Keywords: Hybrid dispute mechanism, Arbitration, Conciliation, Mediation
Introduction
In today’s era, dispute resolution mechanisms are tremendously growing, aimed at maximizing satisfaction to the parties. With the increasing globalization and international commercial transactions, ensuring amicable relations between parties by efficiently resolving disputes are growing primary concerns for the disputants. The end of the spectrum that is highly flexible and permits direct consultations between the parties to arrive at a collaborative settlement has attained prominence and is in high demand. The formal adjudicatory framework of litigation in Court, is at the other end of the spectrum. Between the two ends of the spectrum is a wide range of dispute resolution processes that are continually developing and being adopted to deliver the most efficient manner of resolving disputes. Several legal disputes occur in the course of international trade and commerce, leading to the birth of a vast private framework of dispute resolution that is an alternative to the complex judicial systems. A highly successful illustration of such a conceptual schema is the creation and harmonization of arbitration forums that have been widely recognized worldwide. However, there is still the need for the development of mechanisms that facilitate the resolution of disputes ranging in terms of complexity, duration, and other parameters.
The two most dominant international commercial dispute resolution mechanisms are Arbitration and Mediation. Hybrid approaches to dispute resolution, are a combination of traditional elements of these existing mechanisms to overcome the shortcomings of each mechanism when executed individually. In the last decade, a variety of ‘mixed-mode scenarios’ have been adopted and are commonly termed as hybrid forms of dispute resolution. They are termed as ‘Arbitration – Mediation,’ ‘Mediation – Arbitration’, and ‘Arbitration – Mediation – Arbitration’ depending on which procedure is initiated first and which later. By way of this article, the author wishes to outline the importance of including a Hybrid dispute mechanism clause over traditional litigation in any commercial agreement as well as highlight which of the various clauses shall be opted for, by the parties to facilitate dispute resolution in a dynamic and time friendly manner.
Med - Arb: Mediation with muscle
In the simplest terms, Med-Arb is a blend of an informal collaborative approach akin to mediation while promising the structure and certainty of an arbitration proceeding to optimize the party satisfaction and prevent complete chaos. Parties first undergo the mediation process, wherein an attempt to reach a collaborative settlement is made in the presence of a neutral mediator. If the mediation fails, the mediator takes upon the role of an arbitrator. The dispute enters the arbitration phase, which ends with a ‘final and binding’ award passed by the arbitrator. Taking the dispute to arbitration is contingent solely on the success of the mediation.
The Med-Arb framework is adopted and embraced by renowned international institutions like the International Chamber of Commerce (ICC). To opt for this mechanism, an express mention in the arbitration agreement is necessary. Model clause D of the ICC Mediation Rules, 2014 provides for this framework by specifically laying down 45 days to arrive at a settlement in mediation, failing which the parties will have to finally submit their dispute to arbitration for resolution in consonance with the ICC rules on Arbitration.
Often regarded as ‘mediation with muscle’, Med-Arb overcomes the shortcomings of the mediation process like difficulties associated with enforcing a mediated settlement and willingness of the parties in reaching a mutual compromise. Perpetually, there is a feeling of unease and uncertainty concerning the value of a mediated settlement in case a party does not wish to comply with the same leading to severe ‘mediation dilemma’. Additionally, the need to establish a legal precedent for complex procedural issues involved in mediation are few weaknesses that are given immunity by combining it with arbitration in an escalation clause. Enforceability of arbitration awards is regarded as the most important feature that highlights it to be the preferred mode of dispute resolution. It has been observed that in most situations where the disputants have opted for a Med-Arb framework, it often turns into a successful mediation itself without entering the arbitration phase. This is attributed to the fear in the minds of the disputants concerning a third party, the arbitrator, deciding over the merits of the matter and, rendering a decision in the form of an award that is final and binding.[ii]
This motivates the parties to express their best-suited interests during the mediation itself and take the onus of understanding the interests of the opposing party facilitating the process of arriving at a consensus. Thus, the hybrid dispute resolution mechanism strikes a balance between the fundamentals of the parties having a more significant say in arriving at a decision as well as concluding with a final, binding decision being passed, thus mitigating the significant demerit of mediations being the possibility of leading to an impasse due to an absence of a binding outcome.[iii]
Arb- Med and Arb-Med-Arb
The process of Arb-Med mainly involves two stages. Parties initiate arbitration during the pendency of which parties can refer the dispute to mediation to reach a collaborative settlement. There are various versions of Arb-Med that are practiced all over the world, depending on the particularities of the dispute. One such variation is the ‘Sealed Envelope Arb- Med.’ At first, an arbitration proceeding is carried out, and the arbitrator passes an arbitral award. The award remains sealed and is not revealed to the parties, while they join up before the mediator. If a settlement is reached in the mediation process, the parties disregard the arbitral award and live by their settlement. Since the parties have laid out their interests before the arbitrator by way of pleadings during the arbitration, the process of arriving at a mediated settlement is simply smooth. If otherwise, the arbitral award will be opened and shall be enforceable, as a final and binding decision.
Arb-Med-Arb, (referred to as ‘AMA’), just as the name suggests, is a mechanism where the disputants commence with an arbitration proceeding, followed by mediation. There is a temporary stay on the initial arbitral proceeding. Depending on the ability and willingness of the parties to reach a mediated settlement, the next course of action follows. If no settlement is arrived at by mediation, the parties can continue with the arbitration. If the parties arrive at a negotiated settlement, the agreement is recorded as a consent award by the arbitrator. A consent award is considered equal to an arbitral award in meaning and value. The consent award is enforceable in approximately 150 countries under the New York Convention, subject to local legislation.
Singapore International Arbitration Centre (SIAC) and the Singapore International Mediation Centre (SIMC) are the few institutions that provide a specific Arb-Med-Arb Protocol (referred to as ‘AMA Protocol’). The AMA protocol drafted in 2014 contains 15 provisions. According to the 2018 Global Pound Conference Series Report, combining an adjudicative procedure and a non-adjudicative procedure finds itself to be in the top three ways to resolve international commercial disputes.[iv] This is possible since parties do not delve into the nitty-gritty of filing interlocutory applications that frequently arise in arbitrations and focus more on the crux of the merits pertaining to the matter.
AMA or Med – Arb: Which is better?
A question that is often brought up concerns the differences in the Med-Arb and the AMA framework and which one should be opted for by the disputants. Though the Med-Arb paradigm seems to be quicker and relatively pocket friendly, it is asserted that the AMA should be chosen by disputants instead of Med-Arb to ensure a productive resolution of disputes. Several reasons support this claim. Firstly, commencing the dispute resolution procedure with arbitration helps the parties attain a clear understanding of the opponent’s case, thus increasing the capacity and willingness to negotiate. The rationale supporting this lies in the need for both parties to submit arbitration pleadings to the arbitrator before entering the mediation phase. The submission of the pleadings ensures a sufficient outline of the dispute’s scope, thus preventing the ‘mediation from being derailed’ and tending towards a more efficient manner of dispute resolution.
It is often argued that a drawback of the AMA paradigm is the lengthy nature of the mechanism. It commences with the arbitration, hopping to mediation to potentially hopping back to arbitration. Instead of being an efficient mechanism, it seems unnecessarily long and an economically draining process. However, the AMA protocol as abided by the SIAC and the SIMC enumerates a tool wherein if parties opt for the AMA framework for dispute resolution, the case files and documents are ‘forwarded by SIAC to SIMC’ for mediation. This helps minimize the time and costs that would have been spent in reproducing the same materials. This offset the logistical hassles faced by the parties in opting for an AMA framework.
In the case of Heartronics Corporation v. EPI Life Ltd & Ors, in 2017, the Singapore High Court came across a Med-Arb clause as the chosen mode of dispute resolution. Despite the presence of an explicit dispute resolution clause, the parties faced discrepancies with each other primarily regarding whether or not they were bound by mediation per the Med-Arb provision. To this effect, one of the parties commenced proceedings in court by filing a stay application on the proceedings. The question that arose for consideration before the Court was whether the violation of such a clause by one of the parties would render the clause ineffective.
The Singapore High Court deliberated that since the stay application on the proceedings deprived the parties to accord the benefit that would have been rendered by the inclusion of such hybrid dispute mechanism clauses, the stay application shall stand rejected. The parties mandatorily need to commence with mediation. Had the parties chosen an AMA clause instead of Med-Arb in the agreement, it would ensure the smooth functioning of the proceeding among the parties.
What makes the AMA framework more proficient is that it mandates the commencement of the dispute resolution process with arbitration, which does not necessitate any form of co-operation between the parties, unlike mediation, an inherently voluntary, not mandatory exercise. Arbitration is commenced by the claimant serving the notice of arbitration on the respondent. This step does not necessitate any form of cooperation from the respondent in order for the arbitration to commence. This is what gives the claimant better control over the proceeding. Whereas commencement of mediation on the other hand is an entirely voluntary exercise. No party can be compelled to mediate. Thus, an AMA clause prevents any unnecessary delay in situations when there is an absence of co-operation between the parties.
Considering the intricacies of these hybrid approaches, a noteworthy observation that has been arrived at after witnessing the practical implications of the modes is that in a lot of situations, AMA is preferred over Med-Arb because the parties are more likely to reveal confidential information in a mediation considering the friendly mannerism it entails in which both parties have to place their trust in each other. Moreover, the mediation that takes place after the arbitration in accordance with the AMA clause is arguably the most efficient dispute resolution process because the parties are less competitive and they wish to emerge victorious that is normally present during arbitration, fades away in the subsequent mediation.[v] This is because the arbitral award is already passed by the arbitrator, sealed and kept away from the knowledge of the parties. Mediation is done in the spirit of cooperation and mutual gain with a friendly attitude to comprehend the interests of the other party. Thus, parties carry out the mediation in the most intrinsic element with no fear of bias that could potentially reach the arbitrator/ mediator. The information revealed in the mediation can have no implications on the arbitral award that has already been passed.
Conclusion
There is no doubt that the amalgamation of a conciliatory process like mediation, along with an adjudicative process like arbitration, caters well to the interests of the parties, a schema that the methods individually lack. Hybrid dispute resolution ensures that maximum efficiency and flexibility is delivered to parties with the certainty of defined outcomes that the arbitration brings along and the mediation ensures that the parties have more control over the process and the outcome thus safeguarding mutual satisfaction. It is undeniable that rules are required to deal with these specific issues to welcome these variations of dispute resolution that encourage personal interaction between the primary stakeholders in these disputes, the parties themselves.
[i] Disha Thakkar is a fourth-year student of law pursuing the B.A. LL.B. (Hons) degree at Jindal Global Law School, Haryana. Her demonstrated interests lie in Dispute Resolution and International Commercial Arbitration. For any discussion related to the article, she can be contacted via mail at 16jgls-dthakkar@jgu.edu.in.
[ii] Ross, William H., and Donald E. Conlon, Hybrid Forms of Third-Party Dispute Resolution: Theoretical Implications of Combining Mediation and Arbitration, 2 The Academy of Management Review 25, (2000) pp. 416–427
[iii] Deekshitha Srikant, Arka Saha, Amalgamating the Conciliatory and the Adjudicative: Hybrid process
and Asian Arbitral Institutions, III IJAL 76, (2014) pp. 76-100
[iv] Iris Ng, The Singapore Mediation Convention: What does it mean for Arbitration and the future of Dispute Resolution?, Kluver Arbitration Blog, August, 2019
[v] Srikant, Saha, id, at ii.
This article was coedited by Aditya Prakash (Co-founder and Managing Editor) and Ritika Acharya (Associate Editor).
Preferred Citation: Disha Thakkar, “Hybrid Dispute Mechanisms”, Arbitration & Corporate Law Review, Published on 8th July, 2020.