As demand grows for more flexible and effective forms of dispute resolution, we revisit the use of "Med-arb" (for mediation-arbitration) and consider its potential.
What is med-arb?
Med-arb is a hybrid alternative dispute resolution process designed to combine the benefits of mediation and arbitration. It can be used where mediated negotiations do not lead to a settlement. In those circumstances the parties can agree that the mediator becomes an arbitrator and renders a final and binding award on the outstanding matters. It can also occur within the framework of arbitration with the parties being encouraged to explore mediation at appropriate stages of the arbitration. Typically, should the parties agree to mediation, the arbitration proceedings will be suspended pending the outcome of the mediation or a 'mediation window' provided for in the procedural timetable.
Generally, med-arb will involve the same neutral third party acting as both mediator and arbitrator, which avoids the need to educate two different people on the background facts and legal submissions. This can lead to significant time and cost savings.
However, this dual role raises the risk of undermining the benefits of mediation and arbitration. It may inhibit the parties from engaging in full and frank discussions with the mediator if there remains the possibility that he/she may later become the arbitrator who will determine the dispute. It may also risk exposing the arbitrator and the award to challenge on ethical and due process grounds.
If the cap doesn't fit
It is a fundamental principle in international commercial arbitration that an arbitrator remains impartial and independent. So the key concern is that the mediator arbitrator may lose his/her impartiality by becoming privy to information about the motivations and interests of the parties which would otherwise be privileged and/ or confidential, or which might separately influence an arbitrator's judgment in considering the issues in dispute in the award.
In reality, it is difficult (if not impossible) for an arbitrator (like a judge) to close his or her mind to information acquired while wearing the mediator's cap when determining an issue as arbitrator.
This tension was recognised in the CEDR Commission Settlement in International Arbitration Report of November 2009. It concluded that whilst this form of med-arb has been successful in some cases, the arbitral process is potentially jeapardised as is the enforceability of any arbitral award in the event that settlement is not achieved in the mediation phase. The report emphasised that this form of med-arb can result in a mediation phase which is less effective than if it were conducted by a third party mediator.
Squaring the circle
The CEDR Commission report does not specifically recommend a med-arb process which involves private meetings with the parties. Instead, it sets out safeguards in section 7 of Appendix 2 to the report which can be used to minimise the risks involved. For ease of reference they are reproduced below.
CEDR Commission safeguards
"7.1 The parties' consent to the mediator/conciliator resuming as arbitrator should include consent as to the way the arbitrator is to deal with information learned in confidence by the arbitrator during the mediation/conciliation. This may require the arbitrator to disclose any such information to all parties and provide them with an opportunity to comment on it. Alternatively, it may provide that the arbitrator should disregard any confidential information that may have been disclosed during private meetings, and he or she should be under no duty to disclose it.
7.3 The parties should give their consent in writing before the mediation/conciliation phase. Where parties wish to adopt a more robust protection against the risks inherent in the arbitrator acting as mediator, they should insert a requirement that consent is also required after the mediation/conciliation has concluded and prior to the mediator/conciliator resuming in the role of arbitrator. The consent given after the mediation/ conciliation phase is particularly important because it is given in the knowledge of developments during the mediation. Consent which is given at an earlier stage (for example in a dispute resolution clause, or by reference to the arbitral rules of an institution) may be less effective. In addition, a party knowing that it can withhold consent, may encourage a party to be more open during the mediation/ conciliation phase.
7.5 The consent should include a statement that the parties will not at any later time use the fact that the arbitrator has acted as a mediator/conciliator as a basis for challenging the arbitrator or any award which the arbitrator may make (either alone or as part of a tribunal).
7.6 If as a consequence of his or her involvement in the mediation/ conciliation phase, any arbitrator develops doubts as to his or her ability to remain impartial or independent in the future course of the arbitration proceedings, that arbitrator should resign."
While the use of med-arb, particularly in Common Law jurisdictions, is relatively uncommon, the adoption of the CEDR Commission safeguards (listed above) perhaps make med-arb a more viable option for parties to consider.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.