Wolf von Kumberg

Wolf has been involved in international business for over 25 years, latterly as the Assistant General Counsel—International for Aerospace Security leader Northrop Grumman Corporation and prior to that as Legal Director for the conglomerate Litton Industries, Inc. In those roles, he was responsible for the International Dispute Resolution Program and compliance activity, including drafting of ADR policies and guidelines, as well as implementation and training. He has held board positions with several of the leading international ADR institutions and is on their training faculties. Wolf is now an independent mediator and arbitrator with Arbitra International, with offices in London and Washington D.C. and also advises companies on implementing effective conflict avoidance programs tailored to their needs. He has been an accredited mediator for 20 years and an arbitration Fellow of the Chartered Institute of Arbitrators since 1998. Over the past six years, Wolf has been involved in helping to develop the field of investor-state mediation together with ICSID, The Energy Charter Treaty Secretariat (ECT), and the Centre for Effective Dispute Resolution (CEDR).

With the signing of the United Nations Convention on International Settlement Agreements Resulting from Mediation (the "Singapore Convention on Mediation") in Singapore in August 2019, mediation has been given new credibility as an international process for the resolution of disputes.

To understand that in the context of investor-state disputes one must first look at what has been happening in the way of encouraging the use of mediation generally as a tool of international relations and diplomacy. In the past, mediation simply was not considered in the context of investor-state dispute settlement (ISDS). It had its own unique dispute resolution system that had grown out of Investment Treaties negotiated between individual states (bilateral investment treaties or BITS) or on a multi-lateral basis between larger groups of international organisations of states such as NAFTA. Previously, these agreements contemplated that international arbitration would be used to finally resolve disputes between investors and states. International mediation was not even mentioned or contemplated to have a role in these disputes. ICSID, the body of the World Bank responsible for trade disputes had arbitration rules and in addition, a set of conciliation rules, but not mediation rules. Most parties never used conciliation and moved directly to arbitration. The cooling off period provided for in BITs (usually 3 to 6 months) was not used to try to find a resolution to the dispute, but rather to prepare for the arbitration.

Some six years ago, a group of us started our efforts in the critical energy space by assisting the Energy Charter Treaty (ECT) Secretariat, a grouping of 54 states that establishes a multilateral framework for cross-border cooperation in the energy sector, look at how mediation could be introduced to its Rules. The Rules provided for arbitration to resolve disputes with investors and had a reference to conciliation, without any specific process. The Secretariat was interested in filling in the gaps by providing for the possibility of mediation. We worked on a mediation guide, which would provide the member states with an outline of the mediation process and how it might be used in investor-state disputes. The Guide on Investment Mediation was published on the 19th of July 2016. It was recognized that the Guide alone was not enough. States have largely not mediated, because of the lack of an internal framework, through which the mediation process could be carried out. Issues such as authority to settle, transparency vs confidentiality, responsibility, liability for taking decisions, and state budgets were all a factor. As a result, The Secretariat then went on to review with the member states a model framework that could be adopted within state structures, through which these issues could be dealt with and critically giving State officials the clear authority to mediate. This Model Instrument on Management of Investment Disputes was published by the ECT on the 23rd of December 2018 and has been adopted in the interim by several member states.

In addition to the ECT, we have worked with the International Mediation Institute of The Hauge (IMI), the International Centre for Settlement of Investment Disputes (ICSID), and the Centre for Effective Dispute Resolution (CEDR) to develop IS mediation awareness programs and training for mediators and states. It was recognised that without this training the knowledge required for states to mediate these disputes would not exist. In addition, to give the process credibility a cadre of mediators, who not only understood mediation, but also ISDS had to be trained. Since 2017, several annual IS mediator training courses have been held and mediators capable of handling these cases are now prepared. The first Investor/State Mediation Panel with trained and qualified mediators was established at the ADGM in Abu Dhabi jointly by CEDR and the ADGM in March 2022.

Essential to the acceptance of mediation in these disputes, is the fact that ICSID, the organisation through which most of these disputes are heard, has given its full support to the development effort. This culminated with ICSID publishing its own IS Mediation Rules and promulgating them in March 2022. In particular, the Secretary General of ICSID Meg Kinnear gave her full support to the initiative. This has given the IS mediation enormous credibility with both investors, their counsel, and states and is a powerful catalyst to making mediation part of the normal ISDS process.

In fact, there have already been several important investor-state disputes where mediation has now been used. The most recent reported case (as many are not reported), was that of the Dominican Republic and Oldebrecht mediated by the well-known international mediator Mrs. Mercedes Tarrazón. The matter was mediated under the ICC mediation rules and led to a settlement agreement between the parties. CEDR has been approached on several occasions to discuss with investors and states particular situations where mediation might be used. This includes Africa, where currently, process design discussions are taking place between an African State and a mining company, where the dispute revolves around alleged expropriation and the possibility of restitution. States in particular have shown interest in IS mediation training through CEDR and the ECT.

To understand the significance of ISDS mediation, on the development of investor-state mediation one need only look at the Preamble of the Singapore Convention. It states:

Recognising the value of international trade of mediation as a method for settling commercial disputes in which the parties in the dispute request a third person or persons to assist them in their attempt to settle the dispute amicably,

Noting that mediation is increasingly used in international and domestic commercial practice as an alternative to litigation,

Considering that the use of mediation results in significant benefits, such as reducing the instances where a dispute leads to the termination of a commercial relationship, facilitating the administration of international transactions by commercial parties, and producing savings in the administration of justice by states,

Convinced that the establishment of a framework for international settlement agreements resulting from mediation that is acceptable to states with different legal, social, and economic systems would contribute to the development of harmonious international economic relations,

States by signing and ratifying the Convention have recognized the use of mediation as a legitimate public policy instrument for resolving cross-border disputes. This gives mediation legal credibility and certainty as a dispute resolution mechanism that can be used as part of the dispute resolution toolkit. Once states have acknowledged this for commercial disputes generally, it is difficult for them to take the position that it does not apply to the state itself or its agencies when dealing with investors.

If we take the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as an example, very few states have excluded the application of the Convention to arbitrations involving states or their agencies. In fact, one of the reasons international arbitration became popular and an acceptable dispute resolution tool was that arbitral awards can also be enforced against states under the New York Convention. This example provides the blueprint for the enforcement of mediated settlements against states as well. It is not so much enforcement that is important, as most states when they actually agree to a Settlement will abide by its terms, but the recognition by states through the Singapore Convention that mediation is an acceptable means of resolving disputes.

Given the unprecedented financial, social, and climate crises the world is currently facing, the imperative to employ mediation in an investor-state context has only grown. Arbitration, as a mechanism for resolving these disputes, has limitations. Some recent developments help to emphasise this further. The Columbia Center on Sustainable Investment has called for a moratorium on all arbitration claims by private corporations against governments using international investment treaties. On the 5th of May 2020, a large number of EU Member States signed an agreement for the termination of Intra-EU bilateral investment treaties. This implements the March 2018 European Court of Justice judgment (Achmea Case), where the Court found that Investor-State arbitration clauses in intra-EU bilateral investment treaties are incompatible with the EU Treaties. In its stead, a form of mediation is being advocated by the EU. One of the holdouts to the use of mediation in the resolution of IS disputes has allegedly been the major international law firms that represent investors and states in these proceedings.

CEDR sought to address the lack of law firm engagement by hosting a working group made up of 18 of the most active investor-state arbitration firms. The objective was to gauge their interest in exploring the use of mediation with their clients whether investors or states. In addition, the working group was meant to identify the obstacles that the law firms saw in utilising mediation and make suggestions as to how these could be overcome. This ultimately resulted in the publication of the CEDR Investor-State Mediation Guide for Lawyers and their Clients. The exercise has demonstrated that given the right circumstances, investor-state law firms will consider the use of mediation in investment disputes.

All this activity is very timely given that Foreign Direct Investment (FDI) is already taking a big hit as a result of COVID-19 and global trade retrenching and will most certainly get worse given the Ukraine conflict, raising tensions between the USA and China and the effects of the energy transition arising from climate change. States now must do all that is possible to create a friendly investment climate. One key element is having a perceived transparent and fair system for resolving investor disputes. Clearly, early collaborative means of dispute resolution, rather than adversarial resolution mechanisms, will play a role in this. Some states have already implemented ombudsperson programs and in addition, have a stated policy of mediating disputes as a prerequisite to arbitration. In essence, this is much in line with our premise that disputes must be regulated, meaning that there is a process in place that gives scope for resolution through various steps along the way.

The narrative is clear. States now have to do all that is possible to create a climate of investment facilitation and compromise. One key element is having a perceived transparent, compromise-oriented, and fair system for resolving investor tensions and disputes. Clearly, early dispute avoidance and regulation, rather than adversarial engagement will play a role in this. The time for mediation to become an integral tool of investor-state dispute resolution is now.