Choice of Mediation in Int. Investment Disputes: Can the Singapore Convention be an Icebreaker?
The usual scenario which has played out over a long period of time, whenever there arises a claim out of an investor-state dispute, is that the parties to the dispute tend to immediately move towards arbitration as the mode of dispute settlement. The reasons for the use of arbitration as a primary means of dispute settlement range from the binding nature of the adjudication to avoidance of domestic remedies altogether, to name a few. Moreover, it is to be noted that in the case of international investment disputes, investment arbitration is the more traditional form of dispute resolution mechanism rather than being an alternative. Although popular, the system has a number of shortcomings which adversely affect the process of reaching towards a favourable outcome, inter alia the humongous costs involved and the ample amount of time taken to reach a final decision.
From the perspective of a foreign investor, the priority should be to make sure that the investments made in foreign jurisdictions are protected due to the uncertainties involved and are not expropriated. In light of this situation, the amicable settlement of the dispute should be pursued as a preliminary measure before taking any adversarial steps. Besides, with the presence of a cooling-off period, as is the case in most investment treaties, such a time should not be considered as a mere legal requirement but must be utilised to pursue measures such as mediation, negotiation or conciliation which can result in an amicable settlement of the dispute.[i]
Investor-state arbitration has seen a backlash in recent years with states choosing to reduce dependence on this mechanism in investment treaties and, in some instances, getting rid of it altogether.[ii] Keeping this in light, while investor-state arbitration can be kept as the final alternative and default mode of settlement which can be pursued if everything else fails, mediation as a form of an alternate dispute settlement mechanism could complement investment arbitration and should be pursued if the objective is to achieve an amicable settlement. An amicable settlement is a win-win situation which would ensure that the relationship between the investor and the host state is not irreparably damaged while also providing relief to the investor.
Mediation as a Preliminary Step
Mediation is defined as “a process whereby the disputing parties attempt to reach an amicable settlement of their dispute, with the assistance of a third person or persons lacking the authority to impose a solution upon the parties to the dispute.”[iii] Mediation as a form of dispute resolution mechanism has certain advantages which assist in achieving an amicable settlement.[iv] Due to the non-binding nature of mediation, there is no harm per se in engaging in it since the parties can walk out of it at a later stage of the process, till they have not entered into a settlement agreement, if the mediation does not yield any result. In addition, unlike investment arbitration where maintenance of transparency is a prerequisite due to various public interests involved,[v] mediation promises confidentiality which can assist the host state in being more open with the investor in private. Further, the neutral third party, i.e. the mediator, facilitates the engagement between the disputing parties so that they can understand each other’s dilemma and can communicate with each other in order to achieve an amicable settlement.[vi]
Having said that, the use of mediation in resolving international investment disputes is not unheard of and the debate around the possibilities has increased.[vii] Mediation for investor-state dispute settlement has been discussed by the United Nations Commission on International Trade Law (‘UNCITRAL’) Working Group III as a possible option for dispute resolution as a part of its discussion on the reform of investor-state dispute settlement.[viii] To go with the trend and discussion, International Centre for Settlement of Investment Disputes (‘ICSID’) has already proposed the first institutional mediation rules designed specifically for investment disputes in addition to the rules adopted by the International Bar Association known as the IBA Rules on Investor-State Mediation, 2012 (‘IBA Rules’). These mediation rules “complement ICSID’s existing rules for arbitration, conciliation and fact-finding, and may be used either independently of, or in conjunction with, arbitration or conciliation proceedings.”[ix]
An attempt to use mediation to solve investor-state disputes is not new. Mediation was available as a method for the resolution of investor-state disputes under Article 11(3) of the Germany-Bolivia Bilateral Investment Treaty, 1987. It has also been put in practice as seen in the investment dispute between Systra and Philippines which was settled via mediation, at the International Chamber of Commerce (ICC) under the IBA Rules.[x] This was done in order to avoid having to conduct full arbitral proceedings.[xi] Additionally, 13 cases have also been brought under the ICSID Conciliation rules. It is pertinent to note here that conciliation and mediation have been used interchangeably in the past,[xii] but there is a change in perception in recent years with an effort to rightly distinguish between them.[xiii]The use of mediation as a form of investor-state dispute settlement mechanism can be seen in various new investment treaties, such as under Article 23(1) of the Australia- Hong Kong Investment Agreement, Article 8.20 of the Comprehensive and Economic Trade Agreement, or Articles 3.31 and 3.4 of the European Union’s Investment Protection Agreements with Vietnam and Singapore respectively.
In the Indian context, taking into account the fact that mediation acts as a alternative to arbitration in investment disputes, which is the preferred dispute resolution mechanism for investor-state disputes, it is also recommended to include mediation as an alternative in India’s new generation of bilateral investment treaties (‘BIT’), which it has started to sign after the unilateral termination of a large number of its past bilateral investment treaties.[xiv] This option has been proposed by the High-Level Committee on Arbitration in 2017, and was reiterated by the current Chief Justice of India, Justice SA Bobde. The Chief Justice of India has also supported the view that mediation can turn out to be a viable dispute resolution mechanism to resolve both commercial and investment disputes.[xv] While comparing the viability of mediation with respect to arbitration, he has remarked that “An ounce of mediation is worth a pound of arbitration and a ton of litigation!”[xvi] However, despite support from various quarters, with respect to according statutory credence to mediation, it was still excluded from India’s Model BIT released in 2015. As a result, mediation is also not a part of investor-state dispute resolution process in the new generation of BITs recently signed by India, such as the ones signed with Belarus and the Kyrgyz Republic.
Breaking Down the Singapore Convention
Due to the non-binding nature of mediation, its drawback has often been cited to be the difficulty in enforcing mediated settlement agreements.[xvii] However, with the adoption of the Singapore Convention on Mediation (‘Convention’),[xviii] efforts have been undertaken by UNCITRAL, with the support of the States, to provide a binding value to the mediated settlement agreements. This could bring mediation at par with arbitration, as a primary mode of an alternate dispute settlement mechanism. A mediated settlement agreement is the final agreement which is signed by the parties signifying their consent to the settlement reached as a part of the mediation proceedings.
At the outset, the scope of application under Article 1 of the Convention has been restricted to disputes that are international and commercial in nature.[xix] Although the application of the Convention has been restricted to “commercial disputes”, since the term has not been defined, it could also include investment disputes,[xx] as the same has not been expressly prohibited, unlike consumer disputes, which have been excluded under Article 1(2).
The potential impact of the Convention could be extrapolated from Article 3(1) which lays down the general principle to be followed by the contracting parties which are to enforce a mediated settlement agreement. In order to accord binding value to the mediated settlement agreements, evidentiary value needs to be associated with the mediated settlement agreements. Therefore, under Article 4, the Convention has required for the contracting parties to supply evidence of the settlement agreement adopted by means of mediation signed by both the parties. Such a requirement would eventually help in making sure that the settlement has resulted from a legitimate mediation.
For the mediated settlement agreements to be enforced within the meanings of the Convention, their jurisdiction has been limited by Article 5. It incorporates certain situations under which the enforcement of the mediated settlement agreements can be refused. These include the incapacity of the parties, the agreement being null and void, the agreement being subsequently modified, granting relief would be contrary to the terms of the settlement agreement or against the public policy of the enforcing contracting party, etc.[xxi] It is a step similar to what was undertaken through the New York Convention and UNCITRAL Model Law for international arbitration, which provided global recognition and enforceability of arbitral awards in all the states which ratify the Convention, while restricting the grounds which could have been used as defence before domestic courts in the State where recognition or enforcement of an arbitral award is sought. This ultimately led to the growth in popularity of arbitration among states across the globe for resolution of commercial disputes.
A unique advantage of the Convention is the fact that the enforcement of the mediated settlement agreements has been entrusted with the ‘competent authority’ of the Contracting Party where the enforcement is sought under Article 4. However, since there is no express definition of the same in the Convention whatsoever, the scope of the said ‘competent authority’ could be extremely wide. It, therefore, means that parties could choose to permit enforcement proceedings through any judicial or administrative authority in their territory as they see fit, which would avoid uncertainty on the part of a foreign investor who was previously forced to exhaust domestic remedies in the host state.
Keeping aside the technicalities, the Singapore Convention aims towards filling the gaps left by the arbitration regime by providing a less time-consuming and cost-effective alternative cross-border dispute resolution system in addition to the fact that it would immensely contribute towards preserving contractual relationships and preventing irreparable damage to the same. This might be the ideal background for consideration of mediation as an alternative to investor-state arbitration now that the mediated settlement agreements will also have global recognition similar to arbitration awards, which led to their popularity in the first place.[xxii]
[i] U.N. General Assembly, Possible reform of investor-State dispute settlement (ISDS) Dispute prevention and mitigation – Means of alternative dispute resolution, U.N. Document A/CN.9/WG.III/WP.190 (15/01/2020) available at http://undocs.org/en/A/CN.9/WG.III/WP.190.
[ii] Investor-State Arbitration and the ‘Next Generation’ of Investment Treaties, Lexology, available at https://www.lexology.com/library/detail.aspx?g=58d5a0b3-87ca-49aa-9a1f-946f5581f0a1.
[iii] Annex 1 – Note from the Rapporteur, Reform of Investor-State Dispute Settlement, UNCITRAL Webinar on 18 June 2020, available at https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/wgiii_webinar_mediation.pdf.
[iv] Jacqueline Nolan-Haley, Mediation: The “New Arbitration”, 17 Harvard Negotiation Law Review 61, 66–7 (2012).
[v] Robert Argen, Ending Blind Spot Justice: Broadening the Transparency Trend in International Arbitration, 40 Brook .J. Int’l L. 207, 210 (2014).
[vi] Edna Sussman, The Arbitrator Survey: Practices, Preferences and Changes on the Horizon, 26 American Review of International Arbitration 517, 536 (2015).
[vii] Supra note 3.
[viii] Supra note 1, at para. 29.
[ix] Investor-State Mediation, International Centre for Settlement of Investor Disputes, available at https://icsid.worldbank.org/services-arbitration-investor-state-mediation.
[x] Chunlei Zhao, Investor-State Mediation in a China-EU Bilateral Investment Treaty: Talking About Being in the Right Place at the Right Time, 17(1) Chinese Journal of International Law 111–135, 119 (2018).
[xi] Luke Eric Peterson, In an Apparent First, Investor and Host-State Agree to try Mediation under IBA Rules to resolve an Investment Treaty Dispute, IA Reporter, available at https://www.iareporter.com/articles/in-an-apparent-first-investor-and-host-state-agree-to-try-mediation-under-iba-rules-to-resolve-an-investment-treaty-dispute/.
[xii] Nancy A. Welsh & Andrea K. Schneider, The Thoughtful Integration of Mediation into Bilateral Investment Treaty Arbitration, 18 Harv. Negot. L. Rev. 71 , 85 (2013).
[xiii] Esmé Shirlow, The Rising Interest in the Mediation of Investment Treaty Disputes, and Scope for Increasing Interaction between Mediation and Arbitration, Kluwer Arbitration Blog, available at http://arbitrationblog.kluwerarbitration.com/2016/09/29/the-rising-interest-in-the-mediation-of-investment-treaty-disputes-and-scope-for-increasing-interaction-between-mediation-and-arbitration/?doing_wp_cron=1598774582.2475299835205078125000#:~:text=Mediation%20is%20frequently%20likened%20to,they%20are%20not%20entirely%20identical.
[xiv] Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, 30 July, 2017, p. 110, available at http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.
[xv] Speech of Hon’ble Mr. Justice S.A. Bobde, Chief Justice of India on the occasion of 3rd edition of International Conference on Arbitration in the Era of Globalisation organised by Indian Council of Arbitration & Federation of Indian Chambers of Commerce and Industry 8th February, 2020, Bar & Bench, available at https://images.assettype.com/barandbench/2020-02/dc7d22ad-d516-4ed8-9f7a-6181460b0db9/Speech_of_HCJI_FICCI__Feb_2020.pdf)
[xvii] UNCITRAL, The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, (1958) available at https://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/New-York-Convention-E.pdf; Christina G Hioureas, The Singapore Convention on International Settlement Agreements Resulting from Mediation: A New Way Forward?, 37 Berkeley J. Int’l L.215, 217 (2019).
[xviii] UNCITRAL, United Nations Convention on International Settlement Agreements Resulting from Mediation, (2019) available at https://uncitral.un.org/sites/uncitral.un.org/files/singapore_convention_eng.pdf
[xix] Art. 1(1) of the Convention; Hassan Faraj Mehrabi & Hosna Sheikhattar, The Singapore Mediation Convention: a promising start, an uncertain future, Leiden Law Blog, available at https://leidenlawblog.nl/articles/the-singapore-mediation-convention-a-promising-start-an-uncertain-future.
[xx] Joséphine Hage Chahine, Ettore M. Lombardi, David Lutran & Catherine Peulvé, The impact of the Singapore Convention on the international business mediation, CP Law, available at https://www.cplaw.fr/publications/the-impact-of-the-singapore-convention-on-the-international-business-mediation.
[xxi] Ming Liao, Singapore Convention Series: Refusal Grounds In The UN Convention On International Settlement Agreements Resulting From Mediation, Kluwer Mediation Blog, http://mediationblog.kluwerarbitration.com/2020/04/12/singapore-convention-series-refusal-grounds-in-the-un-convention-on-international-settlement-agreements-resulting-from-mediation/?doing_wp_cron=1598521758.3609681129455566406250.
[xxii] Eunice Chua, Enforcement of International Mediated Settlements without the Singapore Convention on Mediation, 31 SAcLJ 572, 574 (2019).
Authored by Mr. Angshuman Hazarika, Assistant Professor IIM Ranchi, Business Ethics & Law and Mr. Rishabh Vohra, LLM Candidate, Europa-Institut, Saarbrucken. They were assisted by Ms. Kavya Jha, student of RGNUL, Punjab. This blog is a part of the RSRR Excerpts from Experts Blog Series, initiated to bring forth discussion by experts on contemporary legal issues.