Mediation-Arbitration (Med-Arb) is gaining popularity as
a dispute resolution method in Asia – but is it worth
jumping on the bandwagon?
Med-Arb combines the familiar processes of mediation and
arbitration into a single, hybrid dispute resolution package.
In Med-Arb, as in conventional mediation, the mediator
endeavours to facilitate a negotiated resolution between the
parties. If, however, the mediation fails, the mediator then
becomes the arbitrator and authoritatively determines the
dispute.
Med-Arb is on the rise in Asia and if you're doing business
in the region, there's a good chance you'll come across
Med-Arb in your contracts. CIETAC, China's leading arbitration
body, reports it is resolving up to 30 percent of commercial
disputes through Med-Arb.
The concept also ties in with "fast track" procedures
now reflected in regional institutional rules such as SIAC's
1 2010 rules.
Australia, in contrast, has been slow to embrace Med-Arb. Our
international arbitration legislation doesn't provide for it,
and although State domestic legislation does, parties rarely opt
for the process. However, the current rollout of new uniform state
arbitration legislation containing expanded Med-Arb provisions
could see Med-Arb's popularity here increase.
Med-Arb's rising status overseas is largely based on
perceived time and cost efficiencies in first attempting mediation
and then, if no resolution is reached, proceeding to arbitration
without having to "educate" a panel of arbitrators about
the dispute.
While the hybrid process seems good in theory, there are some
potential pitfalls to watch out for.
Traditional mediation typically involves parties having private
discussions with the mediator. In these private discussions,
parties may make admissions or concessions in respect of their
case, the evidence they possess, or legal advice they have received
on an issue in dispute.
Mediation works because parties know the process is confidential
and that all communications made are 'without prejudice'.
That is, the communications cannot later be used against the party
who made the statement.
Whereas mediation is conciliatory, with an expectation that
parties will generally compromise to reach an agreement,
arbitration is an adversarial process similar to litigation.
The danger in Med-Arb is that if the mediation fails, the
mediator will be empowered to authoritatively determine the dispute
as an arbitrator, despite being armed with information provided
during the mediation in confidence and without prejudice. The
potential for bias (actual or perceived) looms large. As such, the
Med-Arb process may cause parties to be less frank during the
mediation phase.
A further risk arises from the fact that mediation should not be
used by parties as a "test-run" for their strongest
arguments. Knowing that the mediator will become an arbitrator,
parties to Med-Arb may exploit the mediation phase, treating it
purely as an opportunity to gauge the mediator-arbitrator's
response to their case
Common law principles of procedural fairness require that
parties have adequate opportunity to respond to the case against
them. If, in private discussions, a mediator-arbitrator learns of a
matter adverse to a party, but then fails to disclose their
knowledge of that matter before arbitration, that party could
reasonably complain they were denied the right to respond to the
case against them.
Australia's new uniform legislation seeks to deal with this
problem in two ways. First, by requiring disclosure of all material
matters learned during mediation. Second, the legislation provides
that an arbitrator cannot previously have acted as mediator in a
dispute unless the parties consent.
This consent must be given after the mediation ends. A
party with a concern about the mediator's impartiality, or
about any information that the mediator will disclose, can veto the
arbitration. Of course, not going ahead with the arbitration
destroys any efficiency gained through adopting the Med-Arb process
in the first place.
As Australia's economic engagement with Asia grows, it is
likely that Med-Arb will figure more heavily in dispute resolution
mechanisms between parties. However, before agreeing to a Med-Arb
process, parties should take stock of its inherent risks and
consider whether Med-Arb is the right dispute resolution mechanism
for their particular circumstances.
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.
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