Investor-State Mediation: Transparency versus Confidentiality Dilemma-Dr. Naghmeh Javadpour

Dr. Naghmeh Javadpour - LLB & LLM University of Tehran, Ph.D., Allameh Tabataba’i University

2021/04/19

 Most of the Multilateral /Bilateral Investment Treaties (MITs /BITs) concluded between states and regional Free Trade Agreements (FTAs) contain arbitration procedure, which allows investors of the other party to recourse international arbitration against host-states. In other words, investment treaty arbitration is still the predominant dispute settlement mechanism between investors and states. However, despite many unique features of this privatized system of justice (such as the enforcement of investment arbitral awards), serious criticisms towards investment arbitration raised in recent years. Among these, there is a growing concern regarding costs (sometimes more cumbersome than court litigations), and the protracted process of investment arbitrations. It is worth reviewing the statistics in this regard. According to one of the ICSID reports, the average duration of investment arbitration length is 4 years and the average cost per party is between USD 4-6 million. Moreover, considering the adversarial feature of arbitration, long-lasting investment relationships between investors and host states usually become in danger. In addition to the mentioned concerns, a serious quest for transparency in investment arbitrations exists and causes many issues in this area. Host-states’ taxpayers are concerned about the huge costs of investment arbitrations and there are other beneficiaries than investors and host-states such as NGOs and local communities whose expectations from investment projects should be identified and responded to. Therefore, the confidentiality of investment arbitrations is under criticism in many aspects. The rise of requests for transparency in investor-state arbitration led to proposing some rules in this area.  

To address transparency concerns in investment arbitrations, in 2014, UNCITRAL released its rules on transparency in treaty-based investor-state arbitration. Also, the United Nations Convention on Transparency in Treaty-Based Investor-State Arbitration (The Mauritius Convention) adopted which unlike the Rules on Transparency, applies to investment treaties concluded before April 1, 2014, and to investor-state arbitrations initiated under such treaties after the Mauritius Convention enters into force. The said attempts illustrate the high need for transparency in the ISDS system, which still has not been addressed globally. All the mentioned concerns towards investment arbitration amounted to backlash against the investment arbitration system which in some cases has led to denunciation of some countries (such as Ecuador and Venezuela) from ICSID. In other cases, some governments have revised their current BITs or BIT models (The 2004 model USBIT scaled back a number of foreign investor protections in favor of protecting the sovereign prerogatives of the state hosting the foreign investment. While the 2004 model and more recent 2012 model include robust ISDS provisions, these provisions have been more thoroughly refined and many of the substantive provisions have been revised (with the level of foreign investor protection reduced). Overall, the models seek to recalibrate the balance between the rights accorded investors and a nation’s right to regulate in the public interest (Malcolm Langford, d. b. (2018). Backlash and State Strategies in International Investment Law. In A. T.-H. T, The Changing Practices of International Law (pp. 85-100), Cambridge University Press).

 The aforementioned concerns towards investment arbitration system are some of the challenges which raised the question of possibility in applying other solutions and alternative dispute resolution mechanisms in the contexts of ISDS so that options that are more efficient be offered in a manner to be in line with states’, investors and other beneficiaries’ interests.

  Efficient management of investor-state disputes contains various mechanisms such as facilitated negotiation (conciliation or mediation), fact-finding, Early Neutral Evaluation (ENE), Dispute Resolution Board (DRB), ombudsman services, or other similar mechanisms with the function of assisting disputants to resolve their claims and disputes in a peaceful, constructive and efficient manner.  These non-adjudicative mechanisms differ from judicial ways in which a third party (s) render binding decisions. These ADR mechanisms are not exclusive as enumerated above at all and are in line with parties’ autonomy. However, according to UNCTAD reports on investor-state disputes, mediation is the frequently applied ADR form. While there is no exact statistic on the investor-state cases settled out of arbitration, the facts illustrate that many of these cases are settled out of arbitration. For instance, based on the ICSID release caseload, 35% of the registered cases in 2020 were settled or the proceedings otherwise discontinued. However, there is no precise information on whether these cases settled via direct negotiation or mediation or any other alternative mechanisms. That is to say regarding the process in which parties settled, our information is little mostly due to confidential concerns and not publishing the process of reaching a settlement by institutions such as ICSID. The point is that in recent years concentration on the application of other solutions for investor-state dispute settlement is recognized. Mediation is one of the most applied alternative dispute settlement mechanisms.

 In the context of the ISDS system, mediation, as one of the most efficient alternative dispute resolution mechanisms has many unique features to endow both investors and host-states. Mediation, which is a non-judicial and negotiation-oriented mechanism, embodies valuable flexibilities and benefits for disputants. In terms of costs, length of the process, and total efficiency, it has many advantages in comparison to the current arbitration system. Investor-state mediation is currently considered as a tool that offers a relatively efficient alternative to arbitration.  Dispute settlement scholars believe that mediation assists parties to find creative solutions that may lie outside of strict legal remedies. Both investors and host-states have relational considerations to keep their projects alive and evidently, it is more probable to save the investment and parties’ reputation by trying mediation than arbitration or other ways.  

In light of the above-mentioned facts and considering the benefits of mediation in investor-state dispute settlement mechanism, the need for regulating a proper mediation structure for settling investment disputes is vital. one of the most notable initiatives in this regard is  The Convention on the enforcement of mediated settlements (Singapore Convention) proposed in July 2014 during a session of UNCITRAL to enforce mediated settlements and will encourage applying mediation in international disputes. Some commentators are of the view that the Singapore Convention can be applied for enforcement of mediated investment settlements as well as commercial settled agreements. The challenge that arises in the context of the application of mediation between investors and host-states, stems from the main feature of mediation structure, which is confidentiality. In other words, the success of mediation in most cases is dependent on the confidentiality of mediation meetings, caucuses, and even the content of mediated agreements between parties. Confidentiality has been considered a vital feature in the mediation process. Confidentiality encourages parties to speak freely and assists mediators to facilitate the mediation process between disputants.

 Therefore, it is questionable whether investors and host-states can use the Singapore Convention and mediation to circumvent the high levels of transparency requirements in investment arbitration.  It is worth noting that recently, mediation as a voluntary/binding pre-arbitration requisite has been inserted in investment agreements. On the other hand, it seems that no proper specific rule for mediation of investor-state has proposed to answer the challenge of confidentiality and transparency issues in the context of investment mediation.  For instance, in 2012, IBA Rules for Investor-State Mediation released which includes valuable provisions innovations such as Mediation Management Conference. However, no specific provision has delineated this challenge in the IBA Rules.

  It seems that it is required to find a balance in this area to apply mediation and to respond to transparency requirements simultaneously. It should be kept in mind that notwithstanding the generally accepted approach to confidentiality in the mediation process, there have been examples of successful non-confidential public-sector mediation. These examples show that by considering the flexibility of mediation structure and by involving important stakeholders (such as NGOs, private sector delegations, and…) in investment mediation, successful mediated agreements can be expected. For instance, a flexible mediation process, which endows confidentiality at certain stages and regarding sensitive information, may lead to a successful investment mediation. Not a fully open –mediation, but a balanced structure in this regard can be pondered and proposed.