INTRODUCTION
Investment treaties constitute formal arrangements between two countries or between a country and a private investor located in a different country. A Bilateral Investment Treaty (BIT) typically contains several clauses, including Fair and Equitable Treatment (FET) as well as Full Protection and Safety (FPS), that provide the host country’s basic standard and seek to safeguard foreign investors’ interests by agreeing not to expose them to unfair disadvantages – similar to domestic investors in the very same field. This makes it easier for the state and the investor to reach a non-hostile settlement that benefits all parties. An investment treaty offers stability and confidence to investors while also adding opportunity by lowering the expense of investing in a foreign nation. This incentivization benefits the government by attracting more foreign companies, which helps to stimulate the economy by pouring capital into it. The most critical characteristic of a BIT is that it includes arbitration, settlement, conciliation, or mediation agreements that the investor can invoke personally in the event of a disagreement without involving the government.
INVESTMENT TREATY DISPUTES AND MEDIATION
Arbitration, the most popular means of settling international conflicts between investors and states, has long been blamed for producing scenarios in which even the winners lose. It could be necessary to see past the narrow legal conflict and find a mutually beneficial agreement. As even the arbitral bench in Achmea BV v Slovakia pointed out, the “black and white outcome to a legal decision,” in which one side wins and that the other loses, isn’t necessarily the best result. There may be some non-party stakeholders, and now the general public might consider itself closely interested in issues of political or economic concern, making these hearings media-worthy as well as public demonstrations.
The damages suffered by the parties are normally equal to the award granted at the conclusion of a lengthy arbitral procedure, all of which empty the public exchequer. Similarly, after winning an arbitral award of $17 million in Metalclad Corporation v The United Mexican States, Metalclad’s CEO voiced sorrow for the “dissatisfactory” arbitration procedure, wishing they had sought alternative forms of dispute settlement. Arbitration is a competitive, confrontational, time-consuming, and costly mechanism that makes the entities mutually hostile and prevents further partnerships.
Numerous countries as well as non-state actors regard international courts and arbitral mechanisms as Western world, fearful of court discrimination and a lack of diversity among members. The arbitral bench paid CMS $133 million in a lawsuit between Argentina and American corporation CMS Energy that arose out of financial tariffs during an economic recession. Award was never paid by Argentina, so CMS eventually contacted Bank of America subsidiary that specializes in distressed debt. As a result, the US government delisted Argentina from general preferential trade agreements, damaging long-term relationship.
In the foreseeable future, such a rudimentary assessment of complicated investment treatment conflicts causes more damage than good, and it undermines the very purpose the parties entered into an agreement in the first place. Mediation is a form of dispute resolution in which the sides work together to reach a mutually satisfactory outcome. It is an appealing alternative in complicated matters where secrecy, procedural flexibility, and a variety of result options must be strategically balanced for the best possible result. It is much quicker and less expensive than arbitration. The mediator will assist the State and the investor in assessing their choices realistically. This aids them in determining what they would be capable of and ready to do. This also allays several States’ worries over a private arbitral tribunal deciding on a sovereign state’s regulatory actions.
INVESTMENT TREATY MEDIATION: CHALLENGES
In a study published by NUS-CIL to help identify barriers to settling investor-state conflicts, more than 70% of respondents, all of which were well-known and valued personalities of investor-state arbitration, claimed that the State was more reluctant to participate in mediation than the investor. Although arbitration is considered a formal legal procedure, mediation is considered a more casual procedure. Recognizing an error and paying a large amount to the investor from the public coffers is more daunting to sell to the public than a compulsory arbitral decision because the state arrives at a consensual agreement.
Aside from that, the survey discovered that almost all states may lack the institutional framework to conduct the successful negotiations required to reach an acceptable settlement number. While these are legitimate challenges for a sovereign state, it’s worth mentioning that mediation and other consensual channels are often used to address other complicated and critical topics including domestic foreign policy, human rights, and so on.
A further issue with mediation is that the settlements are not legally binding. A recent advancement in dispute settlement law that serves to change this is the Singapore Convention on Mediation (the Convention), which is intended to bring the same reform in mediation as the New York Convention did in arbitration in 1958. About the fact that the Singapore Convention refers to “commercial” conflicts, it never specifies “commercial,” leaving open the option of using it to implement settlement arrangements reached by investor-State mediation. Furthermore, the International Centre for Arbitration of Investment Disputes (ICSID) assumes that the “con will apply to agreements negotiated in the form of investment disputes.”
Despite this, mediation is seen as a non-formal system that the current judicial system is ill-equipped to handle. Regardless of the fact that alternative remedies are included in the provisions of many Model BITs and multilateral deals, few people opt to use them. While mediation is one of the alternatives for a peaceful resolution of disputes mentioned in Article 32 of the UN Charter, arbitration is highly favoured in treaties. This is because of the easiness in implementation and how familiar the process is. It is critical to structure “model” mediation in order to project mediation as the chosen option for dealing with investment treaty conflict resolution.
INTEGRATION OF ARBITRATION AND MEDIATION
The fact that arbitration has a formal mechanism and universal international support and credibility is one of the reasons for its widespread popularity as a way of resolving investment treaty disputes. However, since it is a rights-based method, the arbitrators are limited in their ability to resolve the entire range of issues that occur in dynamic investor-state conflicts. Mediation has the potential to accomplish this, but it lacks the necessary strength, structural capacity, and authority. It could be necessary to include some form of obligation in the treaties itself in order to promote mediation.
Mediation quality must be monitored in order for mediation to have long-term sustainable solutions. Several BITs and multilateral deals have a registry from which mediators should be chosen; the ICSID Secretariat should do something similar. According to research, as parties engage in a procedurally just manner, a mutual result is more achievable. The formation of a limited pool of well-known and respected investment treaty mediators may aid in providing the best outcomes for the mediation in the investor-State setting. By combining aspects of mediation and arbitration, a multi-faceted attitude to dealing with complex issues in investment law could be developed. As per ISID if both sides reach an amicable settlement via mediation during arbitration the tribunal can and may recognize this in form of an award as per rule 54(2) of the ICSID Arbitration rules. As a result of this convergence, a cohesive and functional conflict settlement mechanism may emerge.
CONCLUSION
Mediation offers an ideal forum for resolving conflicts that arise in ways that favour the sides and ensure long-term relationships. This is particularly relevant in investor-state conflicts, where both sides will choose to contract again in the potential future at the lowest possible cost. Accelerated adoption of the Singapore Convention and widespread acceptance of mediation as the primary method of resolving ITDs would necessitate constructive measures, but mediation will eventually be effective when conducted within an institutionalized environment of quality assured and thoughtful involvement by the parties.
This article is written by Abhishek Gaur and Bhumika Rathore, both are 4th-year law students at Institute of Law, Nirma University.
Also Read – Investor – State Dispute Under International Investment Law
