[co-author: Clara Reichenbach]

In the investor-State context, consensual alternative dispute resolution (ADR) has long been viewed as an aspirational endeavor. Where a foreign company or individual complains of mistreatment by a host State, the investor will usually commence arbitration proceedings under an investment treaty. As a legally binding mechanism that can result in widely recognized and enforceable awards, international arbitration has distinct advantages over the uncertain prospect of amicable settlement. Yet perceptions of investment mediation are shifting.

The International Centre for Settlement of Investment Disputes (ICSID), the world’s leading institution for investor-State disputes, has been a vocal supporter of ADR for several years. In 2018, ICSID launched the first institutional mediation rules for investment disputes, the ICSID Mediation Rules (MR). As part of its comprehensive rules amendment process, on 15 June 2021, ICSID released the latest version of its MR (available here).¹ On 12 July 2021, ICSID launched two new publications designed to promote the use of mediation in investment disputes, including a comprehensive guide on investment mediation (available here)² and a report offering insights into how States are incorporating mediation in their investment treaties (available here).³ These amendments and publications are reflective of broader initiatives in recent years to raise the profile of investment mediation, as discussed in Section I. Whether mediation is ultimately likely to be widely used in investment disputes is, however, uncertain, due to a number of reasons examined in Section II.

I. Recent Initiatives to Promote Investment Mediation

The defining characteristic of mediation is its consensual nature. In contrast to litigation or arbitration, facilitated dialogue can only resolve disputes if there are willing participants. As a result, mediation may be particularly attractive to parties wishing to preserve their commercial relationship, retain control over the outcome of the process and resolve any disputes through compromise rather than strict legal argument.

ICSID’s MR cater to these needs, and the newly published Background Paper on Investment Mediation provides a step-by-step walkthrough on the role of mediation in resolving investment disputes, explains how mediation works in practice and outlines ICSID’s services to support the parties throughout the process. Unlike arbitration and conciliation proceedings under the ICSID Convention and Additional Facility Rules, the MR do not impose ICSID membership or nationality requirements. The ICSID Secretariat also offers an array of services, including advice and consultation on suitable candidates to act as mediator(s).⁴

ICSID has also recently published an Overview of Investment Treaty Clauses on Mediation, which is the product of a comprehensive survey of mediation clauses in investment treaties. While ICSID’s analysis is primarily intended to guide State parties in drafting international treaties, the survey will also assist investors in understanding the different mediation options and requirements contained in various BITs. Moreover, companies that negotiate investment contracts with States may wish to include specific provisions for ADR in their agreement. In this regard, ICSID’s comparative analysis provides an array of useful precedents that can be adapted to the specific needs of the parties.

All of these efforts can be viewed in the broader context of States, international organizations, and arbitral institutions pursuing a number of different initiatives in recent years to promote the use of mediation. Among the most significant developments has been the adoption of the Singapore Convention on Mediation, an international treaty establishing a common framework for the recognition and enforcement of mediated settlements.⁵ The Convention, currently signed by 54 States, creates an international regime to enforce mediated settlements that resembles the 1958 New York Convention for the enforcement of arbitral awards.⁶ The United Nations Commission on International Trade Law (UNCITRAL) Working Group III on Investor-State Dispute Settlement Reform has devoted significant efforts to the promotion of ADR, including investment mediation.⁷ The Secretariat of the Energy Charter Treaty has also taken various steps to encourage the use of ADR, including adopting a guide on investment mediation and launching a model instrument designed to promote the use of mediation in investment disputes. Similarly, the Vienna International Arbitration Centre has recently introduced specialized investment mediation rules, which “may be used either independently of, or in conjunction with, arbitration proceedings.”⁸ An increasing number of institutions offer capacity-building programs on investment mediation, which aim to equip State representatives and companies with the skills and know-how necessary to engage in ADR, ensuring that both parties feel comfortable with what may be an unfamiliar process.⁹

II. Investment Mediation: Potential but also Challenges

Although the topic of investment mediation has been the subject of extensive recent discussions, some practitioners question whether mediation is ultimately likely to gain the same popularity in practice as it does at conferences. There are three main reasons for this.

First, the confidentiality often seen as essential to the mediation process sits at odds with calls for increasing transparency in investor-State dispute resolution. In order to facilitate frank discussions, concessions, and compromises likely to result in a settlement, mediation is usually conducted ‘without prejudice’ so that any documents or information shared during the process are legally privileged and may not be relied upon in any future dispute settlement procedure like arbitration. As a result, most investor-State mediation rules adopt a default position of confidentiality, including ICSID’s MR.

This broad acceptance of confidentiality is, however, arguably in tension with calls for increased transparency and accountability in investment dispute resolution, where disputes may involve significant public policy questions with far-reaching implications for a State’s regulatory choices and fiscal duties.¹⁰ As noted by one commentator, there is a fear that increased investment mediation would create “an exit valve” for States and investors seeking to resolve their disputes without “public scrutiny.”¹¹ It is an open question whether States will ultimately face a public backlash for engaging in confidential negotiations that may result in an equally confidential settlement agreement.

Second, perhaps one of the greatest obstacles to successful investment mediation is politics: specifically, whether the host State is willing to consider agreeing a negotiated settlement. Because settlements are frequently portrayed (fairly or not) as an acceptance of liability on the respondent’s part, it is often “easier for governments to have the right decision imposed by an outside tribunal rather than ‘conceded’ by the government.”¹² This perceived risk is less acute in the context of compulsory third-party dispute settlement mechanisms such as arbitration.

Third, as one legal academic has noted, “all large and complex organizations in which authority is allocated among many different departments will experience difficulty in making major decisions.”¹³ The same, of course, applies to States. From an investor’s standpoint, a common concern is whether the counterparty in any negotiation has authority to bind the State to a settlement agreement. In this regard, the involvement of a sovereign party can present additional hurdles, such as the need for ministerial or cabinet approval before a settlement can be concluded.¹⁴

III. Conclusion

Capacity-building initiatives, including ICSID’s proposed amendments and recent publications on investment mediation, play a crucial role in raising awareness of investment mediation and its potential benefits. In particular, the flexibility of mediation and the possibility of avoiding formal dispute resolution render it a valuable tool for investors and States to keep in mind. Whether mediation will be able to play a significant role in investment disputes, however, remains to be seen.

Footnotes -

1. ICSID, ‘Working Paper #5: Proposal for Amendment of the ICSID Rules’, Vol. 1 (2021), pp 202-214, available at: https://icsid.worldbank.org/sites/default/files/publications/WP 5-Volume1-ENG-FINAL.pdf.
2. ICSID, ‘Background Paper on Investment Mediation’ (2021).
3. ICSID, ‘Overview of Investment Treaty Clauses on Mediation’ (2021).
4. To help with the selection of potential mediators, ICSID and other institutions have identified a set of standards and qualifications that may guide parties in the appointment process. For example, the criteria put forward by the International Mediation Institute include an understanding of investor-State issues, experience with different forms of negotiation, mediation and conciliation, and intercultural competency. See International Mediation Institute, ‘IMI Competency Criteria for Investor-State Mediators’ (2016), available at: https://imimediation.org/download/104/ism/1472/investor-state-mediation-competency-criteria.pdf.
5. Formally known as the United Nations Convention on International Settlement Agreements Resulting from Mediation, adopted on 20 December 2018 in Singapore.
6. The instrument applies to any “commercial” settlement agreement, including those arising out of investor-State disputes, unless a State party specifically excludes investment disputes from the Convention’s application. See Singapore Convention, Articles 1(1) and 8(1). To date, only three States – Belarus, Iran and Saudi Arabia – have chosen to expressly exclude investment disputes from the Convention’s application. See United Nations Treaty Collection, ‘Status of the United Nations Convention on International Settlement Agreements Resulting from Mediation’, available at https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXII-4&chapter=22&clang=_en.
7. As part of its mandate, the Working Group has held inter-governmental sessions on the use of mediation in investment disputes, devised a “workplan” to convene future discussions on ADR mechanisms and dispute prevention, and hosted webinars and invited academic papers on the topic. See UNCITRAL Working Group III, Secretariat Note on ‘Dispute Prevention and Mitigation - Means of Alternative Dispute Resolution’ (Working Paper 190), available at https://undocs.org/en/A/CN.9/WG.III/WP.190; UNCITRAL Working Group III, ‘Workplan to Implement Investor-State Dispute Settlement (ISDS) Reform and Resource Requirements’ (Working Paper 206), pp 3-5, available at https://undocs.org/en/A/CN.9/WG.III/WP.206; UNCITRAL Working Group III, ‘The Role of Mediation in ISDS’, available at https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/wgiii_webinar_mediation.pdf.
8. VIAC Rules of Investment Arbitration and Mediation 2021, Introduction, available at https://www.viac.eu/en/investment-arbitration/content/vienna-rules-investment-2021-online. To complement its new rules, VIAC has published several model investment mediation clauses with varying degrees of optionality. See Part III, Annex 1 (‘Model Clauses’).
9. These include ICSID, the ECT Secretariat, the United Nations Conference on Trade and Development and the Investment Committee of the Organization for Economic Co-operation and Development.
10. Esme Shirlow, ‘Investor-State Arbitration Meets Mediation: Potential Problems,’ Kluwer Arbitration Blog (September 30, 2020), available at http://arbitrationblog.kluwerarbitration.com/2020/09/30/investor-state-arbitration-meets-mediation-potential-problems/.
11. Stephan Schill, ‘Authority, Legitimacy, and Fragmentation in the (Envisaged) Dispute Settlement Disciplines in Mega-Regionals’, in Stefan Griller et al. (eds), Mega-Regional Trade Agreements: CETA, TTIP, and TiSA (2017).
12. W. Michael Reisman, ‘International Investment Arbitration and ADR: Married but Best Living Apart’, in Investor-State Disputes: Prevention and Alternatives to Arbitration II, Proceedings of the Washington and Lee University and UNCTAD Joint Symposium on International Investment and Alternative Dispute Resolution, held on 29 March 2010 in Lexington, Virginia, United States of America, p. 26.
13. Ibid.
14. For this reason, ICSID recommends that the mediation team include at least one individual “who has a clear line of communication to the relevant entity with settlement authority.” See ICSID, ‘Background Paper on Investment Mediation’ (2021), p 9.