I had written here in anticipation of the March 29, 2010, Joint Symposium on International Investment Law and ADR, held by UNCTAD and the Washington and Lee School of Law. It was a smashing and impressive success, due to the remarkable convening powers of hosts Susan D. Franck of Washington and Lee and Anna Joubin-Bret of UNCTAD. My expectations were very high, and predictably they were variously exceeded and frustrated. Even among the Great and the Good, and despite a truly inspirational White Paper that preceded the Symposium, we are still a long way from dealing with international investor conflicts as if they were a “problem” and not a “case.”
Although open to the public, the Symposium was conducted under “Chatham House Rules” so this report will not attribute statements to the speakers and participants. But suffice it to say this was cream-of-the-crop. Professor Reisman of Yale was the Keynote and other speakers included several professors of ADR and leaders of ADR institutions; representatives of the World Bank; internationally reknown arbitrators and attorneys from the world’s leading law firms; officials and Trade Representatives from the United States, Japan, South Africa, Peru, Dominican Republic, Thailand, Ecuador, Argentina, Rwanda, South Korea, Uruguay… even two multinational investors! (Where are the rest of you guys???)
It was noted at the outset that there are thousands of investment treaties with arbitration clauses and only a handful that go to arbitration. Moreover, of those that are filed with ICSID, about 35% do not go to award, so they presumably settle or are withdrawn. Yet ICSID arbitration is by far the most common method of dispute resolution in this field, and a single arbitration can last for years and cost between $500,000 and $20,000,000. It was “in the shadow” of this unwieldly, inefficient, commercially risk-filled but nevertheless familiar dispute resolution process that the Symposium’s analysis of alternatives took place. The participants never really got from beneath that “shadow.”
How many matters arise but are resolved privately, before arbitration is commenced? No one knows. What are the attributes of the 35% of arbitrated matters that settle rather than going to an award? It was conjectured (again, in the absence of data) that they involved commercial rather than public policy issues; that they involved a single investor rather than a group of similarly situated investors; that they arose from a long-term relationship that benefited both parties rather than from a one-off deal; and that formal ADR processes played a minor role. (The Conciliation Rules of ICSID have been used only six times in 30 years.)
A chronic problem in this field is negotiator authority on the State side of the table, and no speaker had a firm resolution to it. The idea was proposed by several commentators that a “lead agency” should exist whose job is to ensure co-ordination among various government ministries and to educate and manage policy modifications “across the board” so that policy decisions on a sub-national level that may have an effect on commercial treaties are identified and their impact on investors and on other agencies would, at least, be intentional. Ordinarily there is no central agency whose charge includes understanding all extant BIT provisions, and acting as a central information repository.
In this difficult context, ideas of co-mediation (with a governmental and a commercial facilitator) and parallel mediation (to accompany the arbitration process and take advantage of “mediation windows”) took on new and important meaning. So did the phrase “capacity building,” as it became increasingly apparent that few companies and practically no governments had a standing ability to devote sophisticated problem-solving resources to a complex investor-state dispute. All seemed to agree that, in the current state of affairs, the use of arbitration to obtain a judgment was reflexive: There was no incentive or reward for devising objective criteria to value negotiators’ positions or to measure the acceptability of a proposed negotiated solution. As one participant put it, “We lack the mechanism to manage claims until after the dispute has arisen and an arbitration has been filed.”
It was not surprising (to me) that the most common-sense problem-solving came from the two private sector investor representatives. (Why only two?? Where are you guys????) Any process like arbitration, that doesn’t build into its structure the ability to value and renegotiate a contract in order to complete the intended project under changed circumstances, is ultimately inappropriate to the challenge from an investor’s point of view. And one company speaker said that, in his experience, trying to persuade a host government to enter into facilitated negotiation involving a third-party mediator was “like pushing a rope.” If the parties were looking for an infrastructure for authoritative contract renegotiation, then arbitration is a poor forum, and an alternative infrastructure too often simply doesn’t exist. As an ADR professional put it, “we ought to be looking for solutions to problems, not wins.”
It was during the presentations of two ADR systems designers that I began to lose heart a bit. The Symposium White Paper was, in my view, a real game-changer, mainly from the assurance and sohistication with which it placed emphasis on conflict prevention, identification and management, rather than merely (?) dispute resolution. But that perception was not generally shared — or at least was not the core of the discussion. The “shadow” of arbitration was long and blocked a lot of light.
The rationale of the discussion at the Symposium was: Here is a case that has been filed for arbitration; are there better ways to resolve it?
One wishes that the discussion were: Here is a sophisticated and complex problem, with many stakeholders. How can we solve it in a way that it doesn’t recur?
Put otherwise, the normative base should not be not arbitration; the normative base should be the problem. And I continue to sense that attorneys (in particular) do not adopt this critical change in starting-point. It is a question of perception and framing: Professional dispute managers are trained to resolve disputes adversarially. The best of them are imaginative and value-driven enough to seek to improve upon, or even displace, that adversarial process in the right circumstances. But too often they don’t see it as a problem to be solved — they see it as a case to be taken on.
Nor is this unexpected; if the only tool you have is a hammer, you tend to see every problem as a nail.
But problem-solving in this challenging context is not beyond our abilities. Several ADR professionals kept on the same refrain: We can do this! This is not impossible! We can design a system of problem identification and problem-solving that is designed by, owned by, negotiated by and respected by the participants themselves, and put expressly into the BITs. This can be done.
But if not by this esteemed group, then by whom? And if not at this impressive Symposium, then when?
Excellent blog.
Indeed it is important to start seeing these conflicts as conflicts rather than cases.
We need a change of paradigm in the Investor – State Dispute Settlement, to create a different approach for the resolution. That will eventually relegitimize the system itself.
As Einstein put it: “it is insanity to do the same thing, the same way, over and over and expect a different result”