The increasing weight of opinion by academic and commercial parties is that mediation works!

However, there is one very important area where mediation appears to be little used, namely bilateral investment treaty disputes which occur under the umbrella of the World Trade organisation or WTO.

Each and every treaty organised and administered by the WTO contains a set of dispute resolution rules. One particular enactment in the WTO rules, Article 5 of Annex 2, is incorporated into all its treaties and specifies the procedures must be followed in the event of a dispute arising. Unfortunately this enactment only allows for the possibility of voluntary rather than mandatory conciliation and there is no provision so that those who decline to do so can be penalised in costs.

Article 5 of Annex 2 reads as follows:-

Good Offices, Conciliation and Mediation

1. Good offices, conciliation and mediation are procedures that are undertaken voluntarily if the parties to the dispute so agree.

2. Proceedings involving good offices, conciliation and mediation, and in particular positions taken by the parties to the dispute during these proceedings, shall be confidential, and without prejudice to the rights of either party in any further proceedings under these procedures.

3. Good offices, conciliation or mediation may be requested at any time by any party to a dispute. They may begin at any time and be terminated at any time. Once procedures for good offices, conciliation or mediation are terminated, a complaining party may then proceed with a request for the establishment of a panel.

4. When good offices, conciliation or mediation are entered into within 60 days after the date of receipt of a request for consultations, the complaining party must allow a period of 60 days after the date of receipt of the request for consultations before requesting the establishment of a panel. The complaining party may request the establishment of a panel during the 60-day period if the parties to the dispute jointly consider that the good offices, conciliation or mediation process has failed to settle the dispute.

5. If the parties to a dispute agree, procedures for good offices, conciliation or mediation may continue while the panel process proceeds.

6. The Director-General may, acting in an ex officio capacity, offer good offices, conciliation or mediation with the view to assisting Members to settle a dispute.

In 2014 Proffesor HILDEGARD RONDÓN DE SANSÓ the esteemed academic commentator wrote  the following –

“Mandatory periods of amicable settlement and mediation before arbitration”

“This proposal, which has been discussed in academic and government forums, involves the development of contractual, treaty or other legal provisions whereby the investor and state, once a dispute has arisen, will be required to enter an initial period of amicable settlement and mediation before being allowed to move to arbitration. This would require demonstrating that communication denoting the existence of a dispute has been exchanged between the investor and host state, which would form the basis for starting the amicable settlement phase of the dispute resolution process. If the period of amicable settlement is unsuccessful, the parties must then begin a formal process of mediation for a specified period of time. Only after this second phase has concluded can the parties submit the dispute for arbitration.

In an effort to try and avoid the present situation, where many arbitration tribunals allow claimants to avoid pre-arbitration requirements in investment treaties that demand amicable settlement or the use of local remedies, with the excuse that it would be “futile” or that it is a matter of admissibility and not of jurisdiction, the implementation of this proposal would expressly indicate—in specific instruments—that the phases prior to arbitration must be properly concluded.

The advantage of this proposal is that it creates conditions for parties to communicate, negotiate and seek mediated solutions with each other, in an effort to resolve the dispute at a low cost.  However, the disadvantage is, if negotiation and mediation are not successful, the disputing parties incur into additional time and costs.”

Although Professor De Sanso essentially suggests that in international trade disputes mediation should be mandatory, she also points out that the introduction thereof might be thought of as futile and regrettably, I have to agree.

Some years ago as a representative for Hong Kong I attended a seminar organised by the US Government. The purpose of the seminar was to familiarise states which had recently acceded to the WTO with the dispute resolution procedures.

The possibility of either amicable settlement or mediation was dismissed by those presenting the seminar as futile. They made it clear that participation in such an exercise would be for the sake of form only and had no real meaning. They also contended that a complaining party requires a tribunal ruling, something that was seen as incompatible with concepts such as mediation.

Delegates were also advised that the US Government would consider that if a result which was mediated was to be sanctioned this would give the impression that it was adopting a position of weakness rather than one of strength. Although it was acknowledged that mediation has an increasing role to play in all aspects of domestic and commercial relations, it was considered that there would always be situations where any move towards mediation would be considered an admission of weakness. In this regard I note that major corporations such as Volkswagen Europe apparently reject the concept of using informal means to resolve disputes such as those relating to as to emissions devices on diesel engines which were allegedly configured.

The net effect of standpoints such as those taken by the US and reflected in the WTO rules is that the powerful insurers who underwrite the activities of international corporations are given a free hand. With the benefit of this free hand they invariably refuse to mediate and when required to pay out take years or even decades to do so. Unless and until there is some marked change in outlook by bodies such as the WTO and the US Government, it may be decades before the majority of very crucial disputes will ever be directed towards mediation.

In my view the international business community which stands to benefit considerably from the implementation of a mediatory framework, should give serious consideration to Professor De Sanso’s views.