AuthorChristine SIM LLB (NUS), LLM (Geneva MIDS); Advocate and Solicitor (Singapore); Attorney (New York State), MCIArb.
Publication year2019
Published date01 December 2019
Date01 December 2019
I. Introduction
A. What is conciliation?

1 Under international law, conciliation is a unique process which shares the characteristics of both arbitration and mediation. States can structure conciliation as an alternative method of dispute resolution or as a preliminary step to arbitration.1 In the practice of international law, conciliation is sometimes subsumed as a form of mediation.2 For instance, the Permanent Court of Arbitration's (“PCA's”) Optional

Conciliation Rules3 treats conciliation and mediation interchangeably.4 At other times, conciliation is practiced in a manner more akin to arbitration – once the parties have consented to conciliation, their consent is irrevocable and the conciliation will proceed.5 The Conciliation between the Democratic Republic of Timor-Leste and the Commonwealth of Australia6 under the United Nations (“UN”) Convention on the Law of the Sea7 is a form of such “compulsory conciliation”.8

2 Many definitions of international conciliation have been given over the years, though none have been universally agreed on.9 Conciliation, like mediation, is a method of dispute settlement that involves a neutral third party, which may be a person, a panel of persons or an institution appointed by the disputing parties. Generally, what distinguishes conciliation from other methods of dispute settlement such as arbitration, fact-finding, inquiry and mediation is that the conciliator will conduct an impartial examination of all aspects of a dispute, and recommend terms of a settlement to the parties or make other recommendations for settling the dispute.

3 Unlike an arbitral tribunal's findings, the conciliator's recommendations are non-binding, but are meant to form a basis for further negotiations.10 The conciliator may also be obliged under some conciliation procedures to issue a written report. This is the case in an International Centre for the Settlement of Investment Disputes

(“ICSID”) conciliation11 but not in a PCA optional conciliation.12 Other rules suitable for international investor–State disputes include the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on Commercial Conciliation,13 the International Chamber of Commerce (“ICC”) Mediation Rules14 and the Stockholm Chamber of Commerce Mediation Rules.15
B. Conciliation and mediation defined

4 Conciliation may be distinguished from non-evaluative mediation in terms of their processes. Recommendations for settlement are issued in conciliation, which gives it a “semi-judicial aspect, since the commission of persons empowered has to elucidate the facts, may hear the parties, and must make proposals for a settlement, which is normally non-binding”.16 The mediator “will try to bring the parties together in order that they may themselves achieve a compromise solution” [emphasis added].17 In contrast, a conciliator “will himself draw up and propose terms of an agreement designed to represent what is, in his view, a fair compromise of a dispute after having discussed the case with the parties” [emphasis added].18

II. Suitability for investor–State disputes
A. Important aspects of investor–State disputes

5 Is conciliation suitable for disputes relating to investments? Alternative dispute resolution (“ADR”) has the advantage over formal

litigation of allowing parties to handle conflicts in the manner that is agreed upon by, and thus acceptable to, the parties involved.19 However, the manner in which ADR practices are instituted may actually make them less effective as inequalities may exist between the disputing parties depending on their capacity to engage in the process and obtain adequate representation.20 Yet the potential for conciliation to be used to settle disputes is clearly reflected in the reality that 40% of ICSID arbitrations are settled before the final award.21 In general, out of the 444 concluded investor–State cases to date, approximately 26–28% are settled before an award.22
(1) Relationship preservation

6 Arbitration will typically be the last resort where the parties have reached the end of their business relationship.23 General Counsel of the World Bank Aron Broches observed that:24

When you have come to the end of the road in a business relationship, you might as well have a clear decision through arbitration. On the other hand, if the parties hope to continue their partnership, conciliation might be preferable.

The informal conciliation environment is likely to be warmer than that of the adjudicative forum. The “win-win” character of the conciliatory

process is a major advantage since it facilitates the maintenance of a harmonious business relationship, whereas the use of an adjudicative form may rupture this connection.25 Thus, conciliation should be preferred in situations where the parties wish to preserve their extant contractual and commercial ties. For example, conciliation would facilitate the maintenance of a long-term contract or joint venture relationship.

7 Conciliation is appropriate where the parties are prepared to continue their co-operation on the investment.26 It was noted in 1990, based on the bilateral treaties in force at the time, that:27

Although arbitration is the ultimate resolution method agreed upon in both cases, conciliation is typically found only in the procedure for the settlement of disputes between an investor and the host state. It is likely that conciliation is contemplated in the latter case, since it is a settlement mechanism that can help preserve an amicable relationship between the investor and the host state, thereby facilitating the continuation of the foreign investment.

Conciliation can be particularly effective in cases in which the parties are engaged in an ongoing long-term project, involving significant amounts in sunk costs, where it is necessary to resolve disputes while the project is still continuing. Disputes in oil and gas explication projects, mining and long-term infrastructure projects are well suited.28 The relationship between the investor and the State in Hess Equatorial Guinea Inc and Tullow Equatorial Guinea Ltd v Republic of Equatorial Guinea,29 which has continued with further investments despite a suspended conciliation process and threat of international dispute settlement proceedings, is a good example of the compatibility of conciliation with preserving long-term investment projects.

(2) Political issues underlying investment disputes

8 International litigation is “but a phase in the unfolding of a political drama”.30 Certain types of disputes are better suited for conciliation;31 in particular, diplomatic and political disputes are often resolved by mediation and conciliation. As political events often underlie investment disputes, these facts can create obstacles of equal difficulty in the search for a resolution. Where “bringing disputes settlement proceedings against a state is regarded as an ‘unfriendly act’ that may imply diplomatic costs in inter-state relations”, conciliation procedures with their consensual outcomes may be more acceptable as they are a “softer” form of dispute settlement which is “less threatening to the sovereignty of host states”.32

9 Conciliation has the flexibility to accommodate “diversity in the players and their interests, underlying antagonisms and disrupting developments”, as well as the “evolution of political disputes”.33 Its semi-diplomatic nature offers political instead of strictly legal solutions. For example, in Kardassopoulos and Fuchs v Georgia,34 the claimants sought the assistance of Henry Kissinger, the former US Secretary of State, to intervene in their favour with Georgia's President Shevardnadze. This diplomatic intervention of a neutral third party appeared to increase chances for settlement.35 As conciliation has historical roots in sensitive diplomatic processes,36 it may be especially useful for politically charged factual backgrounds such as a dispute between a State-owned enterprise as an investor, and another State.

10 An experienced conciliator could diffuse political tensions by issuing recommendations on the terms of settlement in the manner of a

sagely elder. Where an investment dispute has become politicised due to accusations of corruption, government officials may be unable to obtain approvals for settlement within their domestic political and legal frameworks. Thus, they require the recommendations of a well-respected and neutral third party37 in order to legitimise any settlement agreements they may enter into on behalf of their states. Without the legitimacy afforded by the recommendations of an independent and experienced conciliator, it could be impossible for government officials to settle a dispute without the threat of negative publicity, criminal and civil prosecution or political retaliation.
(3) Technical complexity

11 Technical complexities arising from an investment dispute such as predicting long-term consequences of a breach is not a hindrance to settlement by conciliation. When designing ICSID conciliation, Broches reported that in the Jamaica cases, where Jamaica unilaterally changed the rate of royalties provided in the agreement, with the effect of changing circumstances on long-term agreements, parties managed to reach a settlement.38

12 Conciliation preserves flexibility of practical solutions. Practitioners have given examples of disputes where during the course of an arbitration, the investor offered a non-monetary settlement.39 In the dispute between Vattenfall and Poland, Thomas Wälde acted as mediator, assisted by a team of experts in electricity regulatory economics, electricity engineering and financial analysis.40 He produced a long and detailed analysis of the materials evidencing the parties' negotiations and agreements and the evolution of the transaction, and made a proposal for settlement in a manner very much like ICSID

conciliation.41 Thereafter, Vattenfall's ICSID...

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