Mediation use in ISDS by Fatma Khalifa*

Investor State Dispute Settlement (ISDS) has been largely dominated by arbitration as a means of dispute settlement. The problems encountered by parties in ISDS cases and the concerns voiced by multiple stake holders call for attempting new mechanisms, such as mediation, for settling Investor State Disputes (ISD). Mediation in ISDS is rather a new combination of terms. In this paper I will first identify mediation (1), compare it to other dispute settlement mechanisms (2), identify the players in the mediation process and the consent of the Parties (3), briefly explain the mediation process (4), and finally conclude by shedding some remarks on the current status and proposals for a way forward.

 1) Mediation Identified: What it is and what it is not

The Mediation process is a flexible process conducted confidentially in which a neutral person, appointed by or on behalf of the parties, actively assists them in working towards a resolution of a dispute or difference. In Mediation, the parties are in ultimate control of the decision to settle and the terms of the settlement agreement.

For the purpose of this paper the terms mediation and conciliation are used interchangeably [1]to refer to resorting to a neutral person to facilitate reaching an agreement between the parties of the dispute.

It is important to emphasize some features of the mediation as follows:

Mediation is not a bar to resort to arbitration/litigation. Resort to mediation is voluntary and the parties’ choice extends to the timing[2] of its exercise, i.e before resorting to litigation/arbitration[3]or concurrently[4]. Initiation of such proceedings should not be regarded as a waiver of the

agreement to conciliate or as a termination of the conciliation proceedings[5]. The parties can also decide to discontinue the arbitral proceedings pending attempting resolution of the dispute through mediation.

Mediation is not a middle ground solution. It is not an equal division of the difference/dispute but rather based on the Parties seeking to solve the problem using less traditional options for settlement with the assistance of the mediator. Moreover, mediation is not a waste of time as its procedure is fast and with limited expenses.

Mediation is not a sign of weakness.Mediation aims at satisfying the parties and the continuance of their relationship. It is an intellectual and professional challenge in which the risks are low and the potential for a successful outcome is high[6]. By low risks it is meant that the parties have the freedom to submit documents and information that they wish without compulsion from anyone. Accordingly, each party controls the information that he/she  discloses to the other. Each party shall pay the necessary attention to this in order not to jeopardize his position in case no settlement is reached. Anyway, each party’s ability to utilize mediation without jeopardizing his interests principally depends on his awareness of the mediation process and its outcome.

2) Mediation Compared to Other Dispute Settlement Mechanisms

Generally, litigation was the principle means to solve disputes, however, the problems of this mean has necessitated resort to alternative dispute resolution, some are binding e.g arbitration and others are non-binding like negotiations and mediation.

The foundation of mediation, negotiation and arbitration are the same, namely, consensus. The presence of a Neutral is common to mediation, litigation and arbitration. Negotiation is different as it is directly conducted by and between the parties without the presence of a Neutral.

A Neutral is a third party that is independent and has no interest either in the dispute or its settlement .Clearly the role that each Neutral plays is different from the role of a judge. The judge seeks to apply the law to the facts of the case pursuant to fixed rules and procedures to reach a judgment, allocating the rights and duties of the parties in express terms, while the parties have the right to appeal that ruling before the higher court. The arbitrator, is like a judge in the sense that he seeks the application of the law to the dispute but the arbitral process grants flexibility in terms of the choice of the applicable law and rules, seat etc. The arbitral decision is different than the judgment in terms of the finality and the scope of review. The mediator on the other hand seeks that the parties reaches an agreement and settle the dispute among themselves.

Accordingly, the role of the mediator is more inclusive to the issues at stake than the judge or the arbitrator as he does not confine the problem in a legal characterization. He delves into the problem with its commercial, legal aspects as well as the relationship between the parties and its possible impact on the interest of third parties. The stress is always on the interest of the parties especially, not resorting to the courts and tribunals, with the goal to reach a satisfactory, fast and cost efficient resolution of the problems without forsaking the parties’ right to resort to litigation/arbitration if they decide to do so, concurrently or at a later stage.

3) The Players in the I-S Mediation  Process and the Consent of the Parties

Mediation in Investor-State Disputes requires an identification of the players in the mediation, whom are essentially the “Parties” (A) and the establishment of their consent to mediate (B).

A) The Players in the Mediation

The players in the mediation are the Investor, the State (“Parties”), the Mediator, the counsels and possibly experts and witnesses.

The major players are clearly the Parties, the mediator helps them to reach a settlement of their difference/dispute. The Parties might be assisted by their counsel. The Parties must have the authority to settle[7] and the readiness to be involved actively in the process[8].

The other players are the counsels, they have an important role to play throughout the mediation process. Before the initiation of proceedings, they help each Party to choose the mediator, prepare brief of the dispute to be sent to the other party and the mediator. They actively participate during the proceedings to protect the interest of the Party they represent and in case of reaching a settlement, engage with the opposing counsel to draft the settlement agreement. It is important to ensure that the counsels are equally acquainted with the mediation proceedings as well as its purposes. Mediation is a unique process and requires peculiar skills different from that exercised in adjudication or arbitration.

The mediator plays a vital role in the management of the mediation proceedings and its success. The mediator focuses on three aspects namely: the relationship between the Parties, the procedure and the content. Relationship denotes that the mediator must ensure that the working environment is productive and helps achieve the goal of mediation. Procedure denotes that the mediator puts an effective system in place and ensure compliance with it without forsaking flexibility of the process. Content denotes that the mediator should help the Parties to generate ideas and move forward towards settlement. The crux of the mediation process is trust in the mediator, it is an inalienable factor for the survival of the process and its ultimate success.

Currently, most of the Neutrals involved in Investor State Disputes Settlement ISDS are arbitrators, few are also practicing as mediators. Investor State Dispute is sui generis and requires specific expertise in the field as well as knowledge of the mediation proceedings. Even though there might be a huge roaster of mediators worldwide the roaster for ISD mediators still needs to be enhanced.

As for potential players namely, experts and witnesses, the experts could be appointed by the Parties or by the mediator. Mediation in general does not need expert but in ISDS disputes it is expected that an expert might be needed. The mediation process also allow the Parties to introduce witnesses.

B) Consent to Mediate in ISDS

Bilateral Investment Treaties (BITs) are the main instrument that addresses the resolution of disputes between the State and the Investor. BITs extensively stipulates for a cooling- off period between the Investor and the State where the former is barred from initiation of arbitral proceedings prior to the lapsing of this period. BITs are varying in their expression of the duration or mechanism of cooling off period. Some BITs mention conciliation or mediation as an option for the parties to resort to in order to amicably settle their dispute. Other formulation is a mere reference for amicable settlement. In such case the term is left open to encompass direct negotiation or conciliation etc. During such period there shall be an attempt for amicable settlement. Practice has shown that the extent the Parties use mediation/conciliation[9] mechanism is very limited. Such period are often used as a waiting period by both Parties and the objectives of amicable settlement are in vain.

Since it is the Investor that brings up claims against the State, it might be logical to assume that the Investor would take the initiative and suggest mediation[10]. The Investor readiness of approaching a new way of dispute settlement is greater than States. The latter, might be skeptical to this as its awareness of the mediation generally is limited Some legal system’s awareness of mediation is confined to certain practices in family law etc, some States don’t have a mediation law. This might have a bearing in some countries such as Civil law countries which are generally oriented to have laws prior to exercising some mechanisms unlike common law cultures that are generally more pragmatic.

Is the sovereignty of States at stake regarding conciliation or mediation? The answer to this is hardly in the affirmative. Arbitration was resisted on the basis that resorting to an arbitral tribunal affects the State’s sovereignty. This issue has been settled by rules organizing when and how the States can be a party to arbitration, whether commercial or investment. It is now settled that an arbitrator (not the court) can deal with cases involving States. Why not mediating? The features of mediation might shed some light on possible reasons. Mediation is not a resolution of the dispute pursuant to law. This is its force and spell, in the sense that the fact that the process is not right based but rather interest based entails a degree of compromise and each party representative uses his discretion to evaluate the competing interests and the likely threats while attempting to reach agreement. The existence of discretion and compromise might expose the public officials involved in the process to public skepticism, scrutiny and possible liability. Hence, it is important to stress that resort to mediation is not a decision taken solely by legal practitioners, it needs to be addressed to policy makers and executives equally. It is worth noting that it is not uncommon that we find State representatives negotiating and reaching a settlement so why not mediating? Does this have to do with the fear of the instrumental role of the mediator and the fact that the process and its outcome are in his hands?

4) The Mediation Process

The mediation process is divided into 5 phases;

I) Preparation Phase

At that stage the mediation agreement would be signed by the Parties this is usually in a commercial setting[11]. If the BIT is clear enough in reference to conciliation under particular rules then no further signing of an agreement is needed, a mere request for conciliation can be served by either Parties[12]. It is important to stress that mediation is a consensual process, so unless the Parties are willing to utilize it, there is no pressure to proceed this way. This is unlike arbitration as a means of dispute settlement, where the BITs or other investment treaties include an offer by a State and the Investor chooses among the arbitral fora of arbitration.

Also at this phase the preliminary contact between the Parties and the mediator would be made, as well as exchange of briefs of the difference /dispute between the Parties and the setting of the date and venue of the first session.

II) Opening Phase

At this stage the mediator meets the Parties, he might meet each party alone and then convene the opening session in the presence of both parties, he gives opportunity for each party to illustrate his position and the schedule for the mediation is set.

It is worth noting that ex parte communications between the mediator and one of the Parties[13] might be necessary for the success of the mediation as it helps the Parties to identify their interest and position and enable them to create solutions. Such practice is called caucusing or shuttle diplomacy. The Parties must trust the mediator and grant him all means to perform his task and the mediator must be professionally able to undertake his duty without harming any of the Parties. Caucusing is often utilized in more advanced stages of the procedure i.e in exploration, bargaining and concluding phases.

The process of caucusing is a unique feature of mediation, it is inexistent in all means of dispute resolution, whether adjudication or arbitration. Caucusing might be seen as a violation of the principe du contradictoire. Such principle is inapplicable in negotiation as the process involves the two Parties directly without a Neutral. The reason that the principle is applicable in adjudication and arbitration is that both involves the Neutral applying the law to the facts to allocate parties’ rights and obligations vis-à-vis each other.

Despite the fact that mediation is interest based rather than right based, there is concern about possible suspicion that may develop within one or both parties when caucusing is utilized. Moreover, what can be tenable in a commercial dispute setting is different from an investment setting. Should mediators in ISDS never caucus? Are we asking the mediator to perform a task without his necessary tools i.e caucusing, is this tool an inherent feature of the mediation process that is indispensable?

These are questions that practice will answer. The scarcity in utilization of mediation or conciliation practices does not help in this regard. The scarcity is aggravated  by the fact that both the process and the outcome are confidential, this creates a bar from knowing both the existence, the conduct and the outcome of the processes. The potential stakeholders are seeking information pertaining to the existence, the conduct of the proceedings and a general idea about the outcome i.e whether settlement is reached or not. They are interested in knowing whether this means is experimented or not and if yes what was the pros and cons. As this is a new system it is understandable that it is approached with caution.

III) Exploration Phase

At this phase the essential matters for each party is identified. The issues subject to dispute are clarified, the needs for each party as well as the interests that he seeks to protect. The mediator must establish trust in him and start to identify prospect for settlement between the Parties.

IV) Bargaining Phase

At this phase the mediator pushes the negotiation process between the Parties by delving into the details of the difference between them, resolving any hurdles in the way of negotiations and then putting together a skeleton for the settlement, while always stressing that the Parties own both the problem and the solution.

V) Concluding Phase

At this phase the Parties either reach a settlement or not, in case they reach a settlement it has to be made in the form of a settlement agreement. The latter must be satisfactory to both Parties, detailed, enforceable and cover practical matters like expenses etc. The lawyers must draft the settlement agreement and the mediator makes sure that all the matters have been covered and the Parties sign the settlement. In ICSID conciliation proceedings the Commission will draft a repot pursuant to Article 34(2) of the ICSID Convention.

Enforceability of the Settlement Agreement: Is Mediation Without Teeth?

There are different approaches to answering this question one is optimistic and the other is realistic.

The former approach believe that the teeth are there, they are used to bite through the problem, not to hurt, punish or penalize the parties[14].The wording of some Rules might be theoretically helpful to this assumption. e.g Article 13 (3), of the UNCITRAL Conciliation Rules, 1980, states that “the parties by signing the settlement agreement put an end to the dispute and are bound by the agreement.” As for Conciliation under the ICSID Convention “the parties agreement is binding although neither the convention nor the Conciliation Rules say so explicitly[15].”

The other approach is that mediation has no teeth because there is no mandatory mechanism of enforcing the agreement. The UNCITRAL Model Law on International Commercial Conciliation, 2002 states in Article 14 “If the parties conclude an agreement settling a dispute, that settlement agreement is binding and enforceable . . . [the enacting State may insert a description of the method of enforcing settlement agreements or refer to provisions governing such Enforcement]” [Emphasis added]. The mere fact that the Model law included that last statement is to alert each country to address that lacunae in order to avoid problems of enforcement.

Some institutional Rules has sought to cure the problem of uncertainty relating to the enforcement of the settlement agreement by suggesting in the model mediation clause that the “Parties might consider adding: An option of appointing the mediator as an arbitrator and request him or her to confirm the settlement agreement in an arbitral award.[16]

The extent that the practice reflects use of such option is doubted, if the parties in the mediation, which is a consensual process, cannot voluntarily adhere to their agreement, then it is less likely that they would not challenge the settlement (resulting from mediation process) contained in an award. Even such guarantee might not be protective to the settlement. The annulling court reviewing the so-called award will examine the validity of the “arbitral” proceeding but will be faced by a mediation proceeding instead!

This is not an option according to the ICSID Conciliation Rules, “An agreement reached in the course of conciliation does not enjoy the status of an award. There is no possibility to incorporate such an agreement into an award in analogy to Arbitration Rule 43(2)[17]. Enforcement of a settlement reached in the course of conciliation does not benefit from Article 54 on enforcement but requires a new legal action[18].

In the same vein some Rules acknowledges this problem it is stated that the “ICC ADR thus differs from arbitration and judicial proceedings in that ICC ADR does not lead to a decision or award which can be enforced at law…In addition, the parties are free to agree in writing that they will comply with a recommendation or decision of the Neutral, even though it is itself unenforceable. In that case their agreement is binding upon them in accordance with the law applicable to that agreement.[19]

The settlement agreement can be characterized as a contract. Accordingly its enforcement is within the hands of the Parties. If one of them is reluctant to enforce it, then this is a breach of the contract and the other party has the right to resort to either the court or an arbitral tribunal pursuant to their agreement.

To sum up it is difficult to state with certainty that the mediation has teeth either expressly or impliedly. This problem needs to be tackled in order to encourage the potential stakeholders to resort to mediation and trust the enforceability of its outcome.

VI) Mediator Role Post Mediation/Conciliation Proceedings

A compelling question arises as to whether the mediator/conciliator can have a role after the performance of his mission? In other words can the mediator act as an arbitrator or judge, party representative, expert or witness in arbitration or similar proceedings relating to the dispute subject to the conciliation proceedings?

The UNCITRAL Conciliation Rules 1980 provides in Article 19 that “the parties and the conciliator undertake that the conciliator will not act as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceedings in respect of a dispute that is the subject of the conciliation proceedings. The parties also undertake that they will not present the conciliator as a witness in any such proceeding.”

The development of different Rules shows that such undertaking is varying both in terms of its existence and scope in light of the mission to be performed i.e arbitrator/judge[20], witness, expert or party representative.

The undertaking regarding acting as an arbitrator or judge does not survive. Article 12 of UNCITRAL Model Law, Article 7 (5) of IBA Rules[21] and Article 7 (3) of ICC ADR Rules all allow the Parties to agree to the contrary of the above mentioned undertaking by using the term “unless the Parties agree otherwise[22]”. CRCICA Rules’ Annex provides for the possibility of a mediator acting as an arbitrator as expressed in its model mediation clause.

As for acting as a witness, the undertaking generally survives but some Rules allows exceptions. CRCICA Rules has maintained the restriction[23], whereas the IBA Rules maintained the restriction unless the Parties agrees otherwise[24], the ICC ADR Rules identified the exceptions as the requirement of the applicable law and the Parties written agreement[25].

As for the mediator acting as a party representative/counsel or an expert, the general prohibition is maintained, however, both the IBA Rules and ICC ADR Rules allow the Parties to agree otherwise.

In my view the restriction should have been absolute regarding ex- mediator acting as a counsel. The current lack of demarcation is an outrageous violation to the dispute resolution system that always preserve clear cut lines between acting as counsel and acting as a Neutral. This is something that should be prohibited in all circumstances and the Parties should be protected against their own misusing of party autonomy, the flexibility reasons should not be allocated to the expense of the integrity of the proceedings.

The mediator is a Neutral and should remain in such capacity even after he performs his duty as a mediator. In limited circumstances he can be later appointed as an arbitrator or judge[26] and in this case it would be the Parties who chose the mediator to continue to act as a Neutral but requests him to perform his neutrality in a different context whether adjudication or arbitration.

Acting as a witness might be justified in limited circumstances due to applicable law requirements. Even the permission for the parties to agree to ask the mediator to be a witness has to be addressed with caution and in very limited circumstances otherwise this exercise might be detrimental to the use of conciliation proceedings especially in light of the limited awareness of one or both parties of the conciliation/mediation processes

As for acting as an expert in later proceedings again this must be addressed with caution as the advantages of using the mediator expertise might be outweighed by the disadvantages of having an expert whom had extensive knowledge of each party position as a mediator, especially if caucusing was used. It is worth pointing at the end that the mediator, unless called to testify before a court, has the liberty not to accept the Parties’ request to act as an arbitrator, judge or expert in subsequent proceedings, this is a safeguard to the Parties. However, in light of the insufficient ethical rules for mediators/conciliators this matter will remain to be determined pursuant to personal discretion.

Concluding Remarks:

The challenges facing mediation in ISDS could be summarized in the following points. First, the insufficiency of national laws regulating mediation in general and especially in the context of ISDS. There are few Rules that deal specifically with mediation/conciliation in ISDS. Currently, these are particularly IBA Rules on Investor State Disputes and the ICSID Conciliation Rules. Other Rules deal generally with conciliation/mediation in a commercial setting which although similar, yet, does not deal with peculiarities of ISDS.

Second, the stakeholders limited awareness of the existence of the process, actual resort to it, the process and salient features of its outcome. Mediation in ISDS is not sufficiently tested and even in the few instances where it is used the outcome is rarely known. Third, the insufficient number of mediators specialized in ISDS. The fourth challenge relates to some aspects of the mediation process e.g the Parties perception about caucusing and their possible suspicions that it might have negative impact. The fifth challenge is the doubt about the enforceability of the settlement agreement and finally the adequate parameters of the potential role that the mediator can play after the completion of the mediation.

The reasons are intertwined at each stage of the proceeding. Overcoming such challenges is not an easy task. This paper offers a humble attempt to shed light on these challenges. The reluctance to resort to mediation could be overcome by raising awareness of the stakeholders and building up their trust in the process. This could be achieved by the experienced jurisprudence and practitioners offering their insight and the Parties readiness to share their experience of mediation in ISDS while preserving the confidentiality of the process. The crux of mediation is trust, the question remains could it be awarded what it offers?

* Counselor, Foreign Disputes Department, ESLA, CEDR Accredited Mediator, First published on TDM 1 (2014), www.transnational-dispute-management.com URL: www.transnational-dispute-management.com/article.asp?key=2043

ESLA: Egyptian State Lawsuits Authority.

The views expressed are personal views and are not attributable to my work affiliation.

1) The conciliation process is similar to mediation but the role of the conciliator is more active in making recommendations and proposing settlement terms. Some differentiate between the two processes pursuant to the degree of formality of the process, qualifying the conciliation proceedings as more formalistic.

2) Article 2(4), IBA Rules For Investor- State Mediation, 2012; Preamble, ADR Rules of the International Chamber of Commerce (ICC), 2001.

3) Part 1, Item 4, Guide to ICC ADR, states that “In reality, however, ICC ADR and arbitration are complementary. If the parties do not succeed in resolving their dispute through ICC ADR, they can refer it to arbitration.”

4) In certain cases the concurrent use of mediation and other dispute resolution mechanisms should be utilized in limited circumstances, Article16, the UNCITRAL Conciliation Rules,1980, states that “The parties undertake not to initiate, during the conciliation proceedings, any arbitral or judicial proceedings in respect of a dispute that is the

subject of the conciliation proceedings, except that a party may initiate arbitral or judicial proceedings where, in his opinion, such proceedings are necessary for preserving his rights.”

5) Article 1, UNCITRAL Model Law on International Commercial Conciliation (2002).

6) The CEDR Mediator Handbook, Effective Resolution of Commercial Disputes, Fourth Edition, 2004, p.43.

7) Article 9(3) (a), IBA Rules adds “or describe the process necessary for a settlement to be authorized”. Having an authority to settle might be easily determined in the case of the Investor, but not necessarily for the State.

8) Despite the fact that Rule 23 of ICSID Conciliation Rules states that the Parties shall communicate in good faith with the Commission, Rule 30 (3) of the same Rules states that “If one party fails to appear or participate in the proceeding, the Commission shall, after notice to the parties, close the proceeding and draw up its report noting the submission of the dispute to conciliation and recording the failure of that party to appear or participate.” i.e there is no compulsion on either party to participate against its will nor is there a system of ex-parte proceedings.

9) The ICSID website reveals that resort to ICSID Conciliation was made in 9 cases. The first ICSID conciliation was ICSID Case No. CONC/82/1 filed by Seditex Engineering v. Democratic Republic of Madagascar in 1982, the Parties reached settlement agreement and proceeding was closed. See ICSID website: https://icsid.worldbank.org.

10) In only 1 out of 9 ICSID Conciliation cases a State initiated proceedings against an Investor, this is the case of Republic of Equatorial Guinea Vs. CMS Energy Corporation and Others (ICSID Case No. Conc(AF)/12/2) See ICSID website.

11) It is worth noting that the IBA Rules allow for mediation whether the dispute is a commercial or an investment dispute(expressed in Article 1 of the Rules), hence its applicability is wider than the ICSID Convention which addresses only investment disputes. It is worth noting that neither the ICSID Convention nor the IBA Rules define the term investment.

12) Article 28, ICSID Convention tackles the request for Conciliation.

13) Article 8 (3), IBA Rules; Article 9 (1), UNCITRAL Conciliation Rules; Article 8 (5), Mediation Rules of the Cairo Regional Centre for International Commercial Arbitration (CRCICA), 2013; Article 7, UNCITRAL Model Law.

14) The CEDR Mediator Handbook, op.cit, p.41

15) Schreuer, the ICSID Convention a Commentary, Second Edition, Cambridge University Press, 2009, p.451.

16) Annex, CRCICA Mediation Rules

17) Schreuer, op. cit, p. 451.

18) Reif, L.C., Conciliation as a Mechanism for the Resolution of International Economic and Business Disputes, 14 Fordham International Law Journal 578, p. 636, (1990-1991).

19) Part 1, Item 4, Guide to ICC ADR. It is worth noting that the IBA Rules are silent regarding whether the settlement agreement is binding or not.

20) Article 7(3), ICC ADR Rules specifically mentions acting as a judge.

21) The IBA Rules widens the scope of the general restriction to encompass “during the pendency of the mediation, any differences or disputes in which a party is directly involved as a disputant.”

22) The ICC ADR Rules stipulates that the Parties agreement has to be in writing Article 7(3) and 7(4).

23) Article 12, CRCICA Rules widens the scope of prohibition of acting as witness to encompass, not just the mediator but alsoany employee of the Centre or any person appointed in the mediation.

24) Article 7, IBA Rules, it is worth noting that there is a unique wording in Article 10 (5) which states the following: “ Except for the sole purpose of a post-mediation dispute regarding the mediator’s fees or expenses, no party or other participant in the mediation shall:

a) …

b) call, attempt to call or compel, or cause the mediator to be compelled to appear as a witness in any legal proceedings relating to the mediation or information acquired by the mediator in relation to the mediation.”

It would be interesting to see how Article 10(5) will be interpreted and applied in light of the existence of Article 7 of the same Rules.

25) Article 7(4), ICC ADR Rules.

26) Article 7 (5), IBA Rules; Article 7(3), ICC ADR Rules.

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