Interest in investor-state mediation is growing

Publication | June 2017

Is mediation a viable investor-state dispute settlement mechanism?

Recent trends indicate a growing interest in investor-state mediation. In the past, the intermittent dialogue around investor-state mediation has been speculative but more often sceptical. Successful mediation hinges on voluntary, good faith participation and the perception was that compulsory mechanisms would be necessary for any dispute resolution process involving states to be effective. However, governments, investors and institutions now seem to be considering meditation (usually as an adjunct to arbitration) as a viable tool for resolving investor-state disputes.

Mediation is being more frequently incorporated into investment treaties, often as a preliminary step to arbitration. The EU-Canada Comprehensive Economic and Trade Agreement contains a mediation clause as does the Trans-Pacific Partnership. The EU negotiating text of the Transatlantic Trade Investment Partnership contained a mediation mechanism “to help solve disputes amicably”. Reportedly, mediation was discussed in the South East Asia/Australasia Regional Comprehensive Economic Partnership negotiations.

A number of institutions have adopted bespoke rules for investor-state mediation. The first released was the IBA Investor-State Mediation Rules in 2012. These were followed, in 2014, by both the ICC Mediation Rules and SCC Mediation Rules. (These mediation-specific rules are in addition to pre-existing rules for conciliation proceedings.)

The Energy Charter Conference has endorsed a Guide on Investment Mediation (Guide) as “a helpful, voluntary instrument to facilitate the amicable resolution of investment disputes”. The Conference actively encourages parties to consider mediation on a voluntary basis at any stage of the dispute. The Guide was prepared with the support of the International Mediation Institute (IMI), ICSID, the SCC, the ICC, UNCITRAL and the PCA. The Guide explains the mediation process, offers tips on its use and explains the role of the Energy Charter Secretariat, other institutions and the various available rules.

The Secretariat of the Energy Community (an international organization dealing with energy policy, established by treaty, which brings together the European Union and countries from the South East Europe and Black Sea regions) has recently established a Dispute Resolution and Negotiation Centre. The Centre focusses on negotiating and mediating investor-state energy disputes. The Secretariat stated that institutional mediation has an important role to play in the resolution of investment disputes at an early stage.

Unsurprisingly, there is also an increased focus on the skills and qualifications of investment mediators. A unique set of skills is necessary to mediate investor-state disputes. The Investor-State Mediation Task Force of the IMI Independent Standards Commission has introduced competency criteria for investor-state mediators, following a two year consultation involving practitioners, academics, government officials and advisers. The competency criteria will be piloted in 2017 and reviewed by organizations and practitioners involved in investor-state dispute resolution. The aim is to create a pool from which parties can choose mediators with confidence.

Similarly, the Energy Community is forming a panel of mediators “of high moral character and recognized competence in the fields of energy negotiations”. They will assist the Energy Community Dispute Resolution and Negotiation Centre to facilitate negotiations in third-party energy disputes where the staff of the Centre lack capacity and will conduct mediations as part of the Energy Community Treaty dispute settlement procedure.

The growing interest in investor-state mediation may have been sparked by a number of factors, including: a rise in the number of investor-state disputes; high costs of investment arbitration; public criticism of ISDS (warranted or otherwise); or it might simply follow the trend in the commercial sector where mediation is often a preliminary step prior to binding adjudication (whether arbitration or litigation). Mediation is, however, unlikely to wholly replace arbitration or other compulsory procedures. They are better seen as complementary tools, than either-or choices.

Mediation is frequently scheduled to precede arbitration, often in the “cooling-off” process, where even if settlement is not achieved, it may narrow issues or open lines of communication for later negotiation. Timing will, however, impact the effectiveness of mediation – and early intervention is not always successful. Parties could therefore benefit from considering voluntary mediation at other stages.

The elephant in the room is enforceability. Contractual settlement agreements are often not as readily enforceable as arbitral awards which benefit from the enforcement regimes under the ICSID Convention or New York Convention. This has not been an obstacle to mediation in the commercial arbitration context so the mediation in the investment context may prove similar – particularly where parties have ongoing, long term relationships. Alternatively, parties may consider hybrid mechanisms (as are being explored in the commercial context) such as Arb-Med-Arb, which result in an award by consent.


Contacts

C. Mark  Baker

C. Mark Baker

Houston
Cara Dowling

Cara Dowling

London