The Thoughtful Integration of Mediation into Bilateral Investment Treaty Arbitration

Abstract

While the current system of investment treaty arbitration has definitely improved upon the “gunboat diplomacy” used at times to address disputes between states and foreign investors, there are signs that reform is needed: states and investors increasingly express concerns regarding the costs associated with the arbitration process, some states refuse to comply with arbitral awards, other states hesitate to sign new bilateral investment treaties, and citizens have begun to engage in popular unrest at the prospect of investment treaty arbitration. As a result, both investors and states are advocating for the use of mediation to supplement investor-state arbitration. This Article draws upon dispute system design principles, the socio-psychological research and theories regarding procedural justice, and the U.S. experience with court-connected mediation. Using these lens, the article examines the models of mediation that have been shown to be effective, the importance of ensuring that mediation offers something different from the other procedural options available to resolve investor-state disputes, and the mechanisms that increase the likelihood that disputing parties and stakeholders will perceive individual outcomes and the larger system as fair. The Article also examines the U.S. domestic experience to identify the elements of the mediation process that can be, and have been, made compulsory and the effects of this choice, as well as different approaches for ensuring the quality of the mediation process and its accountability to the disputing parties and other stakeholders. Ultimately, the Article recommends the integration of a default model of mediation into the investor-state context that begins in a facilitative manner, in order to increase the likelihood of trust-building and information exchange regarding important underlying interests, but also permits both evaluative interventions by the mediator and discussion of relevant legal norms. The Article further concludes that if stakeholders’ input is sought and considered regarding mechanisms for the referral of disputes to mediation, some elements of mediation could be made compulsory. More specifically, the dispute resolution clauses in investment treaties could require the parties to participate in an initial meeting to discuss the potential use of mediation or other consensual procedures, with the parties themselves then choosing whether to proceed further, when, and with what process. Finally, the Article recommends the establishment of a small pool of well-known and well-respected investment treaty mediators who will offer a reasonably strong and pragmatic guarantee of quality in the short-term and engender a heightened perception of trust in the process. These mediators should also possess the temperament and skills to provide the default model of mediation. In the long term, however, evaluation and mentoring must be put into place to permit thoughtful cultivation of both the model of mediation that is best suited for the investor-state context and the next generation of mediators.

Keywords: arbitration, mediation, investment treaty arbitration, bilateral investment treaty, mandatory mediation, compulsory mediation, facilitative, evaluative, mediation rules, dispute system design, procedural justice, default model, voluntary mediation, accountability, transparency, voice, stakeholders