Unusual Outcomes, Important Insights: The Chile-WOM Settlement and ISDS Practice

Investor-State arbitration (“ISA”) has been criticised for giving investors room to pressure host states. While most ISA cases proceeded all the way to the issuance of arbitral awards, around one-quarter of cases were resolved midway through settlement (Ubilava 2020 and Echandi and Kher 2014). Nevertheless, settlements in ISA raise some interesting issues, including their potential use as a delaying tactic and litigation strategy and the effect of such settlements on the relevant investor’s shareholders (as discussed in this post). For the purpose of this post, we refer to settlements that occur during arbitration proceedings, instead of those reached through mediation (as discussed in Nitschke 2019).

Settlement offers often function in a grey zone because they are not subject to clear rules despite potentially having major legal consequences. As such, investors may use settlement offers to delay, push costs onto host states, and/or manage risk without real adjudication. Despite the relatively decent number of settled cases, it is suggested that host States are more likely reluctant to settle due to, among others, 1) the desire to defer responsibility to a third-party (i.e., the tribunal), and 2) a fear of public criticism, allegations of corruption, or even setting a precedent for future cases (Chew, Reed, and Thomas 2018).

This post analyses some issues arising from settlements in ISA by taking the recent settlement between the Chilean government and NC Telecom and WOM (NC Telecom AS and WOM v Republic of Chile (ICSID Case No. ARB/24/30))(“NC and WOM v Chile”) (discussed in this post as a case study. The case is particularly interesting as it offers another perspective regarding settlements in ISA. The post starts by setting out the background of the case, followed by an analysis of lessons learned from the case, an observation of the settlement process in ISA from an international law perspective, and finally ends with our conclusions and recommendations for various stakeholders.

Background of the Case

In NC and WOM v Chile, the Norwegian investor (NC Telecom) and its operating subsidiaries in Chile (WOM) secured 30-year concessions (awarded through public tenders) to install, operate, and develop Chile’s 5G network using the national radio-electric spectrum (the “5G Project”). Under the bidding rules, WOM provided performance bonds totalling USD 47 million.

During implementation, WOM alleged that various obstacles hindered the timely execution of the 5G Project, including permit denials, delayed access to state-controlled land, and pandemic-related disruptions in the supply of construction materials. Chile rejected WOM’s requests for extensions, imposed sanctions, and threatened additional sanctions and the calling of all performance bonds.

The investors initiated arbitration, alleging breaches of the fair and equitable treatment standard, guarantee of non-discriminatory treatment, and expropriation without compensation under the Chile-Norway BIT. Their claims concern several government measures, including Chile’s alleged failure to cooperate in facilitating project completion and its threats to call performance bonds (NC and WOM v Chile, Notice of Disputes and Request for Settlement) (“Notice of Disputes”).

A year after filing the Notice of Disputes, the investors submitted their request for arbitration (not publicly available) in 2024. The dispute was subsequently settled in approximately one year. Under the settlement, WOM 1) agrees to pay approximately USD 52 million for non-compliance, 2) is allowed to continue completion of the 5G Project, and 3) agrees to withdraw the lawsuits against the government before the domestic courts and the International Centre for Settlement of Investment Disputes (“ICSID”) (Press Release of the Chilean Government (in Spanish) and corresponding English report).

Lessons Learned From NC and WOM v Chile

Lesson 1 — Potential for Reversed Financial Dynamics

This case is particularly interesting because unlike most known settled ISA cases (where States typically pay the investor or withdraw the challenged measures (as seen, for example, in the recent settlement in Société des Mines de Loulo S.A. and Société des Mines de Gounkoto S.A. v Republic of Mali, ICSID Case No. ARB/25/2 (as reported here)) the financial dynamic was reversed in this case. WOM paid to settle the dispute and, in return, was permitted to continue the 5G Project.

Although the precise factors driving this outcome are unknown, several possibilities may be relevant, including the investors’ assessment that their legal case was not sufficiently strong, the substantial sunk costs already invested in the project, expectations of significant long-term returns, and/or the desire to maintain constructive relations with the government for future ventures.

This case illustrates that investor leverage is not inevitable. When facts on the ground place pressure on both sides, a government can hold its position and secure terms that protect its own interests. In Chile, the risk of calling the performance bonds put the investor under real strain, and the government had the legal basis and the political will to push back. This kind of result is rare in ISDS, yet it proves that the usual assumption of one-sided pressure is not permanent.

Lesson 2 — Settlement Can Result in Final Closure for Both Parties

Unlike some other ISA cases, the settlement offer in this case delivered closure for both parties with the withdrawal of lawsuits in both the domestic court and ICSID. The case of Azpetrol International Holdings B.V., Azpetrol Group B.V. and Azpetrol Oil Services Group B.V. v The Republic of Azerbaijan, ICSID Case No. ARB/06/15 ("Azpetrol v Azerbaijan") (as discussed here) is an example of many cases whereby the settlement was framed in vague terms to suspend proceedings while talks continued. Similar to the Azpetrol v Azerbaijan case, this case reminds counsel of the importance of clarity. This case also reinforces the notion that settlements can be clear and final. It can end the arbitration outright rather than prolong it by having the investors withdraw their claim. This sort of closure should not depend on unusual circumstances and could be built into the way tribunals supervise settlement.

Lesson 3 — Transparency Strengthens Legitimacy

Although the award embodying the parties’ settlement agreement is not publicly available, the terms of the settlement were publicly disclosed, hence ensuring a certain level of transparency. Many governments prefer confidential agreements to avoid domestic criticism. However, secrecy creates suspicion and undermines public trust. Chile’s decision to disclose the payment changed the political reception by presenting the deal as a way to uphold the national interest, in particular, establishing:

"the appropriate penalties for [the investors’] failure to comply with the commitments made to the State, and above all, to the public’ and ‘protecting the interests of the Chilean State and its inhabitants, obtaining fair compensation for the non-materialization of this project" (see Press Release of the Chilean Government (in Spanish)). 

This reinforces the argument that transparency strengthens legitimacy rather than weakening it. Admittedly, it may be easier for States to publish a settlement where investors agree to compensate the States, compared to a contrasting situation.

As highlighted by the three lessons learned above, NC and WOM v Chile is a rare outlier in ISA practice. Its result does not weaken the common view that settlement offers in ISDS are often vague, opaque, and open to tactical use in ways that create legal uncertainty, allow pressure tactics, and weaken procedural integrity. Because this result depends heavily on the specific circumstances that allowed Chile to bargain from a strong position, it should not be read as a new trend. Even so, it shows that settlements could work very differently if they were handled with proper formality and treated as legal acts rather than informal exchanges.

Settlement Offers as a Legal Puzzle in International Investment Law

The procedural rules applicable in ISA (on submission timelines, tribunal jurisdiction, and costs) are well developed. Yet neither the 2022 ICSID Arbitration Rules nor the 2010 United Nations Commission on International Trade Law Arbitration Rules contain detailed provisions on settlement offers. This omission creates legal uncertainty that parties may exploit. For example, an investor may initiate arbitration and subsequently propose settlement without any defined time limit, drawing the host State into prolonged negotiations that delay the proceedings. Such delays generate additional costs and may further harm the State’s reputation as an investment destination.

In the absence of specific rules governing settlement offers, tribunals are placed in a difficult position when attempting to address such conduct. Against this backdrop, it may be time for States or arbitral institutions to consider adopting procedural rules on settlement offers in ISA. These could include: treating settlement negotiations as binding legal acts rather than tolerated informal exchanges; empowering tribunals to supervise negotiations to reduce uncertainty; and requiring greater transparency, such as public disclosure of settlement terms, to enhance accountability.

Conclusion and Recommendations

NC and WOM v Chile illustrates how settlements, when properly formalised and disclosed, can have a binding effect, provide procedural certainty in terms of closure to the dispute, and safeguard States’ interests. Settlement negotiations should therefore not be treated as a mere procedural afterthought with limited juridical weight.

For States’ counsel, the central lesson is the importance of insisting on terms that not only bring the arbitration to a formal close but also secure tangible benefits for the host State. Publicly recorded withdrawal of claims and agreed payment terms demonstrate that settlements can serve as a definitive legal resolution rather than an ambiguous interlude.

For investors’ counsel, the settlement reveals the risks of assuming that initiating arbitration will invariably generate leverage for compensation from the host State. When governments are prepared to stand firm (and to use transparency to counter domestic criticism), investors may confront outcomes far less favourable than anticipated.

For ISA arbitrators, the case serves as a reminder that private arrangements between parties can influence the integrity of the process. Even when proceedings are discontinued, tribunals should treat settlement-related communications as legally significant acts rather than informal or peripheral exchanges.

For States more broadly, establishing clearer standards on the admissibility, finality, and transparency of settlement offers could help curb procedural abuse and enhance predictability. NC and WOM v Chile demonstrates the type of outcome that becomes possible when settlements are treated as legal instruments rather than informal understandings. In this sense, the case offers practical guidance: if lawyers and arbitrators approach settlements with the same procedural seriousness accorded to other dispositive acts, the exceptional may gradually contribute to a more coherent and consistent practice.