ICSID's New Mediation Rules approved by member states
On 21 March 2022, member states of the World Bank's International Centre for Settlement of Investment Disputes ("ICSID") adopted a new set of rules for mediation in investment treaty disputes (the "ICSID Mediation Rules"), which will come into effect on 1 July 2022.
In this article, we take a deep dive into the Mediation Rules, one of the pioneer institutional mediation rules designed specifically for investor-State disputes.
B. Scope of application
There are two pre-requisites for the use of the Mediation Rules, pursuant to Rule 2(1). First, the dispute must relate to an investment involving a State or a Regional Economic Integration Organisation (such as ASEAN or the African Union). Second, the parties must consent in writing to engaging in mediation under the Rules.
Rule 2(2) makes clear that the involvement of an agent of the State is sufficient to trigger the jurisdiction of the Mediation Rules, provided that the State approves the consent to mediate of the agent which is the party to the mediation (unless the State notifies ICSID that such approval is not required).
Unlike arbitrations and conciliations under the ICSID Convention and Additional Facility, there is no requirement for the State to be an ICSID Member State to utilise the Mediation Rules. This is to be welcomed given the expected rise in demand for investor-State mediation, particularly amidst investor-State arbitration's legitimacy crisis.
C. ICSID mediation process
Under the Mediation Rules, the key steps in the investor-State mediation process can be broken down into: (i) request for mediation; (ii) appointment of mediator; (iii) initial written statements; (iv) first mediation session and mediation protocol; and (v) termination of the mediation.
We explore each stage in further detail below.
(i) Request for mediation
To commence the mediation process, a Request for Mediation is required. The process of filing a Request for Mediation depends on whether there is a pre-existing agreement to mediate, which can usually be found in the relevant investment treaty.
If there is a pre-existing agreement to mediate, any party can file (whether independently or jointly with the other party) a Request for Mediation with the ICSID Secretary-General and pay the required fee. The Secretary-General will then transmit the request to the other party.
If there is no pre-existing agreement to mediate, any party can file a Request for Mediation with the Secretary-General and pay the required fee. If the other party rejects or fails to respond within 60 days from the transmission of the Request (or within such other period as the parties may agree), the Secretary-General will inform the parties that no further action will be taken. Similarly, the Secretary-General will communicate an acceptance of the Request to the requesting party.
In both scenarios, the Request for Mediation must contain the information set out in Rules 5(3) and 5(4). Additionally, if there is no pre-existing agreement to mediate, Rule 6(2)(b) requires the Request for Mediation to also include an offer to mediate pursuant to the Mediation Rules.
Once the parties have agreed to mediate and have filed the Request for Mediation, the Secretary-General will consider if the jurisdiction of the Mediation Rules is engaged. If so, the Secretary-General will register the Request for Mediation.
(ii) Appointment of mediator
After the Request for Mediation is registered, the next step is to appoint the mediator in accordance with Rules 12 to 14. In summary, the appointment process is as follows:
- Since the parties can appoint either one or two mediators, the parties shall inform the Secretary-General on the agreed number of mediators within 30 days of the registration of the Request for Mediation, failing which there shall be one mediator.
- The parties shall jointly appoint the mediator within 60 days of the date of registration. Failing that, the Secretary-General may appoint the mediator on request. In this scenario, the Secretary-General shall consult with the parties as far as possible on any required expertise or qualification of the mediator, and shall use best efforts to appoint the mediator within 30 days of the request.
- If the parties fail to take any step to appoint the mediator within 120 days after the registration of the mediation, the mediation is terminated.
Under the Mediation Rules, mediators have an ongoing obligation to promptly disclose any change of circumstance which may affect their impartiality or independence. In a similar vein, Rule 14(7) prohibits mediators from double-hatting, i.e. a mediator may not act as arbitrator, counsel, expert, judge or witness in proceedings relating to issues in dispute in the mediation, unless the parties agree otherwise.
(iii) Initial written statements
After the mediator has been appointed, Rule 19 requires each party to file a brief written statement with the Secretary-General within 15 days of the Request for Mediation being transmitted to the appointed mediator unless the mediator directs otherwise, but in any event before the first mediation session. The statements will then be circulated by the Secretary-General to all parties and the mediator.
The initial written statements will describe the issues in dispute and each party will set out their views on the respective issues, as well as the proposed procedure for the mediation.
(iv) First mediation session and mediation protocol
Pursuant to Rule 20, the first mediation session must be held within 30 days of the registration of the Request for Mediation, unless agreed otherwise. The purpose of the first session is for the mediator and the parties to agree the protocol of the conduct of the mediation and any other procedural matters (including next steps, key dates, whether further written statements or information are required, and whether expert evidence is required). Rule 20(3) sets out a useful list of topics to be considered at the first session.
More importantly, at the first session, the parties are expected to identify persons or entities who are authorised to negotiate and settle issues on their behalf, and to describe the process involved in concluding and implementing any settlement agreement.
Once the mediation protocol has been decided at the first session, Rule 21 requires the mediator to conduct the mediation in accordance with this protocol. This means that, after the first session, the process and timeline for the remainder of the mediation will be dictated by the parties' requirements (by consent), thereby affording great flexibility to the parties.
(v) Termination of the mediation
The mediation will conclude when the Secretary-General issues a notice of termination. Rule 22 provides that a notice of termination may be issued following the occurrence of specified events, including: (i) the parties signing a settlement agreement; (ii) the parties agreeing to terminate the mediation; (iii) any party withdrawing from the mediation; or (iv) the mediator determining that there is no likelihood of resolution through mediation.
D. Other important considerations
In practice, the Mediation Rules may be used as a stand-alone process or may be combined with other processes such as "med-arb", "arb-med", or "arb-med-arb". This means that the mediation may be conducted prior to or in parallel with an arbitration.
Other important considerations for parties involved in the Mediation Rules include:
- Modification of the rules: Pursuant to Rule 3(2), the parties can agree to modify any part of the Mediation Rules save for Rules 1 to 7.
- Settlement: If full settlement is reached in the mediation and arbitration proceedings are taking place in parallel, parties may agree to discontinue the arbitration and request the arbitral tribunal to incorporate the mediated settlement agreement into the arbitral award. If partial settlement reached, parties may continue to arbitrate the remaining disputed issues.
- Costs: Rule 9 provides that all fees and expenses of the mediator and administrative charges are to be borne equally by the parties, unless otherwise agreed. Further, the parties are to bear their own costs in relation to the mediation.
- Confidentiality and without prejudice nature: Rule 10 expressly provides for the confidentiality of the mediation, including the documents generated and obtained during the mediation. Further, the fact that the parties have engaged in the mediation is also confidential. Such confidentiality can be waived if the parties agree to do, or if the information is independently available outside the mediation, or if disclosure is required by law. Similarly, Rule 11 prohibits the parties from relying on any position, admission, views expressed or information obtained during the mediation in any other proceedings, unless the parties agree otherwise.
- Authority to settle: It is important to ensure that the State officials involved in the mediation have the necessary process set up to discuss and obtain approval of the final settlement terms. This is particularly so where it is expected that the settlement terms will change substantially over a short period of time.
- Legal representation: Rule 4 permits parties to be represented or assisted by their legal representatives throughout the mediation. However, from experience, it is often helpful to minimise the involvement of legal representative as this tends to increase the likelihood of a successful mediation. If this is a party's preference, this should be communicated at an early stage to the other party for their consent.
How Stephenson Harwood can help
Please feel free to get in touch with any questions on the ICSID Mediation Rules or on investor-State disputes in general. Rovine Chandrasekera, a partner in our London office and the global head of the firm's international arbitration practice, has experience in investor-State disputes and also sits on the Centre for Effective Dispute Resolution's Advisory Board for investor-State mediation. Dr Fan Yang, a partner in our Hong Kong office, also sits on this board, in addition to being a CEDR-accredited mediator for investor-State disputes.