Investor-State Mediation: Not Whether, Or Even When, But How

It has long been suggested that public bodies are antagonistic to negotiating settlements with private investors. The supposed, underlying rationale is that government officials are reluctant to be seen as compromising the interests of the state, meaning that negotiating is unacceptable. The recently published International Mediation Institute Investor-State Mediation Criteria challenge that assumption.

There is a kernel of truth to every generality. State representatives are indeed appropriately sensitive to the political realities surrounding negotiation and settlement. However, truth be told, states the world over are, in fact, readily entering into negotiated settlements for differences and disputes with investors. Moreover, negotiated settlements are being reached not only for little disputes but also for very large ones.

For instance, Enel Green Power S.p.A. and the Republic of El Salvador negotiated a resolution to their eight year dispute over control of LaGeo, a geothermal power producing joint venture undertaken between the global Italian power company and the state-owned company, Inversiones Energéticas S.A. (INE) and its parent Comisión Ejecutiva Hidroeléctrica del Río Lempa (CEL).

Stymied by the government shareholders in its 2008 attempt to gain control of LaGeo through a USD 127 million capital increase (from 36.2% to 53%), Enel won before the International Chamber of Commerce (ICC)’s Court of Arbitration in 2011 (with the award being upheld by the Paris Court of Appeals in 2013). When El Salvador failed to comply, Enel initiated proceedings before the International Centre for Settlement of Investment Disputes (ICSID), the investor-state dispute resolution branch of the World Bank Group. Rather than conclude matters there, the parties suspended proceedings to parley separately, subsequently agreeing on turning full control of LaGeo over to El Salvador for a pay-out of USD 280 million.

A new chapter

The Enel affairis an anecdotal but excellent example demonstrating the place for negotiated outcomes and mediation in investment disputes, where freeing oneself to ‘start a new chapter’ can be far more desirable than the hope of full financial remediation and the near-certainty of protracted, expensive adversarial proceedings.

The benefits of mediation are also well established in the commercial sector. Whether it be maintaining long-term, strategic relationships, or moving through one-off insurance claims, mediation has frequently proven its value in providing speedy, inexpensive settlements with outcomes driven by party needs and priorities.

In the investor-state context, the confidentiality, procedural flexibility and range of outcome choices makes mediation even more attractive, as does the possibility of using mediation in tandem with the existing arbitration structure, notably during treaty-imposed ‘cooling-off’ periods. Addition