Q1: In a nutshell, what does a mediator of international investment disputes do?
A mediator is a disinterested facilitator who seeks to guide the parties involved in an investment dispute to an amicable resolution of their differences. Mediation is non-binding and it is typically informal. Mediation is generally contrasted with arbitration, which involves a formal and adversarial adjudicatory proceeding and whose results are binding on the parties and enforceable against them.
Q2: What does it take to be a successful mediator of investment disputes?
Legal training and corporate law experience is a strong plus. Most investment disputes arise because of a disagreement over legal issues, and even essentially political issues come down fairly quickly to questions of contractual interpretation, local law provisions, or international law requirements. Experience with contract law, administrative law, and the rules of evidence make it easier for the mediator to grapple with the issues and to resist the pettifoggery of often aggressive counsel for the parties. Business experience, and subject knowledge relevant to the case, are also very helpful. The most important personal qualities of a mediator are maturity, impartiality and the right blend of persistence and patience. Cultural sensitivity and linguistic skills are also very beneficial.
Q3: How did you happen to become a mediator in this field?
In truth, I fell into it, probably because I had lived abroad – I studied in France and I later taught law school in Costa Rica under the Fulbright program – before I began my legal career. That was at a time when overseas experiences were not common for young lawyers. When I began to practice law, I was given assignments that drew on this background, if only because I could understand the languages in which the problems arose and could read applicable foreign legislation without needing to drag in an interpreter. When things went wrong, as they sometimes do in complex transactions with overseas components, I was given an opportunity to help put the transactions back on track. I found this work congenial, and over time I gained confidence in my ability to resolve problems arising in legal cultures different from our own. Then, at the Multilateral Investment Guarantee Agency (MIGA), the investment insurance arm of the World Bank, I gained invaluable experience directing its mediation service for over a decade. I now apply that experience to investment mediation in private practice.
Q4: Why do parties to an investment conflict choose mediation?
Almost invariably, the motivation is to find a negotiated basis for a settlement of the dispute before matters get out of hand, positions become more entrenched, or the dispute becomes overly politicized. The impetus to seek a mediated resolution of a pending investment dispute can come from either of the two parties to the conflict or from an interested third party, such as the host government of the investor, a lender to the project, or an international development agency whose program is affected by the dispute. Sadly, mediation of investment disputes is still not a well-known course of action, even in sophisticated investment circles. I have seen a number of disputes that probably could have been resolved through mediation go on to arbitration because the parties were not aware of the availability of mediation. Even when one party announces that it would like to attempt mediation, the proposal is often a hard sell. That party, which more often than not is the foreign investor, generally needs to make a concerted effort to persuade the host government to agree to participate in mediation.
Q5: Why is that? Is there a downside to mediation?
No. Generally there is no risk in agreeing to mediate. Rather, because the institution of mediation is so little known, there is a hesitancy to embark into uncharted waters. Governments, in particular, find it difficult to take a new course when faced with an investment dispute. If disputes in the past always went to arbitration, then a minister might be hesitant today to suggest an alternative — even if his government always lost in arbitration.
Q6: How well does investment conflict mediation work and what are the ingredients of a successful mediation?
Mediation has a better than even chance, in my experience, of resolving an investment dispute. Perhaps two-thirds of the investment disputes that I have been asked to work on have been resolved through mediation. But that resolution doesn’t come easily or quickly. It generally takes a minimum of a year and often two years for the dispute to be resolved. Still, it is worth noting that mediation is generally more expeditious than arbitration and infinitely less expensive. Mediation becomes more difficult when the matter is highly politicized or involves very large sums, if it significantly affects third parties in the capital-importing state, or if the parties are of greatly differing size, economic power, or leverage. Those things aside, reasonableness and good faith are key. Each party has to want to resolve the conflict and has to make the effort to reach a settlement, which is to say to compromise. And a capable mediator must be there to encourage that outcome. Evidence has to be adduced, allegations answered, and losses fairly calculated. Neither side can expect to prevail entirely. It is often said that the definition of a successful mediation is a solution that leaves neither party terribly happy but not so unhappy as to want to continue the dispute.
Q7: When is the right time to choose mediation?
More and more investment agreements are now requiring that recourse be first to mediation before arbitration is commenced. That makes sense to me, and it need not entail a loss of time because the agreement can specify that arbitration can begin if mediation hasn’t been completed within a specified period. Or mediation can proceed contemporaneously with arbitration. The mediation process may reveal to the parties the relative strength of their positions and the merits of seeking a resolution short of the costly, time-consuming and unpredictable arbitration process. ■
Lorin (Laddy) Weisenfeld heads the Washington office of Felsgberg e Associados, a leading Brazilian corporate law firm based in São Paulo. The firm handles a variety of trade and investment matters out of its Washington office. Mr. Weisenfeld’s practice concentrates on the structuring of investments overseas, financial workouts, and the resolution of investment disputes. We asked Mr. Weisenfeld about his experience and observations with respect to investment conflict mediation.