Med-arb / arb-med - the next big thing in common law jurisdictions?
Med-arb and arb-med combine the traditionally separate processes of arbitration and mediation to resolve disputes. As explained below, these processes use a third party neutral to hold a mediation to facilitate settlement of the dispute and should agreement not be reached, then an arbitration to determine the issues and make a final decision, or vice versa. Often, the third party neutral is the same person throughout.
These processes have been around for some years and although often used in civil law jurisdictions, for example being popular in the Far East, the combination has yet to catch on in jurisdictions with a common law background. Indeed the recent Australian case of Ku-ring-gai Council v Ichor Construction Pty Ltd may indicate barriers to its use. There the court found that an arbitrator’s appointment was automatically terminated when s/he decide to act as a mediator and that the arbitrator may only resume his or her role with explicit party consent, whilst participation in a further significant arbitration hearing was not sufficient to waive the parties’ right to object.
What is med-arb / arb-med?
The name of the process depends on which role the third party neutral takes on first – that of mediator or arbitrator:
Med-arb – the third party neutral facilitates negotiation between the disputing parties as a mediator and if they fail to reach a settlement, receives written pleadings and evidence provided by the parties and issues a written, binding decision as an arbitrator.
Arb-med – the third party neutral receives written pleadings and evidence from disputing parties as an arbitrator and writes an award which is withheld from the parties, pending changing role to act as a mediator. If no agreement is reached, the arbitration award is issued and becomes binding on both parties.
The idea behind this combination of processes is to lessen the apparent limitations and receive the perceived benefits of both processes, giving parties the control and autonomy of making their own decision with the possibility of a binding and enforceable decision at the end. However, in doing so, one marries two fundamentally different processes in which the role and skillset of the neutral is fundamentally different. We look at the key advantages and drawbacks of these processes, where they are used and whether they could catch on in Scotland. We’ve looked particularly at the common situation of the third party neutral acting as both arbitrator and mediator, but as noted this is not always the case.
Arb-Med-Arb
There is even a further combination, known as arb-med-arb. This involves starting an arbitration process, before staying it to mediate and then resuming the arbitration. Should a settlement have been reached in the mediation, the settlement agreement can be recorded as a consent award, accepted as an arbitral award. The benefit here is that an arbitral award is then enforceable internationally under the 1958 New York Convention (on the Recognition and Enforcement of Foreign Arbitral Awards). Should a settlement not have been reached in the mediation, the arbitration continues as usual. The Singapore International Mediation Centre (SIMC) and the Singapore International Arbitration Centre jointly offer arb-med-arb, under which they independently appoint the arbitrator and mediator. In that case the arbitrator and mediator are generally separate people, unless the parties agree otherwise. The SIMC says that “Arb-Med-Arb is a flexible and efficient form of alternative dispute resolution. It combines the advantages of confidentiality and neutrality with enforceability and finality”.
Whether this triple stage process will remain necessary in light of the development of the Singapore Convention, is another question. The United Nations Convention on International Settlement Agreements Resulting from Mediation (the Singapore Convention) was opened for signatures of the United Nation states on 7 August 2019. 46 states, including the US and China, signed up on day one. The Singapore Convention seeks to create a framework for the enforcement of international mediation settlement agreements, avoiding the need for full court proceedings. Some say it is intended to do for mediation, what the New York Convention has done for arbitration. The Singapore Convention will come into force six months after ratification by at least three States. This is a significant development for mediation and it will arguably challenge the use of arbitration on the on the international field.
Why med-arb / arb-med?
The key advantages of med-arb / arb-med, particularly in comparison with a process where a separate arbitrator and mediator are used, are -
Understanding of the case: the arbitrator or mediator (depending on which process takes place first) will already have the background to the matter, know the parties, understand the details of their case and be in a unique position to identify the timing of when settlement discussions may work best.
Cost saving: parties need only pay the preparation costs of a single third party neutral (rather than the mediator and arbitrator separately).
Speed: it may bring about a faster settlement if parties’ pleadings are fully developed / thought through.
However, the drawbacks are -
Loss of arbitrator impartiality: if the neutral has been privy to confidential discussions during the mediation process, that may impact or at the least appear to impact the neutral’s ability to issue an independent and impartial award.
Risk of challenge to subsequent award: linked to the above, an unsuccessful party in arbitration may seek to challenge the award on the grounds of lack of due process.
Hindering openness and participation in the mediation: mediations take place on a confidential and without prejudice basis, parties may not be as open or candid where the mediator might determine the final dispute as an arbitrator.
Skillset required: the skillsets required for arbitrators and mediators are different and though many dispute resolution professionals are trained in both, the roles are very different.
Med-arb and arb-med have had more traction in civil law jurisdictions, where it is generally more accepted that judges take a more active, inquisitorial role in cases before them and possibly convene settlement discussions. Anecdotally the processes prove popular in the Far East, particularly arb-med. Indeed provision for varieties of arb-med can be found in rules and legislation such as the Commercial Arbitration Rules of the Japan Commercial Arbitration Association (JCAA) 2019, the Japanese Arbitration Act 2003, the Beijing Arbitration Commission Arbitration Rules 2019 and the Arbitration Law of the People’s Republic of China amended 2018. These are essentially arbitration rules which allow for mediation (or “conciliation” or “settlement”) upon request. This does not seem too far away from the familiar concept of parties attempting settlement negotiations at some stage during an arbitration. The uncomfortableness in common law jurisdictions seems to arise when there is an in-built process for moving from arbitration to mediation and the same third party neutral is used. This is recognised to some extent in the provisions mentioned, for example all provisions require the parties’ consent to move to mediation; the JCAA’s Rules state that no arbitrator assigned to the dispute shall be appointed as mediator unless the parties expressly agree in writing; and the Beijing Arbitration Commission Arbitration Rules note that upon termination of unsuccessful mediation proceedings, all parties may request the replacement of an arbitrator on the ground that the outcome of the award may be affected by the mediation proceedings.
There is the possibility that arb-med could become more popular in Europe following the introduction of the Prague Rules last year. Given the perception by some that the IBA Rule on Taking Evidence favour a more adversarial, common law process, the Prague Rules were introduced to redress the balance by adding a more civilian law flavour to the arbitral process. They seek to reduce cost and improve efficiencies by having the arbitrator take on a more proactive role in proceedings including allowing the arbitrator to “assist the parties in reaching amicable settlement of the dispute” and act as mediator with the written consent of all parties.
Is it something that could catch on in Scotland?
A key advantage of med-arb / arb-med is the third party neutral’s understanding of the case and the parties. This is something that is already recognised as a strength in dispute resolution methods particularly in the construction sector where dispute boards are increasingly used to resolve disputes. The FIDIC standard form of contract makes provision for disputes to be referred to a dispute board, usually a panel of three people of mixed disciplines, often appointed at the start of the project and remaining in place throughout its life. Frequently they have a proactive role, visiting site regularly and dealing with disputes as an when they arise. Getting involved early and staying involved means dispute board members have a working understanding of the project and the parties, engendering a trust whereby parties often accept their decisions even though given on an interim binding basis. Dispute boards have been used in large infrastructure projects such as the London and Rio Olympics, the Channel Tunnel and Dockland Light Railway Projects, as well as the Queensferry Crossing.
Dispute board members take on more of a role of arbitrator, deciding disputes before them. Influenced by the benefits that this project knowledge brings coupled with an influence from the Far East, could the process of med-arb/arb-med that takes that role a step further catch on here?
A major blocker to the use of med-arb/arb-med becoming a reality here is the emphasis that we place on the independence and impartiality of an arbitrator. Section 1 of the Arbitration (Scotland) Act 2010 provides that one of the founding principles of arbitration is that disputes are resolved “fairly” and “impartially”. Likewise, mandatory rule 24 of the Scottish Arbitration Rules provides that the tribunal must be “impartial and independent” and “treat the parties fairly” which includes “giving each party a reasonable opportunity to put its case and to deal with the other party’s case”. We do not have the same tolerance as there may be in civil law jurisdictions (such as those discussed above) to arbitrators taking a more active role in proceedings or encouraging settlement between the parties. That leads to the risk in allowing a mediator to issue an award as an arbitrator following a failed mediation that it is then challenged on the grounds of actual or apparent bias.
This was precisely the situation the enforcing party faced in Glencot Development and Design v Ben Barrett & Son. There an adjudicator had been asked by the parties part way through the adjudication to act as a mediator to attempt to facilitate a settlement. Ultimately discussions were unsuccessful and the adjudication proceeded to a decision. However, when it came to enforcement, the court refused to award summary judgment on the grounds of apparent bias of the adjudicator (the circumstances being such that “would lead a fair-minded and informed observer to conclude that there was a real possibility or a real danger…that the tribunal was biased” following R v Gough .
One way to get around this risk would be to obtain the consent of the parties to this dual role as was discussed in Ku-ring-gai Council v Ichor Construction Pty Ltd. The adjudicator did attempt to obtain consent in Glencot, asking both parties before continuing whether either of them considered his impartiality to have been compromised. The challenging party did not provide an affirmation either way. At trial it was argued that a failure to respond immediately along with continued participation in the adjudication was enough to infer consent. The court did not agree. Therefore, even with continued participation, there remains a risk that is not sufficient to consent to the change of role. It is also possible to imagine a situation where something later comes to light that renders explicit consent invalid. What if the arbitrator appears to favour the other party in the subsequent arbitration or a fact as to how the arbitrator acted in a private session in the mediation surfaces? There are any number of pitfalls for those accepting this dual role.
Some of these pitfalls could be overcome by adapting the mediation process such as conducting the mediation on a fully open basis without shuttling and private meetings? Indeed this is the default position in family mediations under the C.A.L.M Scotland Code of Practice. However, in commercial mediations, many mediators may feel this hampers frank discussions and testing of parties’ cases that are needed to bring the parties closer together.
Conclusion
Ultimately it is the parties’ prerogative as to how to resolve their disputes. Med-arb and arb-med offer creative options which seek to maximise the benefits of each process. Arguably however, the more adversarial dispute resolution approach of common law jurisdictions means that parties (or their lawyers) are not yet willing to embrace such a combination. With the rise of mediation through the Singapore Convention and developments closer to home – the Irish Mediation Act 2017 and the proposal for the Mediation (Scotland) Bill – perhaps parties will not in any case look to combine arbitration and mediation, nor depend on arbitration for the international enforcement of mediation settlement agreements. What is clear is that the face of dispute resolution continues to evolve, with a myriad of options for parties to explore.
Laura West, Associate, CMS and Chair of the CIArb YMG (Scotland)
Jane Fender-Allison, Senior Associate, CMS and Co-Chair of the Young Mediators’ Group