Harnessing the Power of Pre-Arbitration Clauses in International Investment Treaties: The Challenges of Introducing Mediation

By Carol Khouzami[1]

In our article ‘Harnessing the Power of Pre-Arbitration Clauses in International Investment Treaties: The Case for Introducing Mediation[2], we made the case for introducing a clear mediation clause as a first step prior to arbitration or national court proceedings to significantly expedite the settlement of investor-state disputes while preserving the investor’s business interests and the host country’s reputation as an investment-friendly destination.

This approach allows for the wise use of the cooling-off period provided by mediation. Moreover, proposing mediation in the pre-arbitration clause does not exclude the possibility of resorting to mediation at any stage of arbitration or for specific points of the dispute that are suitable for this method of settlement.

The first article also touched on the factors that recently led to the enhancement of the enabling environment for the efficient use of mediation in investor-State disputes such as the adoption of the 2019 Singapore Convention and the availability since 2012 of several clear and workable investor-state mediation rules.

While the Singapore Convention holds the potential to significantly advance international mediation, particularly in the realm of investor-state disputes, it is crucial to swiftly address the concerns outlined below to ensure its smooth implementation and effectiveness.

Promoting a Mediation Culture

Habits die-hard and changes are scary.

The introduction of the first EU directive on cross-border mediation in commercial and civil matters in 2008 faced challenges. Despite subsequent revisions, mediation did not gain as much traction as expected, to date. Consequently, it becomes evident that for the effective promotion of international mediation, particularly in investor-State contexts where a State is involved, a substantial commitment of time and effort is required to elucidate the benefits and fundamental features of mediation to pertinent stakeholders within the public sector and the business community.

Similarly, it is important for certified mediators to acquire knowledge about the unique aspects of investor-State mediation. Therefore, there is a need to cultivate a credible cadre of mediators, as highlighted in the CEDR Investor-State Mediation Guide for Lawyers and their Clients.[3]

In our view, this extensive awareness campaign should be launched without delay, especially while countries are in the process of ratifying the Singapore Convention. Notably, Article 8.1 of the Singapore Convention provides States the option to exclude its application to investor-State dispute settlement (ISDS). The objective is to prevent a scenario in which many signatories resort to the reservation permitted by Article 8.1, thereby hindering the widespread implementation of the convention in ISDS cases. There is a pressing need to shift the mindset of civil servants and public decision-makers, not only through awareness initiatives but also through consultations and regulatory adjustments to address the following concerns.

Regulatory Challenges Arising from State-Specific Factors

Investor-State mediation presents two distinct characteristics when compared to standard commercial mediation: its international nature and the involvement of a sovereign State as one of the parties. Needless to say, a sovereign State operates under different requirements and rules than a private entity.

As the adoption of mediation by States is a relatively recent trend, it is advisable for States to examine their internal regulatory framework to identify potential barriers that could impede their use of mediation. Remarkably, in certain countries, even resorting to arbitration in investor-State disputes could prove problematic[4]. Therefore, conducting an assessment of the State’s legal framework also serves as an opportunity to ensure that it accommodates the use of mediation, both as an early conflict resolution mechanism and as a parallel process to investment arbitration.

Once this assessment is concluded, it becomes essential to brainstorm solutions for addressing these shortcomings. This process should involve consultations with key stakeholders, including the business community. The agreed-upon solutions may necessitate regulatory and legislative amendments, but they will undoubtedly require a shift in mindset away from the traditional perception of sovereign elements.

Among the potential obstacles and elements that merit consideration, we can mention the following:


Alongside neutrality, confidentiality stands as one of the two fundamental pillars of mediation, without which the entire process would be at risk of breaking down. The mediator will facilitate consensus among all parties regarding the information that can be disclosed outside of the mediation and the manner in which it can be shared. In the absence of such agreement, all discussions within the mediation process will remain confidential and cannot be utilized in subsequent proceedings.

However, In Investor-State disputes, the involved State may be hesitant about the confidentiality requirement in mediation, as it conflicts with the principle of transparency, particularly when public funds are at stake, which is crucial for ensuring government accountability to the public.

Compromise and Concession

Similar to all parties in a mediation process, a representative with the authority to make decisions, concessions, and compromises should also represent the State. Concession and compromise, leading to a mutually acceptable win-win resolution, lie at the heart of mediation. However, a government representative may be reluctant or uncomfortable assuming the responsibility of making compromises that involve public funds, due to concerns about potential corruption allegations or media scrutiny. In fact, the State often finds it convenient to shift the responsibility of dispute resolution to an external entity through litigation, despite the inherent inconveniences of litigation such as cost and delays.

Non-Disputing Third Parties

Non-disputing third parties, including civil society and other stakeholders, may have vested interests in an investor-State dispute. Given the confidentiality of the mediation process, mechanisms should be established to engage them or, at the very least, consider their concerns without compromising the confidentiality requirement.


The fact-finding process before mediation is of paramount importance due to the complexity of these types of disputes. Having a clear and mutually agreed-upon set of facts, documented by both parties, can significantly streamline the mediation process. It is entirely feasible to stipulate that the fact-finding process will not be held in confidence and that facts agreed upon by the disputing parties will be made accessible to the public. Rule 16 of the International Centre for Settlement of Investment Disputes (ICSID) Fact Finding Rules and Regulations outlines three exceptions to confidentiality, allowing for disclosure when ‘(a) the parties agree otherwise; (b) the information or document is independently available; or (c) disclosure is required by law[5].


The points mentioned above are not intended to deter the adoption of mediation in investor-State dispute settlement (ISDS). On the contrary, their purpose is to shed light on factors that could potentially affect the success of investor-State mediation. We firmly believe that all the points mentioned above can be effectively addressed within each country’s framework.  This can be achieved through a combination of comprehensive macro-level legislative and regulatory measures, as well as a case-by-case approach facilitated by a mediator’s carefully crafted process involving the parties to an investor-State dispute.

The Singapore Convention website encourages countries to embrace domestic mediation laws in alignment with the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation 2018 (‘Model Law 2018’) which is designed to assist States in modernizing and reforming their mediation procedure laws[6].

We can further outline additional general actions to alleviate the concerns of civil servants regarding potential repercussions when considering mediation in ISDS, such as:

  • Incorporate Mediation Provisions into Treaties and Agreements: Include mediation clauses in Bilateral Investment Treaties and Investment Agreements to encourage its use as an initial dispute resolution method.
  • Institutionalize Mediation in State Procedures: Make mediation a formal step in the State’s dispute resolution procedures, easing concerns of negative consequences among State officials.
  • Early Action Mediation in FDI Programs: Offer early action mediation as a standard option in Foreign Direct Investment (FDI) Programs, ensuring both investors and State officials engage in the process without fear of reprisals.

Additionally, it is important to emphasize that while these actions provide a foundation; individual countries should tailor solutions to their legal frameworks and domestic cultures. Seeking technical assistance from relevant institutions can aid in preparing for the effective and beneficial use of mediation in Investor-State Dispute Settlement (ISDS).


[1] Carol Khouzami: Former Lebanon Chief Negotiator for BITs; currently, a CEDR-certified mediator, and an Advocate, and Policy Consultant.

[2] https://www.cedr.com/power-of-pre-arbitration-clauses-in-international-investment-treaties/

[3] https://www.cedr.com/commercial/mediationschemes/investorstate/

[4] See Khouzami, Carol. “The decision of the State Council avoided the worst” (France Telecom case)”, Transnational Dispute Management. Jan 1, 2005, Vol 2, Issue N. 1. https://www.transnational-dispute-management.com/article.asp?key=378

[5] ICSID, Fact Finding Rules and Regulations, July 2022.

[6] https://www.singaporeconvention.org/model-law/text

Tailored Insights for You

Sign-up to receive regular insights on topics ranging from effective Conflict Management and Negotiation to Commercial Mediation and ADR Thought Leadership.