In 1982, IBM and Fujitsu – the world’s biggest computer giants at the time – descended into a massive legal battle after IBM alleged that Fujitsu’s software consisted of information that was copied from IBM’s programming codes. After negotiations failed, the parties resorted to arbitration. The tribunal was required, among other things, to determine the similarity between programs containing hundreds of thousands, and even millions, of lines of code. The dispute promised to drag on for years and cost both parties a tremendous amount of time and money. In an interesting turn of events, however, the parties decided to use a novel method to settle their dispute.
Two of the arbitrators acted as mediators to identify the parties’ key points of discord and encourage solutions. Mediation led to the conclusion of a comprehensive framework. Among other things, the parties agreed that they would enter into a license. Because they could not agree on the price and other disputed terms, these issues were determined by way of arbitration. Lastly, the parties agreed to a private mechanism for protection and transfer of intellectual property with a 10-year transition period. The parties finally buried the hatchet in 1997 and formally announced their return to an ordinary business relationship.
One would think that the IBM-Fujitsu method would inspire the legal fraternity to further explore and exploit the synergy between arbitration and mediation. However, despite the various interests shared by arbitration and mediation – such as privacy, confidentiality, efficiency, procedural fairness and party autonomy – lawyers and scholars continue to focus more on their differences rather than the shared values.
Much of the disagreement crops up while determining the propriety of a neutral performing a ‘hybrid’ role. A mediator himself, John Sturrock argues that mediators should not get involved in hybrids where she would be donning the adjudicative hat, ‘even if parties request it and the rules allow it’. He believes that arbitration and mediation are so fundamentally different, that an ‘in-mixing’ puts both processes at risk. Explaining that ‘evaluative’ mediation is in fact an oxymoron, Sturrock states that any views expressed by a mediator can only be provisional and provocative. While he seems otherwise open to a combined use of arbitration and mediation, he cautions against the use of any process where one individual is expected to play both roles and to inter-mingle the radically different approaches.
It is true that arbitration and mediation are inherently different in their nature and procedure. Yet they share a common goal. Separating these processes into watertight compartments would yield unproductive results. According to Campbell Bridge, the perception that arbitration and mediation are competitors in the legal landscape demonstrates a misunderstanding of the nature and effectiveness of mediation.
He argues that their uses and functions processes are complimentary. They can be used separately or together, in various sequences as may be desirable, to achieve the best result for the parties. In recent times, experimentation has led to multi-tiered dispute resolution – involving a combination of mediation and arbitration. These hybrid processes include mediation-arbitration (Med-Arb), arbitration-mediation (Arb-Med), and arbitration-mediation-arbitration (Arb-Med-Arb).
Some features of mediation have caused concern in the use of such hybrid processes. Mediators often hold private meetings with a party in the absence of the other. Since mediation proceedings are universally required to be kept confidential, any information shared during a caucus cannot be disclosed in arbitration without the prior approval of the party in question. When it comes to a combined use of arbitration and mediation, caucuses become a key point of concern when the same neutral conducts the mediation and arbitration process.
Addressing the elephant
The idea that the same neutral can participate in a combined use of arbitration and mediation is neither novel nor heretical. For instance, rule 8 of the International Commercial Mediation Rules 2009 provides that ‘the mediator may act as an arbitrator in any arbitral proceedings relating to the dispute referred to mediation under these Rules if the parties so agree’. Settlement facilitation by neutrals is encouraged in civil law jurisdictions. Moreover, arbitration statutes in common law jurisdictions such as Canada, Hong Kong, Singapore, Australia and India also provide for facilitation of mediation by an arbitrator.
Insofar as critics are concerned with the spillover of bias from a failed mediation into an arbitration, one must note that mediators are also expected to remain impartial and independent towards both parties. After all, the difference between party negotiations and mediation is that the latter involves third-person assistance in an independent and impartial manner to settle the dispute. Of course, use of the same individual in arbitration and mediation must be preceded by the parties’ express agreement in writing.
Why choose the same neutral at all? Among other things, parties may seek to avoid a duplication of their pleadings and submissions. They might even regard prior knowledge of the neutral as advantageous, particularly if the parties think that this knowledge would allow the neutral to conduct the case more efficiently. In fact, parties are even free to designate a non-independent neutral, so long as their choice has been made in full knowledge of the facts before the designation takes effect. As such, parties can parties can agree to waive their right to object to an arbitrator, except in the most conspicuous cases of conflict.
There is no doubt that caucuses can be beneficial in mediation. However, settlement can also be facilitated just fine by a neutral without using caucus. In fact, some commentators have seriously questioned the use of caucus in mediation; and propose that mediation should be conducted only in joint sessions. In the same vein, rules of the Centre for Effective Dispute Resolution (CEDR Rules) provide that an arbitral tribunal, while facilitating settlement, must not meet with any party without all other parties being present or obtain information from any party which is not shared with the other parties. Parties may not agree to the contrary. Avoidance of caucusing therefore eliminates most of the risks associated with settlement facilitation by arbitrators.
Neutrals cannot, however, be expected to maintain infallible objectivity. In every case, the neutral must determine if her ability to remain impartial has been compromised at any point in the hybrid process. If she finds in the affirmative, the neutral must resign from her mandate.
Parties should therefore remain free to agree on a process where the same neutral or set of neutrals uses a combination of arbitration and mediation to achieve the most effective resolution of their disputes.
Method to the madness
Commercial agreements are carefully tailored and negotiated by lawyers for and on behalf of each contracting party. The underlying transaction, however, is founded on and driven by trust between the parties. When the claimant discovers a breach on part of a commercial partner, the claimant would first feel that her trust has been betrayed. The respondent would likely share the same feeling on being faced with a wrongful accusation. This is the most volatile phase of a commercial dispute.
Since it takes time for the tribunal to be constituted, parties may be advised to approach courts or emergency arbitrators for urgent interim relief. This stage, in fact, offers a golden opportunity for the interim neutral to calm the parties. Judges and emergency arbitrators can use their power to structure relief, or denial thereof, in such a way that facilitates the parties’ transition into a settlement – rather than an adversarial setting.
For instance, the respondent may be subjected to a temporary restraint while the claimant may be directed to secure the respondent with monetary or non-monetary guarantees. These reliefs may be subjected to renewal by the court or, in the case of emergency arbitration, the arbitral tribunal upon its formation. Where grant of such reliefs is appropriate, the neutral should also expressly direct the parties to attempt settlement, whether by themselves or a combination of mediation and arbitration. If the parties choose to continue with arbitration, they may agree that the arbitral tribunal will share its preliminary views on the disputed issues. The tribunal may also clarify what it considers necessary in terms of evidence from each party in order to prevail on such issues. It may then issue preliminary and non-binding findings on law or fact on key issues. Where requested by the parties in writing, the tribunal may suggest terms of settlement for the parties to work on and chair any settlement meetings attended by the parties’ representatives at which possible terms of settlement may be negotiated. At any point where the parties’ differences seem irreconcilable, the tribunal can assume its traditional role and pass a binding award.
A balancing act
If a settlement is reached during arbitration, it can be recorded in and passed as a consent award. Such an award would be enforceable in accordance with the New York Convention on Recognition and Enforcement of Foreign Awards 1958 (New York Convention). In the course of a hybrid process, however, parties may reach a settlement which they may not want to subject to an arbitral award. This was problematic since mediated settlements were not capable of direct enforcement. Therefore, mediation and hybrid processes remained at an inherent disadvantage – until now.
On 7 August 2019, 46 countries signed the United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention). Pursuant to the Article 4 of the Singapore Convention, parties may seek relief based on an international settlement agreement by approaching the competent authority in a signatory State. The applicant would be required to present the signed settlement agreement and provide some evidence that the settlement agreement was a result of mediation.
A settlement agreement can also be avoided – if it is proved, among other things, that there was a serious breach of applicable standards of mediator conduct or if the mediator fails to disclose facts or circumstances that raise justifiable doubts regarding her impartiality or independence. Only when there exists a causal link between the mediator’s breach of applicable standards or failure of disclosure and the decision to settle – not just a correlation – the settlement agreement is not likely to be enforced.
Whilst a mediator need not be impartial in the same way as an arbitrator, the Singapore Convention will encourage a neutral to remain impartial in the course of a hybrid mechanism for dispute resolution. At the same time, it would not be easy for parties to shun a mediated settlement – especially on account of the mere fact that the same neutral participated in a combination of mediation and arbitration processes.
The thickest friends are those who are well aware of their unique traits and differences. Each adopts her own approach towards a complex situation. Individually, they are equally capable of reaching a solution. Yet, both would agree that certain tasks are better suited for one than the other. At the same time, they will always find reasons and suitable ways to work together towards their common goal.
In the realm of dispute resolution, arbitration and mediation have the potential to become thick as thieves. Their combination may or may not be sequential. It may use separate neutrals or the same wearing both hats. But as long as it is preceded by the parties’ consent, a carefully tailored combination of arbitration and mediation might just evolve as the most effective mechanism for resolution of international disputes.