INTERNATIONAL ARBITRATION 1/3LY
MED-ARB: A NEW HOPE? MED-ARB IS A FORM OF ARBITRATION IN WHICH THE ARBITRATOR STARTS OFF AS A MEDIATOR, (AN INDEPENDENT THIRD PARTY WHO ATTEMPTS TO BROKER A DEAL BETWEEN THE PARTIES) BUT IF MEDIATION FAILS, HE BECOMES AN ARBITRATOR AND IMPOSES A BINDING DECISION. MED-ARB IS QUITE COMMON IN CHINA, HOWEVER, AT PRESENT, IS NOT WIDELY USED IN THE UK OR THE USA. The advantages of Med-Arb for a gas price reopener are obvious: • Med-Arb recognises the unique nature of a price reopener process, and offers the opportunity to conclude deadlocked negotiations with a mutually-acceptable negotiated solution. Instead of there being a sudden break between the contractually-imposed but time-limited price renegotiation process and the commencement of arbitration, there is a smooth progression from negotiation to mediation to arbitration. • The costs of the arbitration process, and its uncertain imposed award, incentivise the parties to agree a settlement, and they are assisted to do so by the skills of the mediator who is experienced in “getting the deal across the line”. • The fact that the same party acts as mediator and arbitrator avoids duplication of process, resulting in a saving of costs if there is no settlement and the matter proceeds to arbitration. • The parties are able to explain their position to the mediator in a more informal and commercial context, allowing the mediator/arbitrator to get a better idea of the full picture and make his award accordingly.
MED-ARB: THE DRAWBACKS THERE IS A KEY CONCEPTUAL PROBLEM WITH MED-ARB WHICH MIGHT MAKE PARTIES HESITATE BEFORE AGREEING TO IT. THE SUCCESS OF MEDIATION WILL OFTEN DEPEND UPON HOW OPEN THE PARTIES CAN BE WITH THE MEDIATOR. The mediator is bound by duties of confidentiality not to mention to the other party anything which is said to him in confidence, so a party can tell him facts which might be relevant to the settlement of the dispute – e.g. details of their financial position and why they need to achieve a certain minimum price – safe in the knowledge that the other side will not become aware of those facts. This places a mediator, who subsequently has to rule on the dispute as an arbitrator, in a difficult position: he cannot base his decision on facts which have been communicated to him in the absence of the other party being given an opportunity to comment and make submissions on them. That would be a breach of procedural fairness. So the parties have to trust the mediator/arbitrator to dismiss from his mind everything which he has been told in confidence in the mediation when he makes his award. If they do not do so – and it is somewhat naïve to expect a mediator/arbitrator not to be influenced by some of the things he has heard - they might not be open with the mediator in the mediation, and by holding back information they endanger the effectiveness of the mediation. One can get round this issue in a number of ways, all of which could perhaps more accurately be described as Arb-Med-Arb: • One could have a different party conduct the mediation, as is common in litigation in England & Wales and as happens where parties adopt the Singapore International Mediation Centre - Singapore International Arbitration Centre protocol. However, this can add to the cost of resolving the reopener request, because the parties have to run two distinct processes, either in parallel or in tandem. • One could run the arbitration and have a mediator sit in on the merits hearing, and then hold the mediation before the award is made. The mediation would then be fast-tracked, as the mediator will be fully up-to-speed on the case. If there is no settlement the award is handed down in the usual way, but if there is, it can be encompassed in the award instead of the arbitrator’s decision on the merits. However, this means incurring the costs of the arbitration followed by the (potentially reduced) costs of the mediation. • One could have the same individual as arbitrator and mediator, but hold the mediation after the merits hearing and after the arbitrator/mediator has prepared his draft award. If settlement is not possible, he hands down his award there and then, uninfluenced by what he has heard in confidence. Again, however, this means incurring the costs of a full merits hearing and a mediation.
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