Stakeholders in investor-State dispute Settlement (ISDS) now have additional guidance from the United Nations Commission on International Trade Law (UNCITRAL) on avoiding disputes. Building on the efforts of Working Group III, UNCITRAL has developed a "Toolkit on Prevention and Mitigation of International Investment Disputes," to be made available on the UNCITRAL ISDS website.
While the Toolkit is primarily designed to assist States reduce their exposure to full-blown (and costly) investor-State disputes, its insights are equally relevant to foreign investors seeking to assess local risks involved with a potential investment and identify practical strategies for mitigating them before making an investment.
The Toolkit examines existing State practices and identifies three key areas where proactive strategies can help minimize the likelihood or severity of investor-State disputes: communication with investors, coordination among government agencies, and cooperation with governments of other States.
Communication with Investors
Working Group III highlights three ways that enhanced communication between foreign investors and host States can prevent disputes:
- Easy access to information: States
can reduce uncertainty by keeping investors informed about the
legal and regulatory framework governing foreign investment, as
well as any upcoming changes. This can be achieved through a
dedicated website or by designating a specific government agency or
officeholder as the primary point of contact for investors.
Current and prospective investors benefit by keeping up to date on publicly available information about the host State's legislative and regulatory environment, including any planned amendments. - Feedback from investors: States can
minimize their exposure to disputes arising from changes in
legislation or regulation by proactively soliciting investor
feedback while such changes are under consideration. The value of
such participation and transparency is reflected by provisions in
some bilateral investment treaties requiring States to give notice
of, and consult the public on, measures affecting trade or
investment.
Investors concerned about the potential for unforeseen legal or regulatory changes should assess whether the host State offers formal opportunities to provide input before such changes are implemented. - Investor grievance mechanism:
Grievance mechanisms outside of a judicial or arbitral arena that
allow investors to voice concerns about particular State measures
can keep disputes from escalating by allowing for issues to be
addressed in a relatively timely and cost-effective manner.
Investors should evaluate the availability of such recourse at the outset of both a potential investment and a potential dispute.
Coordination among governmental agencies
Multiple governmental and related agencies are often stakeholders in respect of a particular foreign investment. Inconsistent messaging among them commonly comes to light once an arbitration has commenced, highlighting how lack of coordination and the absence of a unified approach can complicate both the investment environment and dispute resolution process.
Both States and investors can benefit from established systems for information-sharing across agencies, and the consistent messaging and managing of expectations it can ensure.
Coordination and cooperation with other governments
Institutionalized cooperation between States can help resolve or de-escalate disputes. Mechanisms such as joint committees established under investment treaties to facilitate information sharing or status monitoring can serve as effective early-warning systems for emerging investor-State disputes, and provide objective analysis to assist all parties involved.
Key takeaways
Emphasising prevention rather than cure offers a practical path for both States and investors in navigating the complexities of international investment.
The Toolkit helps States anticipate and address investor concerns before they crystallize into formal disputes, preserving valuable resources and fostering a more attractive investment climate. For investors, thorough due diligence guided by the Toolkit can help mitigate risk and foster constructive engagement with host States before committing to significant investments.
McCarthy Tétrault is ready to assist clients in leveraging the Toolkit to their advantage. Drawing on deep experience in international investment matters, our team can provide tailored advice to maximize the Toolkit's preventive strategies, mitigate risk, and foster effective engagement between investors and States.
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