitral cases and one icsid af
case,182 and Ecuador, with six uncitral cases.183 For these reasons, Bolivia

180 Bolivia notified icsid of its intention to withdraw on 2 May 2007, and that withdrawal
took effect on 3 November 2007. Ecuador notified icsid on 6 July 2009 and its withdrawal
took effect on 7 January 2010. See unctad, ‘Denunciation of the ICSID Convention and
BITS: Impact on Investor-​State Claims’ iia Issues Note, No 2 2010, UN Doc unctad/​w eb/​
diae/​i a/​2010/​6); Marco Tulio Montanes, ‘Introductory Note to Bolivia’s Denunciation of
the Convention on the Settlement of Investment Disputes between States and Nationals
of Other States’ (2007) 46(5) International Legal Materials 969; Keyvan Rastegar,
‘Denouncing ICSID’ in Christina Binder et al (eds), International Investment Law for the
21st Century: Essays in Honour of Christoph Schreuer (Oxford University Press 2009) 278.
181 Polanco Lazo (n 6 in ch 1).
182 Julio Miguel Orlandini-​Ágreda and Compañía Minera Orlandini Ltda. v Plurinational
State of Bolivia (pca, Case No 2018–​39, Pending); Glencore Finance (Bermuda) Ltd.
v Plurinational State of Bolivia (pca, Case No 2016–​39, Pending); Paz Holdings Ltd. v
Plurinational State of Bolivia (11 November 2015); Iberdrola, S.A. and Iberdrola Energía,
S.A.U. v Plurinational State of Bolivia (pca, Case No 2015–​05, 16 February 2016); Red
Eléctrica Internacional S.A.U. v Plurinational State of Bolivia (13 November 2014); South
American Silver Limited v The Plurinational State of Bolivia (Final Award) (pca, Case No
2013–​15, 30 August 2018); Abertis Infraestructuras S.A. v Government of Bolivia (pca, Case
No 2011–​14, 11 May 2017); Air BP S.A. v Plurinational State of Bolivia (Pending); Guaracachi
America, Inc. and Rurelec PLC v The Plurinational State of Bolivia (Final Award) (pca, Case
No 2011–​17, 31 January 2014); Oiltanking GmbH, Graña Montero S.A. and Graña Montero
S.A.A. v Bolivia (pca, Settled); e.t.i. Euro Telecom International N.V. v Republic of Bolivia
(ii) (pca, Settled); Banco Bilbao Vizcaya Argentaria S.A. v Plurinational State of Bolivia
(icsid Arbitral Tribunal, Case No arb(af)/​18/​5, Pending).
183 WorleyParsons International, Inc. v Republic of Ecuador (uncitral, Pending);
Albacora S.A. v Republic of Ecuador (Final Award) (pca, Case No 2016–​11, 12 July 2017);
Mantenimientos, Ayuda a la Explotación y Servicios S.A. and Sociedad Española de Montajes
Industriales S.A. ( formerly Consorcio GLP) v Republic of Ecuador (Award on Jurisdiction)
(icc, 21 December 2018); Copper Mesa Mining Corporation v Republic of Ecuador (Final
Award) (pca, Case No 2012–​2, 15 March 2016); Merck Sharpe & Dohme (I.A.) Corporation v

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90  Chapter 3

terminated ftas with Mexico and its bit with the US. Ecuador has terminated
nine bits and, consequently, its Constitutional Tribunal in 2010 declared all
bits unconstitutional.184 In addition, ad hoc arbitrations under uncitral are
not the only dispute resolution mechanism that foreign investors can use. They
can also have recourse to isa under the icsid Convention through the ‘sur-
vival clauses’ of the iia s that originally included consents to icsid.185
Interestingly, Venezuela has continued concluding new bit with isds
clauses, but only under uncitral arbitration.186 There may be two reasons
why states are denouncing the icsid Convention but at the same time still
concluding iia s with isds provisions. One reason may be an attempt to main-
tain their reputation, signalling that they do not avoid isa but simply protest
isa under the allegedly biased icsid Convention. The other reason may be
that by shifting their potential isa cases to ad hoc arbitrations, these states can
attempt to maintain confidentiality and avoid publicity of the awards against
them.187
Some countries have implemented dispute prevention policies in their
legislation to prevent disputes from escalating to arbitration.188 After its first
isa and then subsequent arbitration claims, Peru enacted such a policy via
its domestic legislation in the form of law. The local and central bodies of
the government coordinate international investment obligations and alert
each other about possible investor-​state disputes through a Coordinator –​a
role given to the Ministry of Economy and Finance. Peru has also established
a Special Committee responsible for representing Peru in isa.189 Countries
like Guatemala and Colombia also began appointing responsible government
agencies whose actions may affect international investment rights protected
under iia s.190 Others such as Korea and Morocco have established the office of

The Republic of Ecuador (Partial Final Award) (pca, Case 2012–​10, 25 January 2018);
Murphy Exploration & Production Company –​International v The Republic of Ecuador (ii)
(Final Award) (pca, Case No 2012–​16, 10 February 2017); Jonathan C Hamilton, Omar E
Garcia-​Bolivar and Hernando Otero, Latin American Investment Protections: Comparative
Perspectives on Laws, Treaties, and Disputes for Investors, States and Counsel (Martinus
Nijhoff Publishers 2012) 71.
184 Polanco Lazo (n 6 in ch 1).
185 Pan American Energy LLC v Plurinational State of Bolivia (icsid Arbitral Tribunal, Case No
arb/​10/​8, 24 February 2014); Polanco Lazo (n 6 in ch 1).
186 Polanco Lazo (n 6 in ch 1).
187 Hafner-​Burton, Puig and Victor (n 144).
188 Polanco Lazo (n 6 in ch 1).
189 Law No 28933, December 2006, reported in unctad, ‘Investor–​State Disputes: Prevention
and Alternatives to Arbitration’ (n 10 in ch 1).
190 Ibid.

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Addressing Drawbacks in Investor-state Arbitration 91

the investment ombudsmen and specific institutions responsible for amicable

settlement procedures between foreign investors and the government.191
Brazil, having recently concluded its Cooperation and Investment Facilitation
Agreements (cifas), also took measures for risk mitigation,192 namely the cre-
ation of an Ombudsman and Joint Committees. The Ombudsman’s responsi-
bility is to ‘act directly to prevent disputes and to facilitate their resolution in
coordination with the competent government authorities and in collaboration
with the appropriate private entities’. Joint Committees ‘seek consensus and
resolve amicably any questions or conflicts regarding the investments of the
Parties’.193
Vietnam also took preventative steps by issuing the 2012 Directive No. 01/​
ct-​t tg and a 2014 Regulation on Coordinating International Investment
Disputes for coordinating among different Government bodies in the event
of an investment dispute.194 These coordinated steps of ministries, state agen-
cies and relevant organisations include information sharing and a potential
investor-​state dispute alert system. The central and local governments are
required to communicate between each other and to inform the Ministry of
Justice of all complaints from foreign investors as a way of preventing escala-
tion to isa.195 Vietnam also amended its national law on foreign investment to
promote mediation before arbitration, but that can be bypassed if an arbitra-
tion claim is filed under a relevant investment treaty.196

191 Ibid.
192 Fabio Morosini and Michelle Ratton Sanchez Badin, ‘The Brazilian Agreement on
Cooperation and Facilitation of Investments (ACFI): A New Formula for International
Investment Agreements’ (2015) 6(3) Investment Treaty News 3.
193 Cooperation and Investment Facilitation Agreement between the Government of the
Federative Republic of Brazil and the Government of the Republic of Mozambique,
signed 30 March 2015, not yet in force, art 4 (Brazil-​Mozambique cifa); Cooperation
and Investment Facilitation Agreement between the Government of the Federative
Republic of Brazil and the Government of the Republic of Angola, signed 1 April
2015, entered into force 28 July 2017, art 5 (Brazil-​Angola cifa); Amokura Kawharu,
‘Punctuated Equilibrium: The Potential Role of FTA Trade Commissions in the Evolution
of International Investment Law’ (2017) 20(1) Journal of International Economic Law 87.
194 TT Nguyen and TCQ Vu, ‘Investor-​State Dispute Settlement from the Perspective of
Vietnam: Looking for a “Post-​Honeymoon” Reform’ (2014) 11(1) Transnational Dispute
Management, available at <https://​www.transn​atio​nal-​disp​ute-​man​agem​ent.com/​arti​
cle.asp?key=​2041>.
195 Nguyen Manh Dzung and Nguyen Thi Thu Trang, ‘International Investment Dispute
Resolution in Vietnam: Opportunities and Challenges’ in Julien Chaisse and Luke Nottage
(eds), International Investment Treaties and Arbitration Across Asia (Brill Nijhoff 2018) 280.
196 Ibid.

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92  Chapter 3

Australia has taken the option of deciding on isds on a case-​by-​case basis.

In 2010, the Productivity Commission reported that it was unable to find evi-
dence that isds provisions had an impact on the growth of fdi.197 Relying on
that report, in 2011, the (Labor-​Greens) Gillard Government announced that it
would no longer include isds in its future ftas.198 However, since 2013, which
saw the Coalition Government return to power, Australia has continued to
conclude treaties with isds provisions, on a case-​by-​case basis.199 isds was
omitted in the bilateral agreement concluded with Malaysia, but this did not
really matter, given Australia’s membership of ‘asean +​’, which already carries
the consent of its member states to isds.200 In March 2018, Australia signed
the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership
(cptpp), which also has investor-​state dispute resolution provisions included
in its text.201 The anti-​i sds movement did, however, affect cptpp negotiations,
specifically tobacco regulations, which were consequently excluded from the
scope of isds provisions if adopted by the host state.202
The EU’s response to the problematic aspects of isds has been to introduce
a permanent international investment court system with a permanent panel
of judges and an appeals mechanism to correct errors of law.203 In 2015, the
European Commission finalised the EU-​Vietnam fta and the EU-​Vietnam
Investment Protection Agreement (ipa). The EU-​Vietnam ipa incorporates

197 Productivity Commission, ‘Bilateral and Regional Trade Agreements’, Productivity

Commission Research Report, Australian Government. Cf Shiro Patrick Armstrong
and Luke Nottage, ‘The Impact of Investment Treaties and ISDS Provisions on Foreign
Direct Investment: A Baseline Econometric Analysis’ (2016) Research Paper No 16/​74,
Sydney Law School, available at <https://​pap​ers.ssrn.com/​sol3/​pap​ers.cfm?abst​ract​_​id
=​2824​090>.
198 Jürgen Kurtz and Luke Nottage, ‘Investment Treaty Arbitration ‘Down Under’: Policy and
Politics in Australia’ (2015) 30(2) icsid Review-​Foreign Investment Law Journal 465.
199 Ubilava and Nottage (n 7 in ch 1).
200 Luke Nottage, ‘Investor-​State Arbitration Policy and Practice in Australia’ in Armand De
Mestral (ed), Second Thoughts: Investor-​State Arbitration Between Developed Democracies
(Centre for International Governance Innovation 2017) 377.
201 The cptpp builds on the failed Trans-​Pacific Partnership (tpp) agreement, which the
United States under the Trump administration refused to sign. The current signatory
states of the cptpp are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New
Zealand, Peru, Singapore, and Vietnam. See Comprehensive and Progressive Agreement
for Trans-​Pacific Partnership (cptpp) (n 21 in ch 1); Kurtz and Nottage (n 198).
202 Thomas Bollyky, ‘TPP Tobacco Exception Proves the New Rule in Trade’ (4 February
2016) Expert Brief, available at <https://​www.cfr.org/​exp​ert-​brief/​tpp-​toba​cco-​except​ion
-​pro​ves-​new-​rule-​trade>.
203 Panico and Di Benedetto (n 9 in ch 1).

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Addressing Drawbacks in Investor-state Arbitration 93

this alternative to traditional isds.204 Similar treaties (fta and ipa) were
also signed between the EU and Singapore. Unlike the ratification of the EU-​
Singapore fta, which only required single-​step ratification by the EU, the EU-​
Singapore ipa requires two-​step ratification which means it needs to be ratified
by the EU and its member states for it to enter into force.205 The EU further con-
tinued on this new path with the final text of the EU-​Canada Comprehensive
Economic and Trade Agreement (ceta), which includes fundamentals of the
permanent investment court and appellate mechanism, and a commitment
to make that court system operational as soon as the agreement enters into
force.206 It provisionally entered into force on 21 September 2017, though is
pending ratification by 11 EU member states. The EU-​US Transatlantic Trade
and Investment Partnership (ttip) draft also included a two-​tier court system
that uses the permanent international investment court system with its panel
of judges and the appeals mechanism.207 As the then First Vice-​President
Frans Timmermans said:

With our proposals for a new Investment Court System, we are break-
ing new ground. The new Investment Court System will be composed of
fully qualified judges, proceedings will be transparent, and cases will be
decided on the basis of clear rules. In addition, the Court will be subject
to review by a new Appeal Tribunal. With this new system, we protect the
governments' right to regulate and ensure that investment disputes will be
adjudicated in full accordance with the rule of law.208

204 European Commission, ‘The EU and Vietnam finalise landmark trade deal’ (2 December
2015) News Archive, available at <http://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm?id
=​1409>.
205 European Commission, ‘EU-​Singapore Trade and Investment Agreements’ (18 April
2018) News Archive, available at <http://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm
?id=​961>.
206 Comprehensive Economic and Trade Agreement (ceta) (n 9 in ch 1); Hainbach (n 123).
207 European Commission, ‘EU Negotiating Texts in TTIP’ (14 July 2016) News Archive,
available at <http://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm?id=​1230>; Legum (n 9
in ch 1); Louise Woods, ‘Fit for purpose? The EU’s Investment Court System’ (23 March
2016) Kluwer Arbitration Blog, available at <http://​arbi​trat​ionb​log.kluwer​arbi​trat​ion
.com/​2016/​03/​23/​to-​be-​deci​ded/​>.
208 European Commission, ‘Commission Proposes New Investment Court System for TTIP
and Other EU Trade and Investment Negotiations’ (16 September 2015) News Archive,
available at <http://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm?id=​1364>.

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94  Chapter 3

EU civil society argued against the inclusion of isds provisions in the ttip,
deeming it to be problematic and unnecessary.209 German and French civil
society groups are strongly outspoken against isds, accusing the system of a
lack of transparency and claiming that it sacrifices the public interest for the
sake of foreign investors.210 Some scholars have made proposals that investor-​
state disputes should only be submitted to local courts in order for treaties
such as the ttip to gain political support.211 They justify the omission of isa
because both the EU and the US are developed economies with well-​formed
and trustworthy court systems, where investors of both sides will be able to
defend their rights. Eventually, however, ttip negotiations were suspended by
the then US President Donald Trump. Despite opposition, the EU has not yet
given up on the rights of foreign investors to bring direct claims against states,
but has instead introduced a permanent investment court for such disputes.212
Notwithstanding the willingness of the international community to address
and eliminate concerns associated with isds, limiting these efforts to only a
few iia s would not change much in a broader sense for international invest-
ment arbitration. The drawback is that creating separate, individual permanent
tribunals and appellate tribunals for each and every international investment
agreement would result in a multitude of independent bodies concluding
awards on similar matters differently.213 Moreover, creating a permanent

209 Cécile Barbière, ‘France and Germany to Form United Front Against ISDS’ (15 January
2015) euractiv, available at <http://​www.eurac​tiv.com/​sect​ion/​trade-​soci​ety/​news/​fra​nce
-​and-​germ​any-​to-​form-​uni​ted-​front-​agai​nst-​isds/​>.
210 Benedetta Cappiello, ‘ISDS in European International Agreements: Alternative Justice
or Alternative to Justice?’ (2016) 13(1) Transnational Dispute Management, available at
<https://​www.transn​atio​nal-​disp​ute-​man​agem​ent.com/​arti​cle.asp?key=​2314>.
211 Jan Kleinheisterkamp and Lauge Poulsen, ‘Investment Protection in TTIP: Three Feasible
Proposals’ in Marc Bungenberg et al (eds), European Yearbook of International Economic
Law (Springer International Publishing 2016) 527.
212 August Reinisch, ‘The European Union and Investor-​State Dispute Settlement: from
Investor-​State Arbitration to a Permanent Investment Court’ in Armand De Mestral (ed),
Second Thoughts: Investor-​State Arbitration between Developed Democracies (McGill-​
Queen’s University Press 2017) 333; Steffen Hindelang, ‘Study on Investor-​State Dispute
Settlement (ISDS) and Alternatives to Dispute Resolution in International Investment
Law’ (2016) 13(1) Transnational Dispute Management, available at <https://​www.trans
n​atio​nal-​disp​ute-​man​agem​ent.com/​arti​cle.asp?key=​2313>.
213 Woods (n 207); Anna Joubin-​Bret, ‘Why We Need a Global Appellate Mechanism for
International Investment Law’ (27 April 2015) Columbia fdi Perspectives No 146,
Columbia Centre on Sustainable Development; Jaemin Lee, ‘Mending the Wound or
Pulling It Apart: New Proposals for International Investment Courts and Fragmentation
of International Investment Law’ (2018) 39(1) Northwestern Journal of International Law
& Business 1.

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Addressing Drawbacks in Investor-state Arbitration 95

investment court would require further regulation of issues, including the rela-
tionship between such a court and the icsid Convention and the enforcement
of awards rendered by that court.214 However, in doing so the aim of eliminat-
ing inconsistent awards will not be achieved. On the contrary, chasing after
legitimacy will result in increased costs and delays without a final award that
could contribute to the uniformity and harmony of global investment arbitra-
tion.215 As Schill pointed out, if the sole aim of permanent investment courts is
to remedy the pitfalls of isa, then there are plenty of other methods that could
make a difference, such as for example, increasing transparency or creating an
appeals mechanism.
Another approach towards reducing the effects of the problematic aspects
of isa is to promote ism. Mediation, with the appropriate procedural rules
and enforcement mechanisms in place, offers an opportunity to prevent the
escalation of investor-​state disputes to isa, thereby resulting in faster and
cheaper dispute settlement. ism is especially relevant now with the increasing
inconsistency and unpredictability of isa awards and allegations of regulatory
chill. The inconsistency and unpredictability of isa awards may in fact become
contributing factors towards increased use of ism. Both claimant investors and
respondent host states may want to regain control over the outcome of their
dispute, which they can through a dispute resolution mechanism like media-
tion. Nonetheless, until very recently, ism was almost always only discussed in
a voluntary format and there is strong opposition from legal scholars to mak-
ing ism a mandatory pre-​condition to arbitration.216

3.2.4 Summary
isa has become the preferred dispute resolution mechanism for interna-
tional investment disputes. Its popularisation was greatly influenced by the
adoption of the icsid Convention and uncitral Arbitration Rules. Unlike
court decisions, arbitral awards benefit from near-​universal recognition and

214 Stephan Schill, ‘The TTIP Negotiations: US versus EU Leadership in Global Investment
Governance’ (4 March 2016) Kluwer Arbitration Blog, available at <http://​arbi​trat​ionb​log
.kluwer​arbi​trat​ion.com/​2016/​03/​05/​the-​ttip-​negot​iati​ons-​us-​ver​sus-​eu-​lea​ders​hip-​in-​glo​
bal-​inv​estm​ent-​gov​erna​nce/​>; Kawharu and Nottage (n 75); Jaemin Lee, ‘Introduction
of an Appellate Review Mechanism for International Investment Disputes: Expected
Benefits and Remaining Tasks’ in Jean E Kalicki and Anna Joubin-​Bret (eds), Reshaping
the Investor-​State Dispute Settlement System Journeys for the 21st Century (Brill Nijhoff
2015) 474.
215 Jaemin Lee (n 214).
216 Asian Academy of International Law (n 25 in ch 1); Lai and Suen (n 179); qmul and cciag
(n 23 in ch 1).

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96  Chapter 3

enforceability, simplifying otherwise complex multi-​national processes. Yet

over time, major flaws of isa have started to emerge and caused serious prob-
lems for the entire isds regime. Countries have been managing isds related
problems in their own ways: changing and adopting their treaty drafting prac-
tices, introducing dispute prevention mechanisms, rejecting automatic isds
and shifting to a case-​by-​case assessment of treaties, and introducing perma-
nent investment courts and appellate bodies for each individual iia. While
each of these approaches, to a certain degree, serves the purpose of reducing
the overuse of isds, they still have some drawbacks. Most importantly, the
approaches are not uniform.
Discussions are ongoing about the establishment of a Multilateral
Investment Court, which would be a permanent multilateral investment
court with an appellate mechanism of its own. The mandate of uncitral
Working Group iii includes a proposal for creating such a court –​an idea
which builds on an earlier study conducted by Gabrielle Kaufmann-​Kohler
and Michele Potestà.217 While the EU and most of its member states, as well
as Canada, South Africa, and some Latin American countries, support the idea
of a Multilateral Investment Court, Asia-​Pacific countries and the US remain
unconvinced.218 Until there is a more harmonised approach towards the
concept of a Multilateral Investment Court, its creation in the near future is
extremely unlikely.
All the above-​mentioned incentives have been proposed by unctad since
2010, with the aim of slowing down the significantly growing number of isds
claims annually. Interestingly, however, a 2015 qmul survey found that, in
practice, not everyone agreed with the ideas and solutions discussed regard-
ing isa.219 For example, the respondents, of which 49% were private practi-
tioners and only 4% were academics, did not agree with the common claim
that international arbitration is overly regulated. 70% of the respondents

217 Nikos Lavranos, ‘The First Steps Towards a Multilateral Investment Court (MIC)’ (13 July
2017) efila blog, available at <https://​efilab​log.org/​2017/​07/​19/​the-​first-​steps-​towa​rds
-​a-​multi​late​ral-​inv​estm​ent-​court-​mic/​>; Gabrielle Kaufmann-​ Kohler and Michele
Potestà, ‘Can the Mauritius Convention Serve as a Model for the Reform of Investor-​State
Arbitration in Connection with the Introduction of a Permanent Investment Tribunal or
an Appeal Mechanism?’ (3 June 2016) Research Paper, uncitral, available at <https://​
www.uncit​ral.org/​pdf/​engl​ish/​CIDS_​R​esea​rch_​Pape​r_​Ma​urit​ius.pdf>.
218 Lavranos (n 217).
219 qmul (n 203 in ch 2); Sophie Nappert, Luke Nottage and Christian Campbell, ‘Assessing
Treaty-​based Investor-​State Dispute Settlement: Abandon, Retain or Reform?’ (2014) 11(1)
Transnational Dispute Management, available at <https://​www.transn​atio​nal-​disp​ute
-​man​agem​ent.com/​arti​cle.asp?key=​2024>.

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Addressing Drawbacks in Investor-state Arbitration 97

considered the current level of regulation of international arbitration to be

rational. Furthermore, 61% of respondents were against the creation of an
appeals mechanism for international investment arbitration. The number of
votes against an appeals mechanism was even higher for international com-
mercial arbitration: 77%.220 On the contrary, however, 60% of respondents
believed arbitration counsel could be improved if they encouraged settlement
during arbitration, including implementing mediation.221 The 2014 unctad
Series concluded that, while adr mechanisms and dispute prevention policies
would not resolve the problems with isds, they could eliminate a great num-
ber of investor-​state disputes by preventing their escalation to arbitration.222
In a more recent (2018) qmul survey, the great majority of respondents (97%)
indicated that arbitration was their preferred dispute resolution method, with
48% preferring stand-​alone arbitration and 49% preferring arbitration in con-
junction with adr.223 The following section will discuss ism (conciliation) as
an additional step to isds: what it has to offer to the isds regime, its present
status, and critiques.

3.3 Current Role of Investor-​State Mediation

3.3.1 Definition
As mentioned briefly in Chapter 1, there is no universal definition of medi-
ation.224 This is partially due to its multitude of forms in practice, but also
because of its constantly evolving nature.225 Bercovitch provides the following
definition of international mediation:

… a process of conflict management, related to but distinct from the

parties’ own negotiations, where those in conflict seek the assistance of,
or accept an offer of help from, an outsider (whether an individual, an
organisation, a group, or a state) to change their perceptions of behaviour,

220 qmul (n 203 in ch 2).

221 Ibid.
222 unctad, ‘Investor-​State Dispute Settlement: A Sequel’ unctad Series on Issues in
International Investment Agreements ii, unctad/​d iae/​i a/​2013/​2, May 2014, 197.
223 qmul (n 83).
224 Sourdin (n 54 in ch 2).
225 Boulle (n 93 in ch 2).

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98  Chapter 3

and to do so without resorting to physical force or invoking the authority

of law. 226

According to Wolski, ‘[m]‌ediation is a process of assisted negotiation in which

an acceptable third party, the mediator, undertakes a range of activities to
assist the parties involved in a dispute to negotiate an agreement’.227 Another
commentator suggests: ‘[b]y definition, mediation will defy complete codifica-
tion. Its inherent flexibility and strengths will continue to form, and applica-
tions will be discovered in new areas’.228
A wider definition of Article 2(3) of the Singapore Convention on Mediation
includes conciliation among other third-​party assisted mechanisms:

“Mediation” means a process, irrespective of the expression used or the

basis upon which the process is carried out, 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.229

To better understand ism, one must first look at its place in the global dis-
pute resolution system and then define it. There are three schools of thought
regarding the dispute resolution mechanisms of isds (litigation, arbitration,
and mediation).230
According to the first and oldest school of thought, the dispute resolution
system is divided into two: (a) litigation and (b) adr, which includes arbitra-
tion, mediation, conciliation and negotiation. According to the second school
of thought, arbitration is not an adr mechanism. Instead, litigation and

226 Jacob Bercovitch, ‘Mediation in International Conflict: An Overview of Theory, a Review of

Practice’ in I William Zartman and J Lewis Rasmussen (eds), Peacemaking in International
Conflict: Methods and Techniques (United States Institute of Peace Press 1997) 125, cited
in Karin Aggestam, ‘Quasi-​informal Mediation in the Oslo Channel: Larsen and Holst as
Individual Mediators’ in Jacob Bercovitch (ed), Studies in International Mediation: Essays
in Honor of Jeffrey Z. Rubin (Palgrave Macmillan 2002) 58.
227 Bobette Wolski, ‘ARB-​MED-​ARB (and MSAs): A Whole Which Is Less than, Not Greater
than, the Sum of Its Parts’ (2013) 6(2) Contemporary Asia Arbitration Journal 249.
228 Sharon Press, ‘International Trends in Dispute Resolution a US Perspective’ (2000) 3(2)
adr Bulletin 1.
229 Singapore Convention on Mediation (n 14 in ch 1) art 2(3) (emphasis added).
230 Alan Redfern and Martin Hunter, Law and Practice of International Commercial
Arbitration, Sweet & Maxwell, 2004, 1.

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Addressing Drawbacks in Investor-state Arbitration 99

arbitration are grouped together because of their adjudicatory nature, whereas

the adr group only consists of mediation, conciliation, and negotiation.231
The third school of thought, and perhaps the most widely accepted today,
takes a three-​branch approach. According to this school of thought, litigation
and arbitration –​whilst both adjudicatory by nature –​cannot be put in the
same group because, unlike litigation, there is a willful agreement of parties
to arbitrate. Yet arbitration cannot be placed next to mediation or conciliation
either, because:
(a) parties to adr are not legally bound by its outcome, whereas arbitral
awards are binding without the need for further agreement; and
(b) arbitration benefits from universal enforceability through the New York
Convention, or the icsid Convention in cases of investor-​state treaty
arbitrations, whereas adr mechanisms do not.232
Therefore, according to the third school of thought, litigation, arbitration, and
adr are standalone groups. From today’s perspective, this seems to reflect most
accurately the contemporary characteristics of all three (arbitration, litigation,
and mediation) and so the third school of thought will be followed throughout
this book. However, when examining the possibility of adding a mandatory dis-
pute resolution mechanism to the current isds process, it can be done without
limiting the process with already set characteristics of a classic form of medi-
ation. In fact, ism can simply reflect a process where the disputants have full
autonomy and control over the dispute resolution process with the participa-
tion and guidance of a third-​party neutral regardless of what we decide to call
this adr step as long as it serves the intended purpose.

3.3.2 Benefits of Investor-​State Mediation

Mediation is believed to be a beneficial and useful addition to isds due to its
very high rate of settlement. Around 80% of domestic and international com-
mercial mediated cases settle during such mediation proceedings.233 In the

231 Ibid. Luke Nottage, ‘Is (International) Commercial Arbitration ADR?’ (2002) 4(1) The
Arbitrator and Mediator 83.
232 Redfern and Hunter (n 230).
233 Edna Sussman, ‘The Advantages of Mediation and the Special Challenges to its Utilization
in Investor State Disputes’ (2014) 11(1) Transnational Dispute Management, available at
<https://​www.transn​atio​nal-​disp​ute-​man​agem​ent.com/​arti​cle.asp?key=​2081>; Jack Coe
Jr, ‘Should Mediation of Investment Disputes Be Encouraged, and, If So, by Whom and
How?’ in Arthur W Rovine (ed), Contemporary Issues in International Arbitration and
Mediation: The Fordham Papers (2009) (Brill Nijhoff 2010) 339; Franck (Table 1, n b).

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100  Chapter 3

wake of the shortcomings of arbitration in isds, mediation seems to offer the

countering benefits, including:234
(1) Flexibility: in mediation, unlike arbitration, parties retain control over
the outcome of the process. Mediation is a less formal and more flexible dis-
pute resolution mechanism where parties are the ones who determine the
direction of the process.235 For example, the flexibility, enjoyed by the parties
in a mediation process is especially relevant in an expropriation case where
the parties are free to agree on any compensation amount.
(2) Time and cost: mediation is more time-​efficient than arbitration.
Arbitration proceedings take on average over four years to settle (Figure 1)
from the date of registration to the date of conclusion.236 By contrast, medi-
ation can settle disputes that have the potential for early settlement within
a few sessions.237 Some commentators are concerned that adding mediation
to the mix would further increase the isds timeline. This argument builds
on the assumption that disputants would only participate in the mediation
process to gain insight into their opponent’s case and thus be better prepared
for arbitration. Moreover, if mediation were a compulsory pre-​condition to
arbitration, the only reason parties would participate would be to guarantee
their access to arbitration. Either way, mediation would not serve its purpose
and therefore, unnecessarily increase the overall timeline of an investor-​state
dispute. However, this viewpoint is arguable. Mediation can be added to the
isds process without altering the timeline, by inserting it into ‘cooling off’
periods.238 Cooling-​off periods are stipulated periods of time in iia s, mostly
three or six months, to allow parties to attempt amicable settlement before
initiating isa.239
Timely settlement of conflicts leads to smaller procedural costs.240 Hence,
if the conflict is resolved during the mediation stage, then the time-​and

234 Strong (n 157 in ch 2); Munir Maniruzzaman, ‘A Rethink of Investor-​State Dispute

Settlement’ (30 May 2013,) Kluwer Arbitration Blog, available at <http://​arbi​trat​ionb​log
.kluwer​arbi​trat​ion.com/​2013/​05/​30/​a-​reth​ink-​of-​inves​tor-​state-​disp​ute-​set​tlem​ent/​>.
235 Jack Coe, ‘Toward a Complementary Use of Conciliation in Investor-​State Disputes-​A
Preliminary Sketch’ (2005) 12(1) uc Davis Journal of International Law & Policy 7; Titi (n 8
in ch 1).
236 See Figure 1.
237 Sussman (n 233).
238 Coe (n 233); Jack Coe, ‘Settlement of Investor-​ State Disputes through Mediation-​
Preliminary Remarks on Processes, Problems and Prospects’ in R Doak Bishop (ed),
Enforcement of Arbitral Awards Against Sovereigns (Juris Publishers 2009) 73.
239 Investor-​State Disputes: Prevention and Alternatives to Arbitration (n 10).
240 As discussed in Chapter 3.2.2.

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Addressing Drawbacks in Investor-state Arbitration 101

cost-​consuming isa process could be avoided. The whole idea of promoting

more ism in isds is for mediation to serve as a filtering or preventative mecha-
nism for investor-​state disputes before they progress to arbitration. Preventing
disputes from escalating to costly arbitration proceedings would save both
time and money for disputants.
(3) Relationships: mediation is believed to enable parties to meet and com-
municate, which does not always happen in the negotiation phase.241 In inter-
national investment relations that involve long-​term investment interests,
preserving business relationships is especially important. During the early
stages of a dispute, parties rarely make an effort to discuss their problems
constructively. Instead, they often shut down and prepare for battles in courts
or arbitral forums.242 However, isa, with its win-​lose outcome, seldom leaves
room for any further relationship. Once investor-​state disputes are concluded
via arbitration, and even throughout the arbitral proceedings, the relationship
between the parties is often shattered, and bridges are burnt. Moreover, the
final outcomes of concluded isa cases where investors win rarely live up to
the claimants’ expectations. Not only do they not receive the amount they
claimed –​statistically the awarded amount is 25% of the originally claimed
amount (see Chapter 5) –​but they also lose or considerably reduce the ben-
efits of their existing investment.243 Similarly for the state, even in the case
of winning, the procedures prove to be costly, time-​consuming, and harmful
to the state’s reputation. Winning merely confirms that the state was never at
fault.244 Unlike arbitration, mediation offers a win-​win outcome, where both
parties come out with something that benefits their interests. With mediation,
unlike direct negotiations, there is always a neutral third-​party managing the
process and thus keeping the discussions on track.245
An interesting observation was made by Wells based on personal expe-
rience in the Indonesian Electric Power Cases.246 Those that wanted to exit

241 Salacuse (n 12 in ch 1); Sussman, (n 233); Coe (n 233).

242 Cathy A Costantino and Christina Sickles Merchant, Designing Conflict Management
Systems: A Guide to Creating Productive and Healthy Organizations (Jossey-​Bass 1996);
Mariana Hernandez Crespo, ‘From Paper to People: Building Conflict Resolution
Capacity and Frameworks for Sustainable Implementation of IIAs to Increase
Investor-​State Satisfaction’ in Susan Franck and Anna Joubin-​Bret (eds), Investor-​State
Disputes: Prevention and Alternatives to Arbitration ii (unctad 2011) 55.
243 Wälde (n 152 in ch 2).
244 Tillmann Rudolf Braun, ‘Investor-​State Mediation: Is There A Future?’ in Arthur W Rovine
(ed), Contemporary Issues in International Arbitration and Mediation: The Fordham Papers
(2009) (Brill Nijhoff 2010) 374.
245 Sussman (n 233).
246 Wells (n 24 in ch 1).

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102  Chapter 3

from their investment in Indonesia were the ones that went to arbitration,
whereas those who avoided arbitral proceedings were the ones who wanted to
continue doing business in the country despite operating in the same sectors
that were affected.247 Wells argues that the companies that had other ongoing
investment projects in Indonesia preferred not to damage their investment
relationships with the state and thus endanger their other investments, and
so refrained from isa.248 In circumstances such as this, when parties want to
preserve their business and investment relationships with the disputants, ism
would be the better option. This way, claimants can seek redress for damages
in a process fully controlled by the parties, and with the least damage done to
the claimants’ investment relations with the respondent.

3.3.3 Promoting Mediation/​Conciliation in isds

Extensive literature has discussed the role of adr mechanisms in the interna-
tional dispute resolution system in general, but until recently, little has been
said about mediation and conciliation in isds. A 2005 article by Coe and a
2007 article by Salacuse laid grounds for the current discussion about the func-
tionally meaningful role of adr mechanisms in investor-​state disputes, and
specifically the role of mediation and conciliation.249 Coe argued that because
of the success of mediation in international commercial dispute settlement,
it could also be a useful addition to the isds regime. For mediation to be suc-
cessfully incorporated into isds, it should be cost-​effective (not incurring
additional costs in an already expensive process) and fast (not prolonging an
already time-​consuming process). Coe suggested using the cooling-​off periods
already present in iia s. He also predicted that mediation/​conciliation pro-
cesses would remain underutilised if not initiated automatically as part of the
mandatory isds procedure.
Salacuse discussed that disputants may be exclusively resorting to arbitra-
tion, resulting in increased isa cases worldwide, due to the lack of alternative
cost-​and time-​effective remedies. His 2007 paper argued that while mediation
was unlikely to replace arbitration, it could nevertheless settle some of the dis-
putes in a time-​and cost-​effective manner. Salacuse proposed several ways to
enhance adr in isds. Among these suggestions was the renegotiation or revi-
sion of treaty language, thereby encouraging adr practice before resorting to
arbitration.

247 Ibid.
248 Ibid. But see Reed (n 27 in ch 1).
249 Coe, (n 233); Salacuse (n 12 in ch 1); Coe (n 235).

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Addressing Drawbacks in Investor-state Arbitration 103

In 2010, unctad began working on dispute prevention and alternatives to

arbitration. Consequently, discussions and studies on the topic of ism increased
significantly.250 In an international investment agreement Issues Note of 2013,
unctad proposed five areas that could be reformed to tackle isds problems.
Among these suggestions was the promotion of amicable settlements in isds,
and specifically ism.251 The success of mediation in international commercial
dispute resolution motivated a new movement towards the idea that media-
tion could also complement and improve the existing drawbacks of isds.252
While the role of mediation and conciliation, used interchangeably, may
not be significant in the current isds, it is set to grow. In the uncitral
Working Group iii submissions and discussions, questions have been consis-
tently raised regarding dispute prevention and mitigation through mediation
what seems to be a common theme of interest among states.253 The emphasis
is largely made on the prevention of disputes rather than the aftermath regu-
lation, as resolving and eliminating them early is deemed to be the most cost-​
effective approach.254 A number of initiatives have been put forward by the
states, as well as governmental and non-​governmental organisations regard-
ing the implementation and further promotion of preventative measures in
isds. The focus has been predominantly put on three main areas. On national
level suggestions include: raising awareness of government officials regarding
treaty obligations and dispute prevention practices such as mediation, ensur-
ing communication channels between investors and governments, ensuring
early settlement discussions and thereby preventing the escalation of com-
plaints into disputes.255 On the investment treaty level, certain submissions
highlighted the measures for the parties to agree on dispute prevention and
pre-​arbitration consultation procedures during the treaty negotiation stage

250 Investor-​State Disputes: Prevention and Alternatives to Arbitration (n 10 in ch 1); Susan

Franck and Anna Joubin-​Bret (eds), Investor-​State Disputes: Prevention and Alternatives to
Arbitration ii (unctad 2011); Welsh and Schneider (n 24 in ch 1).
251 unctad, ‘Reform of Investor-​State Dispute Settlement: In Search of a Roadmap’, iia
Issues Note N2, June 2013.
252 Coe (n 233); Anna Spain, ‘Integration Matters: Rethinking the Architecture of International
Dispute Resolution’ (2010) 32(1) University of Pennsylvania Journal of International Law 1.
253 uncitral Working Group iii, ‘Possible reform of investor-​State dispute settlement
(isds) Dispute prevention and mitigation –​Means of alternative dispute resolution’ a/​
cn.9/​wg.iii/​w p.190.
254 Submission from the Government of the Republic of Korea (a/​c n.9/​wg.iii/​w p.179) p. 5.
255 Submission from the Government of South Africa (n 12 in ch 1) paras. 38 and 39; Submission
from the Government of Morocco (n 12 in ch 1) para. 9; Submission from the Government
of Brazil, (a/​c n.9/​w g.iii/​w p.171) para. 2; Submission from the Governments of Chile,
Israel, Japan, Mexico and Peru (a/​c n.9/​w g.iii/​w p.182) fn 20.

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104  Chapter 3

such as incorporating dispute prevention steps in isds clauses.256 On the

international level, it was suggested to narrow the knowledge gap on dispute
prevention procedures that is evident on a national level through state-​to-​state
cooperation such as technical assistance and capacity-​building activities which
would include sharing knowledge and experience on the use of adr such as
mediation.257 While nearly all submissions from states that highlight the sig-
nificant role of the adr in dispute prevention and mitigation process agree on
its benefits, such as the cost-​and time-​effectiveness, flexibility, autonomy and
the means for preserving relationships, only Indonesia proposed mediation in
a mandatory format.258 The future premise for exploring the mandatory ism as
a prerequisite of isa is something uncitral Working Group iii has noted in
its 2020 discussion, however, currently, in a wider audience, mediation is only
offered in an opt-​in format.259
However, opt-​in mediation may not yield the desired results and the prog-
ress that has been made towards popularisation and integration of mediation
into isds can simply end up being futile. A 2014 study by Echandi and Kher,
which examined icsid cases that terminated due to party settlement, inves-
tigated at what stage of isa these settlements took place.260 The study found
that in total, 22% of registered icsid cases settled tribunals rendered their
awards on merits. In 39% of those cases, settlements were reached even before
the constitution of the tribunal. Echandi and Kher concluded that a signifi-
cant portion of investor-​state disputes could have been prevented at earlier
stages had there been other available dispute resolution mechanisms in place.
Negotiations and consultations have always been a part of isds clauses in
iia s as the first step in the investor-​state dispute resolution process. However,
the above-​mentioned study illustrated that parties often needed more than
negotiations and consultations –​possibly something like conciliation or

256 Submission from the Government of China (n 12 in ch 1) p. 5; Submission from the

Government of Brazil (n 255); Submission from the Government of South Africa (n 12 in
ch 1) paras. 104 and 109.
257 Submission from the Government of Thailand (n 12 in ch 1) para. 25; Submission from the
Government of the Republic of Korea (n 254).
258 Submission from the Government of Indonesia (n 12 in ch 1) paras. 19 and 20.
259 uncitral Working Group iii, ‘Possible reform of investor-​State dispute settlement
(ISDS) Dispute prevention and mitigation –​Means of alternative dispute resolution’ a/​
cn.9/​wg.iii/​w p.190.
260 Roberto Echandi and Priyanka Kher, ‘Can International Investor-​State Disputes be
Prevented? Empirical Evidence from Settlements in ICSID Arbitration’ (2014) 29(1) icsid
Review 41.

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Addressing Drawbacks in Investor-state Arbitration 105

mediation –​to reach settlements, which was usually achieved by registering

their dispute for arbitration and then settling the case before the tribunal was
constituted.
A similar analysis to that of Echandi and Kher is presented here, which
builds on dividing isa proceedings into four phases (Figure 2). According to
the findings of this empirical analysis, it becomes evident that 16% of isa
cases settle before the arbitral tribunal is constituted (First Phase). Another
30% of disputes settle after the constitution of the tribunal – before the award
on jurisdiction is rendered, or if there is no jurisdiction phase until the parties
exchange their first memorials and counter memorials (Second Phase). A fur-
ther 16% of disputes are settled after the award on jurisdiction (or after the
exchange of memorials) but before the completion of the hearing on merits
(Third Phase). Only 11% of disputes settled after the completion of the hearing
on merits (Fourth Phase).
These findings suggest that if there is an appropriate dispute resolution
mechanism in place, such as mediation or conciliation –​more structured than
negotiations/​consultations but less adjudicatory than arbitration –​investor-​
state disputes have the potential to be settled before they reach the arbitra-
tion phase. But even if mediation is available to the disputants, it is arguable

­f igure 2 
Settlements and phases
Note: Author’s own calculations

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106  Chapter 3

what the rate of recourse and the rate of compliance will be. For example, the
recent 2020 Investment Arbitration Survey by qmul on ‘Investors’ Views on
the Current State of Affairs and Proposed Reforms of Investor-​State Dispute
Settlement (isds)’ reported that 64% of respondents were in favour of the
idea of introducing mandatory mediation as a pre-​condition to arbitration.261
Specifically, the answers to the question on mandatory mediation were divided
as follows: 30% replied with ‘strongly favour’, 34% replied with ‘somewhat
favour’, 11% had ‘no view’ on the subject matter, 22% ‘somewhat opposed’ the
idea of mandatory ism, and 3% were ‘strongly opposed’. The extent of sup-
port indicated for mandatory ism as a pre-​condition to arbitration is unprece-
dented, especially with so much being written on the reasons against it in the
literature available so far. The findings of this survey suggest that it is not only
respondent states that would be open for it, but investors too, as they also see
the beneficial prospect of settling disputes without arbitration.
Another example, regarding compliance with decisions of adr mecha-
nisms, is the relatively recent Pinsent Masons and qmul Survey 2019 on inter-
national arbitration in construction. It reported that, when asked how often
they complied with the decisions of voluntary pre-​arbitral dispute resolution
mechanisms (which includes mediation), only 28% of respondents replied
that in their experience compliance was frequent; 41% stated that parties did
not comply, and 31% reported that compliance only happened ‘half of the
time’.262 Moreover, the majority (67%) of respondents expressed their sup-
port for mandatory compliance with pre-​arbitral decisions as a pre-​condition
to arbitration (which includes mandatory mediation). While this survey is
about construction dispute settlement, it still serves as a useful comparison
to investor-​state dispute settlement. This is because, unlike isds, construction
dispute settlement was one of the first areas to which mediation was intro-
duced.263 Therefore, if compliance rates with voluntary mediation are low in
the field that pioneered mediation, then this could be at least somewhat indic-
ative that mediation in a voluntary format may not progress much in isds,
thus bolstering the case for making ism a mandatory pre-​condition to arbitra-
tion of investment disputes.
Despite these survey results and seemingly overall interest in making ism
mandatory, as indicated by the abovementioned Indonesia-​Australia fta and

261 qmul and cciag (n 23 in ch 1).

262 Pinsent Masons and qmul, ‘International Arbitration Survey –​Driving Efficiency in
International Construction Disputes’ (2019), available at <https://​www.pinsen​tmas​ons
.com/​think​ing/​spec​ial-​repo​rts/​intern​atio​nal-​arbi​trat​ion-​sur​vey>.
263 Stipanowich (n 109 ch 2).

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Addressing Drawbacks in Investor-state Arbitration 107

Hong Kong-​uae bits, both signed in 2019, almost all discussion and initia-
tives until now have been focused on how to encourage disputing parties to
try mediation in isds on a voluntary, opt-​in basis. Below are the recent and
current steps made towards increasing the use of mediation in isds through
such a voluntary format.

3.3.3.1 iba
In 2012, the iba adopted Investor-​State Mediation Rules, which was the ‘first
step in legitimising and normalising investor-​state mediation’.264 It was the
first regulatory framework dedicated to specifically ism. Despite this novel
approach, ism cases under iba rules have been extremely rare. Two reasons
are believed to have contributed to this.
Firstly, advance consent to mediation in iia s is seldom found, especially in
older generation bits. Therefore, despite having a framework that establishes
the procedural option for ism, the incentive to resort to mediation is absent.
This is very much in line with Coe’s prediction above that without express con-
sent to mediation in iia s, this dispute resolution mechanism would remain
underutilised.
Secondly, despite being provided with the procedural framework for medi-
ation, the issue of non-​enforceability of settlement agreements remained. Not
having a procedure for mediation was never the main reason for its underuti-
lisation. While the adoption of the iba Mediation Rules was a step towards
acknowledging mediation in isds, the real issue has always been the non-​
enforceability of settlement agreements. Therefore, voluntary, opt-​in media-
tion rules, without an enforceability mechanism, were not enough for promot-
ing ism in isds.
On 14 April 2016, IAReporter announced the first known ism case under the
2012 iba Investor-​State Mediation Rules.265 A French engineering and consult-
ing company, Systra sa, and its subsidiary company Systra Philippines Inc., had
filed a notice of dispute in 2015 to the Republic of the Philippines under the
1994 France-​Philippines bit. The companies had been providing services for
infrastructure projects to government agencies of the Philippines. The dispute

264 Franck, ‘Using Investor–​State Mediation Rules to Promote Conflict Management: An

Introductory Guide’ (n 1 in ch 1).
265 Luke Eric Peterson, ‘In an Apparent First, Investor and Host-​State Agree to Try Mediation
Under IBA Rules to Resolve an Investment Treaty Dispute’ (14 April 2016) IAReporter,
available at <https://​www.iar​epor​ter.com/​artic​les/​in-​an-​appar​ent-​first-​inves​tor-​and
-​hosss​sst-​state-​agree-​to-​try-​mediat​ion-​under-​iba-​rules-​to-​reso​lve-​an-​inv​estm​ent-​tre​aty
-​disp​ute/​>.

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108  Chapter 3

is reported to concern overdue invoices for the performed work and services.
Article 8 of the France-​Philippines 1994 bit divides the dispute resolution pro-
cess into two steps. The first step is to attempt an amicable settlement during
the six months cooling-​off period. The second step follows the advance con-
sent of the host state to conciliation or arbitration proceedings under the icsid
Convention.266 This is only if and after amicable dispute settlement is unsuc-
cessful, and the dispute is still ongoing between the parties. Before resorting to
icsid facilities, however, the disputants agreed to first attempt the resolution
of their dispute through ism in the icc’s adr centre under the iba ism Rules.
Some commentators have questioned whether recourse to the iba ism
Rules was allowed considering there was no prior consent to them in the rele-
vant iia s, and whether recourse to the iba would then bar access to icsid.267
This ism case illustrates how the iba ism Rules could work alongside the icsid
conciliation and arbitration rules that are already provided for in bits.268 The
parties can resort to the iba ism Rules to attempt the settlement of their dis-
pute before initiating the second step: icsid conciliation or arbitration. This
could be achieved by conducting the mediation proceedings during the pre-​
defined cooling-​off periods that are already provided in iia s. If the dispute
remains unresolved, nothing precludes the parties from resorting to the pre-​
agreed icsid dispute resolution mechanism.

3.3.3.2 International Investment Agreements

The increased presence of ism can also be observed in the new generation of
iia s.269 Progressively more iia s have an express reference to mediation as part
of their dispute resolution clause, which is generally quite atypical for older
generation bits and iia s.270 For example, section F –​Resolution of investment
disputes between investors and states of ceta between Canada and EU dedi-
cates an individual Article 8.20 to (voluntary) mediation:

1. The disputing parties may at any time agree to have recourse to

mediation.

266 Décret no 96–​915 du 9 octobre 1996 portant publication de l’accord entre le Gouvernement
de la République française et le Gouvernement de la République des Philippines sur l’en-
couragement et la protection réciproques des investissements (ensemble un protocole),
signed 13 September 1994, entered into force 12 June 1996, art 8 (France-​Philippines bit).
267 Discussed in Chapter 4.
268 Frauke Nitschke, ‘The IBA’s Investor-​State Mediation Rules and the ICSID Dispute
Settlement Framework’ (2014) 29(1) icsid Review 112.
269 See above (n 21 in ch 1).
270 Titi (n 8 in ch 1).

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Addressing Drawbacks in Investor-state Arbitration 109

2. Recourse to mediation is without prejudice to the legal position or

rights of either disputing party under this Chapter and is governed
by the rules agreed to by the disputing parties including, if available,
the rules for mediation adopted by the Committee on Services and
Investment pursuant to Article 8.44.3(c).
3. The mediator is appointed by agreement of the disputing parties.
The disputing parties may also request that the Secretary General of
icsid appoint the mediator.
4. The disputing parties shall endeavour to reach a resolution of the dis-
pute within 60 days from the appointment of the mediator.
5. If the disputing parties agree to have recourse to mediation, Articles
8.19.6 and 8.19.8 shall not apply from the date on which the disputing
parties agreed to have recourse to mediation to the date on which
either disputing party decides to terminate the mediation. A decision
by a disputing party to terminate the mediation shall be transmitted
by way of a letter to the mediator and the other disputing party.

The EU-​Singapore Investment Protection Agreement 2018, which replaces 12

bits between EU member states and Singapore, provides a whole annex dedi-
cated to voluntary mediation between investors and states (Annex 6).271
Article 9.18 (1) of the Comprehensive and Progressive Agreement for Trans-​
Pacific Partnership (cptpp) among Australia, Brunei, Canada, Chile, Japan,
Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam provides a vol-
untary conciliation and mediation step before arbitration:

1. In the event of an investment dispute, the claimant and the respon-

dent should initially seek to resolve the dispute through consultation and
negotiation, which may include the use of non-​binding, third party pro-
cedures, such as good offices, conciliation or mediation.272

The article allocates six months for the dispute to be resolved through non-​
binding dispute resolution mechanisms. If the dispute is not resolved during
this time, it can then be referred to arbitration.273
While multi-​tier isds clauses with such an opt-​in, voluntary ism step are
now becoming a common characteristic of new generation iia s, references to

271 EU-​Singapore ipa (n 21 in ch 1) annex 6.

272 Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (cptpp) (n 21 in
ch 1) art 9.18.
273 Ibid art 9.19(1); Claxton, Nottage and Ubilava (n 179); Claxton (n 2); Fan (n 26 in ch 1).

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110  Chapter 3

mandatory mediation as a pre-​condition to arbitration remain extremely rare.

Out of over 3000 iia s, only two treaties in force, the Hong Kong-​United Arab
Emirates bit (2019) and the ia-​c epa, provide for mandatory conciliation as a
pre-​condition to arbitration.274 Both of these treaties, however, apply manda-
tory conciliation obligations to the claimant investor only.
The isds clause of the Hong Kong-​United Arab Emirates bit comprises
a three-​tier dispute resolution system. The first step is amicable settlement
through consultations during the six-​months cooling-​off period. At the end of
the six months, if the dispute is not settled amicably, disputants are provided
with an additional six months for conciliation (Article 8(5)). Conciliation
becomes mandatory for the claimant only when initiated by the respondent
(the Contracting Party). Article 8(3) stipulates:

When required by the Contracting Party, if the dispute cannot be settled

amicably within six months from the date of receipt of the written notice,
it shall be submitted to the competent authorities of that Contracting
Party or arbitration centres thereof, for conciliation.

While this is a mandatory conciliation provision, the agreement to conciliate

does not become binding for the claimant investor automatically and, unless
initiated by the respondent state, nothing precludes the claimant from access-
ing arbitration directly after consultations. However, the international invest-
ment agreement does not seem to clarify whether the additional six months
that was allowed for mandatory conciliation can be waived if it becomes obvi-
ous that settlement will not be reached. In particular, it may be evident from
the beginning that the respondent never intended to engage in the concilia-
tion process, but instead initiated it with the sole intent of gaining additional
time before arbitration. This additional and unilaterally mandatory concilia-
tion step further prolongs the total existing isds timeline by six months. This
is because conciliation was not included in the cooling-​off periods and instead
represents an additional middle step in between the existing amicable settle-
ment and consequent arbitration.
The ia-​c epa contains the other unconventional multi-​tier isds clause,
which is somewhat similar to that in the Hong Kong-​United Arab Emirates

274 Hong Kong-​uae bit (2019) (n 45); ia-​c epa (n 44); Ana Ubilava, ‘Mandatory Investor-​State
Conciliation in New International Investment Treaties: Innovation and Interpretation’ (5
September 2020) Kluwer Mediation Blog, availale at <http://​mediat​ionb​log.kluwer​arbi​
trat​ion.com/​2020/​09/​05/​mandat​ory-​inves​tor-​state-​conci​liat​ion-​in-​new-​intern​atio​nal
-​inv​estm​ent-​treat​ies-​inn​ovat​ion-​and-​int​erpr​etat​ion/​>.

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Addressing Drawbacks in Investor-state Arbitration 111

bit.275 The isds clause of the ia-​c epa provides a unilaterally mandatory con-
ciliation (mediation), which is a pre-​condition to isa.

If the dispute cannot be resolved within 180 days from the date of receipt
by the disputing Party of the written request for consultations, the dis-
puting Party may initiate a conciliation process, which shall be manda-
tory for the disputing investor …276

There are two scenarios in which the claimant can access isa. If the consulta-
tions are unsuccessful, the claimant can proceed with arbitration after the 180-​
day cooling-​off period ends but must wait another 90 days before the claim
for arbitration can be submitted (in total 270 days). However, this is only if
conciliation has not been initiated by either of the disputants. If the concilia-
tion was initiated then to be allowed access to arbitration, the disputants are
provided an additional 120 days for conciliation. Once this additional time is
up, the claimant can proceed with arbitration only after 60 days. Therefore,
conciliation too has to be unsuccessful for the claimant to then progress to
isa.277 If the timeline of each of the steps is interpreted as cumulative, then
mandatory conciliation increases the otherwise 270-​day process to 360 days –​
from the date of notice of the dispute before isa –​which is an increase of
approximately three months.278 An alternative and also a plausible interpre-
tation of these timelines is that if the notice of intent for arbitration can be
given to the respondent during the consultations (180 days) or conciliation
(120 days), then the waiting period for arbitration (60 or 90 days depending
on whether there was a conciliation or not) could be counted within these
times. The treaty language is not clear whether the stipulated times for consul-
tations and conciliation need to end for the claimant to be permitted to issue
the notice of arbitration, or whether these actions can overlap.279 The interpre-
tation adopted here is that these timelines are cumulative and not overlapping
because, under the treaty, it is expressly stated that conciliation can be initi-
ated during the cooling-​off periods of consultations (Article 14.21). However,
no such reference is made regarding the notice of intent for arbitration (Article
14.26). Regardless of the method of interpretation, conciliation increases the
overall timeline by no more than 120 days. The ia-​c epa, similar to the Hong

275 ia-​c epa (n 44).

276 Ibid art 14.23.
277 Ubilava and Nottage (n 7 in ch 1).
278 ia-​c epa (n 44) art 14.23.
279 Ubilava (n 274).

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112  Chapter 3

Kong-​United Arab Emirates bit, is also silent on whether it is allowed to have

the 120 days of mandatory conciliation waived for the claimant if settlement
becomes less unlikely. Presumably, the best way forward would be to apply the
reduced 60-​day period before being allowed to submit an arbitration claim,
not the 90 days mandated if conciliation has not been initiated.
The reference to mandatory conciliation in these iia s, albeit unilateral, is a
progressive and promising step towards normalising mandatory adr mecha-
nisms as a pre-​condition to arbitration in isds. But the claimant investors might
still try to bypass these isds clauses by invoking the mfn obligation under
respective iia s. Under the mfn obligation, states are required to treat investors
and investments of the contracting state no less favourably than they treat the
investors and investments of other states within their sovereign territory. Unless
there is a specific isds carve-​out in iia s, the claimant investors of one treaty can
have recourse to dispute resolution mechanisms of other (subsequent) trea-
ties to which the respondent state is a contracting party, if they prove that the
isds of the other treaty is more favourable. However, both the ia-​cepa (Article
14.21(3)) and the Hong Kong-​United Arab Emirates bit (Article 4(8)) have an
express carve-​out of isds from the mfn clause stating that the mfn obligation
under the agreement does not extend to isds provisions. Thus, if, for example,
Australia was to complete its current negotiations for an fta with the UK,280
which resulted in more conventional cptpp-​like isds provisions without man-
datory ism, an Australian investor into Indonesia could not invoke the mfn pro-
vision in the ia-​cepa to ‘import’ those standard isds provisions to bypass the
mandatory ism if invoked by Indonesia as the host state.
With the increasing instruments regulating the role of mediation in isds,
more iia s will contain express references to ism in the future, providing for
mediation on a voluntary or mandatory basis. This is especially true now that
there is a new multilateral treaty aiming to ensure the universal enforceability
of settlement agreements, as explained next.

3.3.3.3 Singapore Convention on Mediation

While recently, mediation has been promoted through individual treaties, a
significant step towards further popularisation of mediation both in interna-
tional commercial and investment dispute resolution platforms is the adop-
tion of a multilateral convention –​the Singapore Convention on Mediation.281

280 Australian Government Department of Foreign Affairs and Trade, ‘Australia-​United

Kingdom Free Trade Agreement’, fta s under Negotiation, available at <https://​www.dfat
.gov.au/​trade/​agr​eeme​nts/​negot​iati​ons/​Pages/​ftas-​under-​nego​tiat​ion>.
281 Singapore Convention on Mediation (n 14 in ch 1).

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Addressing Drawbacks in Investor-state Arbitration 113

The non-​universal enforceability of cross-​border settlement agreements deriv-

ing from mediation/​conciliation proceedings has been deemed a principal set-
back for popularisation of ism and other adr mechanisms in isds.282 After
years of discussions, it was time to take actual steps towards implementing
ism. The first step was to address the enforceability issue of mediated settle-
ment agreements on both international commercial and investor-​state dispute
resolution platforms. In 2014, the United States proposed to uncitral to cre-
ate a multilateral convention on the enforceability of international commer-
cial mediation settlement agreements.283 In the proposal, the United States
noted that a convention would be able to eliminate variations in enforcement
mechanisms of different states, which had not been achieved by the unci-
tral Model Law on Conciliation.284
Two approaches could have been taken for the enforceability of the medi-
ated settlement agreement.285 One approach would have been for a mediated
settlement agreement to follow the legislative requirements of the state in
which enforcement was sought.286 Only then would the settlement agreement
qualify for universal enforceability. The second and preferred approach was for
a future multilateral convention to lay down its own criteria for compliance by
which a settlement agreement would automatically qualify for international
enforceability.287
In 2014, uncitral Working Group ii was tasked with the creation and
adoption of the first multilateral convention on the enforceability of settle-
ment agreements deriving from mediation. Through the course of their work,
it was often suggested to draft the multilateral mediation convention in the for-
mat of the New York Convention, which was also evident from multiple refer-
ences to the latter during various sessions of Working Group ii. Nevertheless, it
was decided not to include ‘recognition’ as part of the convention, as this could
trigger additional review and control mechanisms in the state of origin for the
settlement agreements. Therefore, it was suggested to only include the phrase

282 Gary Born, ‘A New Generation of International Adjudication’ (2012) 61(4) Duke Law
Journal 775; Edna Sussman, ‘A Path Forward: A Convention for the Enforcement of
Mediated Settlement Agreements’ (2015) 12(6)Transnational Dispute Management, avail-
able at <https://​www.transn​atio​nal-​disp​ute-​man​agem​ent.com/​arti​cle.asp?key=​2295>.
283 uncitral Working Group ii, ‘Planned and Possible Future Work –​Part iii Proposal by
the Government of the United States of America: Future Work for Working Group ii’ (2
June 2014) 47th sess, UN Doc a/​c n.9/​822.
284 Ibid.
285 Deason (n 199 ch 2).
286 Ibid.
287 Ibid.

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114  Chapter 3

‘binding and enforceable’.288 In June 2018, after four years of work, uncitral
finalised the Singapore Convention on Mediation.289 The Convention was
opened for signature on 7 August 2019 in Singapore and came into force on 12
September 2020.290
Under the Singapore Convention on Mediation, disputants will no longer
have to go through mediation-​arbitration hybrid procedures (as outlined in
Chapter 2 above) to try to transform their settlement agreements into con-
sent awards for enforceability. Instead, those agreements will be universally
enforceable without the need to be embedded into an arbitral award. This is
a significant upgrade of the status of settlement agreements, that were previ-
ously treated as mere contracts. A mediated settlement agreement is enforced
through the courts of a state where the enforcement is sought as long as it
satisfies the requirements of the Singapore Convention on Mediation. Apart
from the requirement to fall under the scope of Article 1, the party seeking
enforcement should provide both an agreement signed by the parties and evi-
dence that the settlement agreement resulted from mediation.291 Article 1(1)
stipulates that:

This Convention applies to an agreement resulting from mediation and

concluded in writing by parties to resolve a commercial dispute (“settle-
ment agreement”) which, at the time of its conclusion, is international …

The settlement agreement should result from mediation. The Singapore

Convention on Mediation does not differentiate between mediation and con-
ciliation or any other dispute resolution mechanism resulting in an amicable

288 uncitral Working Group ii, ‘Report of Working Group ii (Dispute Settlement) on the
Work of its Sixty-​Fifth Session’ (Vienna, 12–​23 September 2016), 50th sess, UN Doc a/​
cn.9/​896.
289 Matthew Skinner et al, ‘Update On The Singapore Mediation Convention’ (28 January
2019) lexology Newsfeed, available at <https://​www.lexol​ogy.com/​libr​ary/​det​ail.aspx?g
=​81878​5ef-​e7ab-​4e41-​9691-​47488​6f84​384>; Alexander (n 14 in ch 1); Singapore Convention
on Mediation (n 14 in ch 1).
290 This marks the highest number of signatories on the first day in the history of UN trade
conventions. See United Nations, ‘List of Signatory States to the Singapore Convention
on Mediation’, available at <https://​treat​ies.un.org/​Pages/​View​Deta​ils.aspx?src=​TRE​
ATY&mtdsg​_​no=​XXII-​4&chap​ter=​22&clang=​_​en>; Jalelah Abu Baker, ‘A ‘Powerful
Statement’ for Multilateralism, Says PM Lee as 46 Countries Ink Singapore Convention
on Mediation’ (7 August 2019) Channel News Asia, available at <https://​www.chan​nel
n​ewsa​sia.com/​news/​singap​ore/​singap​ore-​con​vent​ion-​on-​mediat​ion-​un-​trade-​dispu​tes
-​pm-​lee-​11787​744>.
291 Singapore Convention on Mediation (n 14 in ch 1) art 4.

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Addressing Drawbacks in Investor-state Arbitration 115

settlement, as long as the procedure at hand complies with the definition of

Article 2(3) cited above in Chapter 3.3.1.292
The settlement agreement should be made in writing, and it may be incor-
porated in one whole document, or consist of separate documents, or exist in
other forms (for example digitally). According to Article 2(2):

A settlement agreement is “in writing” if its content is recorded in any

form. The requirement that a settlement agreement be in writing is met
by an electronic communication if the information contained therein is
accessible so as to be useable for subsequent reference.

As long as there is clear proof of the terms of the settlement, the requirement of
being ‘written’ should be deemed to be complied with.
The settlement agreement should be commercial by nature. This has raised
concerns among some commentators as to whether ‘commercial’ excludes
the application of the Convention to investor-​state disputes. What adds to
the debate is that the term commercial is not defined under the Singapore
Convention on Mediation. An analysis of the Convention, its travaux prepa-
ratoires, and other international instruments and organisations, suggests that
the Convention will apply to investor-​state disputes, as long as the dispute is
broadly commercial by nature.293 A wide definition of the term ‘commercial’,
can be found in the Model Law developed also by unictral, could encompass
at least some types of investor-​state disputes (eg large-​scale or complex trans-
actions for the supply or exchange of goods or services; construction of works;
consulting; engineering; licensing; investment; financing; banking; insurance;
exploitation agreement or concession; joint venture and other forms of indus-
trial or business cooperation).294 The term ‘commercial’ was also provided as

292 Ibid.
293 Nitschke (n 1 in ch 1). uncitral Working Group ii, ‘Settlement of commercial dis-
putes: Enforceability of settlement agreements resulting from international commer-
cial conciliation/​mediation –​Revision of the UNCITRAL Notes on Organizing Arbitral
Proceedings’ (Arbtiration and Conciliation), UN Doc a/​c n.9/​wg.ii/​w p.188; uncitral
Working Group ii, ‘Settlement of commercial disputes –​International commercial con-
ciliation: enforceability of settlement agreements’ (Arbitration and Conciliation), UN
Doc a/​c n.9/​wg.ii/​w p.195; uncitral, Report of Working Group ii (Arbitration and
Conciliation) on the Work of its Sixty-​Third Session (Vienna, 7–​11 September 2015), unci-
tral, 49th sess, UN Doc a/​c n.9/​861.
294 Shirlow (n 17 in ch 1); Schnabel (n 17 in ch 1); Mushegh Manukyan, ‘Singapore Convention
Series: A Call For A Broad Interpretation Of The Singapore Mediation Convention In The
Context Of Investor-​State Disputes’ (10 July 2019) Kluwer Mediation Blog, available at

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116  Chapter 3

a reservation in the earlier New York Convention, which generally and in prac-
tice –​apart from international commercial arbitration awards –​also applies
to isa awards under the uncitral Arbitration Rules. Further, the Singapore
Convention on Mediation itself only excludes settlement agreements resolv-
ing personal, family or household matters, or relating to family, inheritance,
or employment law. Moreover, parties to the Convention can make reserva-
tions under Article 8 declaring that the Convention will not apply settlements
involving state entities. If such a reservation is made, the Convention shall still
apply if the parties of a settlement agreement agree to opt-​in. The fact that
such reservations are considered under the Convention suggests that it applies
to investor-​state disputes unless reservations are made against it. For all these
reasons, at least for certain types of transactions and/​or treaty claim disputes,
it is quite widely accepted that the Singapore Convention on Mediation applies
to mediated settlement agreements resolving investor-​state disputes.
The settlement agreement should be international at the time it is con-
cluded. This means that it does not matter whether the mediation process was
carrying the international element before the conclusion of the agreement.
What matters is that the international element, as defined by the Singapore
Convention on Mediation, is present at the time the parties concluded their
settlement agreement. The settlement agreement acquires the international
element from the disputants. It will be deemed to be international if, at the
time of its conclusion, two or more parties to the agreement had their places of
business in different countries. If the parties’ places of business are in the same
country, the settlement agreement may still carry the international element if
their places of business differ from the country (a) which is closely connected
to the subject matter of the agreement, or (b) wherein the main portion of the
obligation is to be undertaken.
The Singapore Convention on Mediation also sets out a list of characteristics
that would exclude settlement agreements from the scope of the Convention.295
The Convention does not apply to (a) settlement agreements relating to con-
sumer, family, inheritance or employment law; (b) settlement agreements that
have resulted in the course of court proceedings, were approved by a court, or
are enforceable as court judgements; and (c) settlement agreements that were
embedded in arbitral awards and so can be enforced as consent awards.
While the Singapore Convention on Mediation provides a framework for
the cross-​border enforceability of settlement agreements, it does not offer

<http://​mediat​ionb​log.kluwer​arbi​trat​ion.com/​2019/​06/​10/​singap​ore-​con​vent​ion-​ser​ies
-​a-​call-​for-​a-​broad-​int​erpr​etat​ion-​of-​the-​singap​ore-​mediat​ion-​con​vent​ion-​in-​the-​cont​ext
-​of-​inves​tor-​state-​dispu​tes/​>.
295 Singapore Convention on Mediation (n 14 in ch 1) arts 2(2) and 2(3).

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Addressing Drawbacks in Investor-state Arbitration 117

procedural rules for mediation proceedings. This gap can be filled by either the
iba Mediation Rules or the recent icsid draft Mediation Rules.

3.3.3.4 icsid Mediation Rules

On 2 August 2018, icsid published its Working Paper 1, which comprised initial
draft amendments to its rules.296 The initial consultation and review process
began in October of 2016. The Working Paper was open for public comment
until 28 December 2018. The rules have been fully re-​drafted in plain, modern,
gender-​neutral language, and reorganized in a user-​friendly manner.
While the changes will not be to the icsid Convention itself, they are still
the most extensive amendments undertaken by icsid to date. The announce-
ment of Working Paper 1 generated an extensive body of comments and sug-
gestions from states and the public (academics and practitioners) alike. These
submissions were considered and incorporated into Working Paper 2, pub-
lished in March 2019, Working Paper 3, published in August 2019, and Working
Paper 4, published in February 2020.297 Amendments were proposed to icsid
Convention Proceedings298 and icsid Additional Facility Proceedings.299
Apart from amending the existing Rules, including the Conciliation Rules that
were hardly ever used, icsid also proposed a new set of free-​standing rules –​
the icsid Mediation Rules. They will apply to ism proceedings and be acces-
sible to member and non-​member states and their investors. (By contrast, the
icsid Conciliation Rules are only available to disputes where the respondent,
as well as the claimant’s home state, are icsid member-​states. As for the icsid
af Conciliation Rules, at least one of the relevant states must be an icsid
member state). Therefore, the icsid Mediation Rules will not be limited by
the membership status of a state or its investor and should appeal to a wider
audience.
The icsid Mediation Rules are designed mainly as a voluntary set of rules
of an opt-​in nature that the disputants can initiate at any time during their dis-
pute. ism under the icsid Mediation Rules can be initiated on two grounds: (a)
institution of mediation based on prior agreement (Rule 4); and (b) institution
of mediation when there is no prior agreement to mediate (Rule 5). Currently,

296 icsid wp1 –​Consolidated Rules (n 19 in ch 1).

297 icsid wp1 –​Consolidated Rules, icsid wp2 –​Consolidated Rules, icsid wp3, icsid
wp4 (n 19 in ch 1).
298 Administrative and Financial Regulations, Institution Rules, Arbitration Rules and
Conciliation Rules.
299 Additional Facility Rules, Administrative and Financial Regulations, Arbitration Rules,
Conciliation Rules, Fact-​Finding Rules and Mediation Rules.

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118  Chapter 3

only a handful of iia s in force provides for an agreement to mediate (volun-

tarily).300 However, the icsid Mediation Rules allow a party to initiate medi-
ation proceedings despite the absence of the initial agreement to mediate, by
seeking the consent of the other party through the Secretary-​General of icsid.
This provision serves as a platform for promoting more ism.301
Unlike the Singapore Convention on Mediation, icsid recognises a differ-
ence between conciliation and mediation. In a mediation process, the medi-
ator helps the parties come to an agreement. During a conciliation, however,
the conciliation commission is more involved in the process of bringing the
disputants to an agreement, which may also involve giving parties recommen-
dations. Therefore, changes have also been made to the icsid Conciliation
Rules aiming to make the conciliation process more time-​and cost-​effective.
The most interesting part is the amendments to the Report that the conciliator
drafts at the end of conciliation proceedings. According to draft Conciliation
Rule 34(2), parties to the conciliation proceedings are entitled to have their
settlement agreement embedded in the Report in full.

(2) The parties may provide the Commission with the complete and
signed text of their settlement agreement and may request that the
Commission embed such settlement in the Report.

The existing version of the Conciliation Rules does not have this type of provi-
sion even though parties have previously opted for having parts of their settle-
ment agreement embedded in the Report, but not in full.
Neither the icsid Conciliation Rules nor the icsid Mediation Rules,
address the issue of respective enforceability of the Report or the settlement
agreement. icsid’s commentary on its proposed Rules in Working Paper 1, 2018
refers in this respect to the Singapore Convention on Mediation as a multilat-
eral framework for the enforcement of mediated settlements that will apply to
settlements reached in the context of investment disputes.302

300 James Claxton, ‘Compelling Parties to Mediate Investor-​State Disputes: No Pressure,

No Diamonds?’ (2020) 20(1) Pepperdine Dispute Resolution Law Journal 78. See also
Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (cptpp) (n 21
in ch 1) art 9.18; Comprehensive Economic and Trade Agreement (ceta) (n 9 in ch 1);
Pappas (n 259 ch 2); EU-​Vietnam fta (n 9 in ch 1) art 3.31 and annex 10; EU-​Singapore ipa
(n 21 in ch 1) art 3.4 and annex 6.
301 Ubilava and Nottage (n 18 in ch 1).
302 icsid wp1 –​Synopsis, (n 18 in ch 1) 11.

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Addressing Drawbacks in Investor-state Arbitration 119

A new provision has been introduced to allow the parties’ signed and
complete settlement agreement to be embodied in a Report. This change
allows parties in icsid conciliation to benefit from the enforcement
regime for mediated settlements contemplated in the draft Convention
on Mediated Settlements (Singapore Mediation Convention) (cr 34(2);
(af)cr 42(2)).303

While reference to the enforcement route through the Singapore Convention

on Mediation is not made in the subsequent working papers, it should be
assumed that this approach is maintained. Therefore, the icsid Conciliation
and Mediation Rules rely on the enforcement instrument provided by the
Singapore Convention on Mediation. This is achieved by both sets of Rules
stipulating requirements for their Reports and settlement agreements simi-
lar to those provided in Article 4 of the Singapore Convention on Mediation,
ensuring enforceability.

3.4 Conclusion

In recent years, the growing dissatisfaction with isa has laid grounds for the
idea of promoting more investor-​state adr mechanisms, in particular ism.
While mediation is rare in isds, therefore making it hard to forecast its bene-
fits or trade-​offs, it is at least expected to be, among other benefits, as time-​and
cost-​efficient in isds as it is in domestic and international commercial dispute
resolution spheres.
isa needs a solution to remedy its shortcomings, which currently represent
a considerable cause for concern among isds stakeholders. Inserting media-
tion in the isds regime can be a beneficial addition to the currently ‘unruly’
isa process. Mediation promises to resolve investor-​state disputes quickly,
resulting in cheaper proceedings, and even if it is unsuccessful, it will not
extend the overall isds timeline if integrated into the existing cooling-​off peri-
ods. However, to achieve this, mediation needs to be fully and actively applied
to investor-​state disputes.
Currently, mediation is only offered in a voluntary opt-​in framework, which is
deemed sufficient for facilitating its future use. This sentiment is underpinned
by the recent adoption of the Singapore Convention on Mediation, which
many hope will ensure universal enforceability of settlement agreements.

303 Ibid.

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120  Chapter 3

Once mediated settlement agreements are enforceable, one view is that

recourse to ism and conciliation will grow considerably. Therefore, the need
for a mandatory agreement to mediate disappears. However, inserting media-
tion into the isds regime in a voluntary format is not enough –​even with the
currently adopted Singapore Convention on Mediation, which promises uni-
versal enforceability of settlement agreements. Chances are that a voluntary
ism step will not be invoked by the claimants, or if initiated by the respondent,
will most probably be turned down by the investor. The following Chapter 4
challenges the argument that enforceability of settlement agreements will be
enough to warrant increased and adequate use of ism in the current and fore-
seeable isds regime.

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