Investor State Dispute Settlement (ISDS) has to date been dominated by arbitration. However, stakeholders have called for new mechanisms, such as mediation, to settle investor-state disputes. This article is designed to be an introduction to mediation in this context, highlighting the advantages of mediation, and the ways in which it can be creatively combined with other mechanisms such as arbitration to provide satisfactory conclusions for parties.
Investment mediation, at its core, is a dispute resolution mechanism that emphasises harmony and achieving mutually satisfying results for the disputing parties. A professional mediator is used to facilitate negotiations (see also the IMI ‘investor-state mediator competency criteria‘; ‘what is mediation‘). The host States and foreign investors have a high degree of autonomy, flexibility, and choice. Mediation can help the disputing parties to reach creative, forward-facing settlement arrangements that are based on the common interests and needs of the parties in dispute.
Importantly, mediation in ISDS can co-exist with arbitration. It serves as a complementary tool to adjudication processes and not as their counterpart, since both aim for mutually acceptable, long-lasting solutions.
Why Investor-State mediation?
Parties can save significant money and time.
A recent study shows that, on average, parties spend four years in an investment arbitration; investors and States spend at least US$6 million and US$4.8 million, respectively, on representation fees. In addition, the average cost for a three-member tribunal amounts to at least US$920,000. The time and money spent in investment arbitration are extraordinary compared to the time and money the parties could be spending in mediation. Potential savings in cost and duration is a major reason for advocating the greater use of investment mediation. Investment mediation may avoid complicated procedures involved in investment arbitration, such as witness cross-examinations and document exchanges, thereby reducing costs and duration of the dispute settlement process. Since conciliation need not be pleadings-intensive or dependent upon production of full proof, mediation can produce results more speedily and less expensively than arbitration. As the disputing parties have greater control over the contents of mediated settlement agreements, they are also more likely to voluntarily comply with the agreements. As such, there are additional cost and resources savings around post-award procedures such as annulment, setting-aside and enforcement proceedings.
One of the great strengths of mediation is its ability to preserve or even improve relationships. This is not necessarily the case in arbitration: when an investor resorts to investment arbitration there can be the risk of ‘burning bridges’ and alienating the host country. Accordingly, there are only a limited number of cases where funds recovered through investment arbitration been reinvested in the host state (e.g. CME v. Czech Republic). Whereas investment arbitration has been described by some commentators as a “means to liquidate an economic relationship”, investment mediation is beneficial to the preservation of relationship and long-term cooperation between the host States and the foreign investors, allowing better long-term opportunities for all involved.
Business and policy considerations.
Investors or States may have business or sovereign reputational concerns in filing or sustaining an arbitration claim. Further, the investor or its shareholders’ priorities may change in relation to the dispute throughout arbitration proceedings. Similarly, a new government may want to send positive messages to foreign investors by attempting to settle existing disputes with investors. Mediation takes account of broader commercial and policy considerations and accommodates these in construction of the mediation award. In other words, investment mediation leaves greater room to take into account non-legal factors, such as actual stakeholder needs, relationships, economic conditions, politics, social values, and even socio-cultural history. Mediation provides both parties with the opportunity to take control of their dispute, narrow (if not entirely resolve) issues, and realise significant economic and non-economic benefits.
Inconsistencies in treaty interpretation.
While investment mediation is often not able to directly address concerns over unjustifiable inconsistencies in the interpretation of investment treaties by arbitral tribunals and the call for jurisprudence constante in ISDS, mediation, as compared with arbitration, does not have the risk of creating unsatisfactory precedents in ISDS. Thus, mediation, with its great procedural flexibility, is uniquely suited to facilitate effective dialogue.
Generally speaking, the remedies available under investment arbitration are limited to monetary damages (with any applicable interest) and restitution of property. However, it has been observed that, for many ISDS cases, an award of money damages or even an injunction is often not the optimal solution. The range of remedies that can be included in mediated settlement arrangements is essentially limitless. Such settlement arrangements are not limited to legal remedies that can be awarded by arbitral tribunals but may include non-monetary remedies, such as: (i) grant or renewal of a license or permit; (ii) provision of a different location or project for the investment as an alternative compensation for the denial of a permit or license to operate a particular investment; (iii) the swapping of deals for other types of investment contracts or obligations; (iv) re-negotiation of the terms of a concession project, (v) re-evaluation of the return of a project and provisions of additional guarantees or sources of revenue; and (vi) self-assessments and reappraisals by governments of problematic measures they have enacted.
It should be clear that mediation can be held alone or in parallel with other proceedings. Unlike other dispute resolution mechanisms, it can be used at different stages of a dispute—for instance, at the point that the dispute first arises, or at any subsequent stage, up to and including final adjudication. In investor-state treaties it is frequently scheduled to precede arbitration, often as part of the ‘cooling-off’ process (i.e. waiting periods), where even if settlement is not achieved, mediation may help to identify specific issues or open lines of communication for later negotiation. A strict timeframe within which to mediate should not be prescribed, so that it remains an option at any time until final resolution of the dispute and even after, in case the dispute is resubmitted to another forum, including with the aim of enforcement.
Mediated settlements in disputes between parties with an international dimension presented one key disadvantage in the absence of a universally recognized enforcement mechanism—they are not internationally binding. Generally speaking, in the event that one party fails to adhere to the terms of settlement, the non-breaching party’s sole remedy is to sue for breach of contract by issuing new legal proceedings. This can significantly increase the costs and time needed to reach final resolution on a dispute.
The United Nations Convention on International Settlement Agreements Resulting from Mediation (otherwise referred to as the ‘Singapore Mediation Convention’) has the potential to reshape the ADR landscape by enabling the enforcement of mediated settlements throughout the world. Modelled after the New York Convention on the recognition and enforcement of foreign arbitral awards, the Singapore Mediation Convention provides a new legal framework for the recognition of international settlement agreements resulting from mediation which have been concluded in writing by the parties.
Investment mediation has the potential to be an effective dispute resolution mechanism for ISDS disputes, and the greater use of such mechanism should be encouraged. Apart from being able to function on its own, investment mediation can be creatively combined with investment arbitration to strengthen the legitimacy and effectiveness of ISDS worldwide.
By Myrto Pantelaki, former IMI ‘Current Affairs’ volunteer. Connect with her on LinkedIn. Myrto is a motivated legal advisor and advocate for peace mediation. During her LLM she delved into mediation for investment disputes, where she realised its flexibility and ability to adapt to the specific needs of the parties and the circumstances of each dispute.