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CIArb Features

Is mediation an option in investor-state disputes?

31 August 2017 Features

Investor-state mediation has received sceptical responses from the investment arbitration community, with many basing their views on the very low number of existing cases as well as the perceived political realities that could present a stumbling block when attempting to settle with states. However, more recent developments show a growing interest in mediation, because of increased numbers of investor-state disputes, the high costs associated with investment arbitration or even as a preliminary step preceding arbitration.

Several concerns from the past have also been addressed through rules and guidelines. Most notably, the International Bar Association (IBA) was the first institution to release Investor-State Mediation Rules, with institutions like the International Chamber of Commerce (ICC) and the Stockholm Chamber of Commerce (SCC) following suit. Furthermore, the Energy Charter Conference has endorsed a Guide on Investment Mediation, prepared with the support of major arbitral institutions, as helpful in facilitating amicable resolution.

Investment mediation has clear benefits, as long as the parties are willing to consider it as an alternative to arbitration or litigation.

First, mediation can be cost and time efficient. The 2011 CIArb Costs of International Arbitration Survey showed that the average length of a commercial arbitration case is 17 to 20 months, with costs averaging around USD 2 million. Investment arbitration cases are usually longer and tend to impose higher costs and therefore, investment mediation might represent a cheaper solution. Mediation can help save time and costs, especially when parties are open to the idea of a settlement. Furthermore, for parties who are not interested in settling, mediation can still be of use, helping them to realistically assess their strengths and weaknesses.

Second, mediation offers enhanced confidentiality of the process. Investor-state arbitrations are often reported in the media and this can prove detrimental to the parties’ prospective settlement. Investor-state mediation can be very private, as long as this is an important consideration for the disputing parties. Furthermore, the outcome of the mediation does not require any type of public release and institutions offering mediation services would normally not keep any public records of submitted disputes.

Third, this alternative dispute resolution (ADR) mechanism helps the parties preserve their business relationships. Unlike the usual final and binding award, mediation offers a more flexible approach, allowing the parties to resume their businesses and maintain their collaboration for the future. This represents a significant advantage, as it allows states to maintain and attract foreign investment, which ultimately contributes to their development.

Looking at the bigger picture, there is one perceived disadvantage that relates to the binding force of a mediation settlement. Unlike arbitration, successful mediations conclude with a settlement agreement, which is ultimately a contract and does not fall under the International Centre for Settlement of Investment Disputes (ICSID) or New York Convention enforcement regimes. In this sense, it has been suggested that parties could agree on an arbitrator who would incorporate their settlement into a consent award. This would prevent any issues arising in connection with settlement agreements, which are usually not readily enforceable.

A successful mediation process depends on the parties’ voluntary participation in good faith. It is likely that investment mediation will continue to grow in the upcoming years, as governments and investors, with the support of institutions, see mediation as a viable dispute resolution alternative.

Sabina Adascalitei LLB, LLM, MCIArb

Research and Academic Affairs Coordinator