IBA Rules for Investor State Mediation

Investor-state disputes are on the rise. Since the late 1990s, the number of such disputes has increased sharply. By the end of 2011, 450 known cases were pending. Investor-state dispute settlement mechanisms allow foreign investors to challenge a wide range of governmental measures, and to sue host states before an arbitral tribunal, appointed on a case-by-case basis. Investment arbitration remains the most important form of dispute settlement in the relationship between states and foreign investors.

Increasing criticism against investment arbitration and its multiple shortcomings have emerged over the recent years, prompting investors and states, as well as some international organizations such as UNCTAD, ICSID or IBA, to advocate the use of mediation to supplement investor-state arbitration. The International Bar Association (IBA) Subcommittee on State Mediation prepared a set of rules to specifically address disputes and conflicts arising between foreign investors and sovereign States that host their investment. These IBA Rules for Investor-State Mediation (the “Rules”) are meant to address the increase in investor-state disputes arising under international investment agreements such as bilateral investment treaties (BIT) and multilateral investment agreements such as NAFTA.  While many such agreements provide the opportunity for parties to settle disputes through mediation, until now, no established rules existed that were specific for investor-state disputes.

The Rules were formally adopted on 4 October 2012 and represent an alternative to international arbitration litigation by facilitating the resolution of disputes involving states and state entities. The Rules establish clear mechanisms and regulations for the commencement of mediation and for the appointment of a mediator in the absence of a party agreement. Mediation under the Rules may take place at any time, regardless of whether court, arbitration or other dispute resolution proceedings have been initiated.

While containing many standard clauses seen in other institutional mediation rules (for example the process for appointment of a mediator, conduct of the mediation, confidentiality, and fees), the Rules provide for some innovative regulations, including the rule on “Mediation Management Conference” (Article 9), which ensure that the mediation is effectively started. The Rules also require the disclosure of any personal interest or potential conflict in a “statement of independence and availability” (Article 3). A novel feature in the IBA’s Rules is the parties’ ability to designate two mediators (Article 6), a possibility meant to increase the parties’ confidence and trust in the process.  The Rules also allow parties to resort to institutional support for the mediation process if they so wish (Article 4). Mediation under these Rules is deemed private, unless the parties and the mediator otherwise agree (Article 10).

It is hoped that the Rules will bridge the gap at the domestic legal level, where mediation of investor-state disputes is not often promoted. If mediation fails to bring about a settlement, a party to a dispute can subsequently initiate arbitration proceedings, either under an existing investment treaty or contractual arbitration clause.