The practice of combining different forms of Alternate Dispute Resolution practices is becoming an increasingly popular phenomenon worldwide, with primary focus on Mediation and Arbitration. The combined process works to ensure that the parties settle their differences and come to a middle ground, with an incentive i.e. the expenditure of additional resources for an arbitration looming on the horizon. However, the question arises whether such a process, which arose out of industrial disputes, may be fit for investment disputes. This Essay therefore aims to address and examine the history of the Med-Arb/Arb-Med-Arb procedure, and look into its applicability to different disputes, and suggest certain solutions for the same. This Essay also seeks to analyse the feasibility of the process around the globe, with a special focus on India.
I. INTRODUCTION
"Shades of grey are not easy to articulate. Black-and-white is seductive because it is simple and absolute. It appears clear and decisive. Because of that, we will often gravitate toward yes or no answers when a "both" or a "maybe" is closer to the truth. Some people will choose a categorical yes or no simply because they think it appears strong. But if we cultivate the habit of considering both - or even several - sides of a question, as Mandela did, of holding both good and bad in our minds, we may see solutions that would not otherwise have occurred to us. This way of thinking is demanding. Even if we remain wedded to our point of view, it requires us to put ourselves in the shoes of those with whom we disagree. That takes an effort of will, and it requires empathy and imagination. But the reward, as we can see in the case of Mandela, is something that can fairly be described as wisdom."1
-Dr. Richard Stengel, Mandela's Way: Lessons on Life, Love and Courage
The above quote, as gleaned by Dr. Stengel, throws light on the underlying philosophy on the increasing worldwide enthusiasm to adopt Alternate Dispute Resolution (ADR) mechanisms to resolve disputes. This is of rising importance in light of the growing number of cross-border commercial transactions that are taking place and the contracts being entered into by way of various treaties. Due to this enthusiasm by the global community to adopt ADR mechanisms, several disputes are being referred, primarily to Arbitrations, every year, whether institutional or ad-hoc. Arbitration proceedings most closely replicate the sanctity of judicial proceedings and are arguably the most popular amongst the ADR mechanisms. More so, when it comes to international commercial disputes. It is an ADR procedure in which the parties agree to submit the dispute to one or more arbitrators who make a binding decision on the same.2
Mediation, another ADR mechanism that is fast developing, is a method to resolve disputes by which a neutral third-party mediator is appointed to facilitate productive discussions to help the parties achieve practical, long-term solutions that all can agree on. It is primarily used by corporations with respect to contracts wherein it is more practical to come to a consensus regarding the dispute to ensure continued business relations. This is primarily resorted to in labour disputes.3 As per the Singapore International Mediation Centre (SIMC) the mediation process preserves neutrality and confidentiality since the parties have full control over the outcome of the dispute and can agree on legal and non-legal solutions that are suited to their interests and needs.4 Mediation is a voluntary process that is not encumbered with legal procedure, unlike Arbitration which is conducted in an adversarial setting. And therein lies the fundamental difference between the two.
In recent years, the combination of the two has become increasingly popular and is being widely implemented. A hybrid mediation- arbitration approach (Med-Arb), and the even recent Arbitration-Mediation-Arbitration (Arb-Med-Arb) are gaining impetus for the resolution of institutional as well as international commercial disputes. It is therefore pertinent to analyse and discuss as to whether the two mechanisms complement each other well enough to be used to resolve large commercial disputes.
II. THE HISTORY OF HYBRID ADR
The practice of mixing two forms of an ADR mechanism has existed for decades and has long been used to mediate strikes and labour disputes. Sam Kagel, a well-renowned mediator in the United States of America, was instrumental in coining the term 'Med-Arb', and the essential principle behind it. In 1968, the nurses' strike in the San Francisco Bay Area was settled by way of mediation, and in 1970 the time came to reopen their contracts. Sam Kagel was requested to offer his services for the same and mediate the dispute, which Mr. Kagel agreed to do only if both the parties agreed to the Med-Arb procedure, and consequently waive their right to strike and lockout. On the agreement of both parties to proceed with the Med-Arb procedure, and waiver of their right to strike and lockout, Mr. Kagel proceeded with the mediation. He states that several of the proposals made by the nurses were withdrawn after the process began in the interest of stressing on the important demands for the successful outcome of the mediation. In the event this were an arbitration, Mr. Kagel states that the nurses would have put the 'whole ball of wax' into the formal arbitration to ensure the best outcome.5
The benefit of a Med-Arb procedure in this scenario is the shift of authority to the Mediator/Arbitrator, while also taking away the rights of the employee organization, leading to a rational, unhasty, and peaceful approach to resolving disputes, for which the alternative would have been collective bargaining. Although in the California Nurses' Association case a statement of conscience which formed part of the Collective Bargaining Agreement, Mr. Kagel has also mediated a number of disputes, the solutions to which have been issued as an award and decision. The advent of Med-Arb was through the complexities posed by Collective Bargaining during strikes and lockouts, whereby it was observed that this procedure minimizes crisis bargaining. Due to strike deadlines and the pressure of crisis bargaining, negotiators several times fail to adequately settle complex issues, and one side may end up getting steamrolled by the other. It is here that it was found that Med-Arb enables the parties to resolve the technicalities of the demands, and avoid the divisive aspects of a strike.6
III. MED-ARB: NAVIGATING MURKY WATERS
A. IBM-Fujitsu Case
One of the first known cases of Med-Arb in an International Arbitration was the case of IBM v. Fujitsu7. The dispute arose out of a settlement agreement, entered due to IBM's allegations that Fujitsu had used IBM programs to develop IBM-Compatible operating system software for its own mainframes.8 The Settlement Agreement entered into in 1983 failed to contain the necessary specifications, which were sought to be negotiated later, but failed yet again. The Arbitration Clause in the Settlement Agreement was therefore invoked in 1985 under the American Arbitration Association or the 'AAA' Rules. Although the arbitration clause did not provide for mediation, but the parties, on the advice of the arbitrators, agreed to allow other dispute resolution methods, such as Mediation. In accordance with the rules, the parties first appointed arbitrators of their choice and then proceeded with the mediation.
The Panel and the parties first decided that the application of extensive adjudication and fact-finding process with respect to the programs released by Fujitsu was to be avoided. During the mediation, the parties agreed to a lump sum payment of the license fee which covered past and future use of the program by Fujitsu. The result turned out to be a win for both parties, and was done with the incentive of not having to spend resources for the dispute to continue for another year or year and a half through arbitration. The case is a positive example of a Med-Arb process used effectively to come to a win-win situation. Mediation is often perceived as the final decision in a case, but if during the mediation process both parties endeavour to come to a common ground to work out the issues for the sake of their future relationship, the dispute may be resolved.
B. Advantages and Disadvantages of Med-Arb/Arb-Med-Arb
A key factor of Med-Arb or Arb-Med-Arb proceedings is that the Mediator and Arbitrator may be a dual role played by a single individual. This may serve as an advantage or a disadvantage to the parties. Let us first discuss the possible advantages of the same. As per the recent SIAC-SIMC Arb-Med-Arb Protocol, the mediation proceedings are commenced only after the notice of arbitration, and the response to such notice is received. The Arbitral Tribunal then stays the arbitration proceedings and informs the Registrar of the SIAC who further submits the case to the SIMC for mediation.9 The parties may choose as to whether the arbitrator shall serve as the mediator in the mediation proceedings as well. As such, that is the usual course of action taken by parties in cases like these since it is both comfortable and convenient. The two mechanisms complement each other herein by ensuring that the arbitrator is familiar with the proceedings before commencing the mediation. Further, since the basic pleadings have been exchanged between the parties before the commencement of the mediation, thus outlining the scope of the dispute sufficiently thereby allowing the parties to have more clarity. Further, the point of the whole exercise is to ensure that the process is both cost-effective and time-saving. This may enable the arbitration, in case of a failed mediation, to be presented in a summary manner, or even result in the parties narrowing down the dispute in light of the mediation, thereby leaving only unresolved issues to be adjudicated upon in the arbitration.10
The very nature of mediation is different from other ADR mechanisms since it provides the parties with an opportunity to resolve disputes by arriving at a decision themselves, and not have a third party adjudicate on the dispute and render his decision. While it is clear that Arbitration and Mediation may be friends, it is also imperative to examine whether they get along as famously as we hoped they would.
There have been a fair few cases wherein the two methods of dispute resolution have failed to adequately complement one another. The main issue arises with respect to the very individual resolving the dispute who may play a dual role of both arbitrator and mediator. As stated above, it is common practice to appoint the arbitrator to also serve as the mediator in the proceedings. What generally works against the parties in such situations is the lack of procedural safeguards that protect the parties against actual and apparent bias. As witnessed in the case of Gao Haiyan v. Keeneye Holdings Ltd.11, the Mediator also served as the Arbitrator, as is common for the Med-Arb/Arb-Med-Arb procedure. When the mediation was unsuccessful, the Arbitrator rendered an award for much lesser than the amount offered to the Respondents during the Mediation. The Arbitrator essentially asked the affiliate of the Respondents to "work on" an RMB 250 Million proposal with the Respondents, and later passed an award for RMB 50 million as a way to penalize the Respondent for their refusal to cooperate. Although the award was set aside in the court of first instance on account of apparent bias, the Court of Appeal upheld the Award stating there was not enough evidence to warrant a refusal to enforce the award.12 This possibility of the Arbitrator/Mediator having a skewed perception of the parties' position during the arbitral proceedings is extremely dangerous to the case of the parties. Further, the usage of any information obtained during mediation, which may be unsworn and may have also been obtained during a meeting with one party, is a gross violation of due process.13 Any information shared during a session with only party may violate due process since such information may be used as evidence during the arbitration proceedings, without giving the other side the opportunity to challenge the same.14 The SIMC rules, however, have made an attempt to tackle this issue by including a confidentiality rule that bars the usage of any communication made or information disclosed during the mediation in any "judicial, arbitration or similar proceedings, unless required by applicable law".15
Another issue that props up on this count is when does the arbitration end, and mediation begin? In the case of Ku-ring-gai Council v. Ichor Constructions Pty Ltd.16, the Arbitrator offered to act as a mediator to the parties and put forth a settlement proposal, which was accepted by the parties. Pursuant to this, the Arbitrator obtained a written consent from the parties to act as a Mediator as required by Section 27D of the Commercial Arbitration Act, 2010. As part of the mediation, the Arbitrator then suggested that the parties 'stomach the costs' of the arbitration since the arbitrator would take time to render a decision owing to the complexity of the matter and certain other commitments. This was rejected by the parties and the arbitration was resumed in violation of the requirement under the legislation to give written consent for the arbitrator to continue to arbitrate after the termination of the mediation proceedings. The Ku-ring-gai Council later contended that the proceedings that took place did not amount to mediation, which was rejected by the judge. The failure of the parties as well as the arbitrator to stick to the procedure envisaged by the law, and give the second consent to continue arbitration proceedings, caused the parties to incur heavy costs and start the arbitration proceedings all over again with another arbitrator.17 The cases of Keeneye Holdings and Ku ring gai council weigh in on the coercion the parties could face by the med-arbiter, the due process violation, as well as possible partial behaviour. It is extremely important to find a middle ground of formality and procedure between these two procedures of which one is characteristically procedural and the other being characteristically informal.
Mediation inherently is a process that is not limited by the scope of any transaction, unlike Arbitration. In several cases, Arbitrators refuse to opine on certain submissions that according to them is outside the purview of the commercial aspect of the dispute. Against this backdrop, it is pertinent to investigate how the two are being harmoniously put to practice to resolve a dispute. The basic purpose of staying arbitration proceedings after the completion of pleadings is to ensure that the parties are aware of each other's submissions and strategy, which may further allow them to have fruitful negotiations that will enable the dispute to be resolved in an amicable manner. However, does that mean the scope of the mediation proceedings are restricted to the narrow lens through which the arbitration proceedings may be viewed? If so, does that not go against the inherent function and purpose of mediation proceedings?
Now, one may say that the resolution of issues that lie outside the scope of the arbitration proceedings can be settled through regular consent terms, and not through an arbitral award. It is safe to assume therefore that these other issues that are not being dealt with in the notice of arbitration and the response to such notice shall not be a part of the arbitral award made in lieu of the consent terms, which may make them non-mandatory.
C. Solutions
Although the Med-Arb/Arb-Med-Arb procedure has posed certain problems in the course of its practice, we must accept that the procedures are still new in the environment of domestic and international investment arbitrations. The procedure as used for industrial disputes, to settle disputes arising from strikes and lockouts, cannot be applied pari materia to disputes wherein the enforceability of or damages arising from the breach of contract are adjudicated. The following solutions may contribute to the fine-tuning of the procedure to suit domestic and international arbitration disputes.
The appointment of a Mediator and an Arbitrator, being different persons serving two different purposes. It is proposed by Mr. James Peter, a renowned Mediator in Switzerland, that both the mediator and arbitrator may first conduct a hearing with the parties together to ensure that the facts are clear, after which the former can proceed with the mediation.18 The fact-find exercise aids both the mediation as well as the arbitration, and the mediation thereafter proceeds in a confidential manner. This may solve the problems of partiality and coercion by the med-arbiter, and would enable the parties to be completely open during the mediation. This process may also be modified by giving the parties the option to change the med-arbiter or appoint a different person for the arbitration proceedings, after the failure of the mediation proceedings.
IV. FEASIBILITY IN INDIA
The rising backlog of cases and overburdened courts have given rise to the flourishing practice of ADR in India. In India, the recognized ADR processes as per Section 89 of the Cvil Procedure Code, 1908 (CPC) are arbitration, conciliation, Settlement by Lok Adalat and mediation.19 Where arbitration and conciliation is governed by the Arbitration and Conciliation Act, 1996, judicial settlement by Lok Adalat is governed by the Legal Services Authority Act, 1987. Mediation was first introduced under the Industrial Disputes Act, 1947 as a legally recognized method of dispute resolution, and was later recognised under the Code of Civil Procedure (Amendment) Act, 1999 wherein Section 89 was provided for. Thereafter, the Mediation Rules, 2003 came into place. Section 74 of the Arbitration and Conciliation Act, 1996 provided for Settlements Agreements to be recorded by the Conciliator which would be treated as awards in the eyes of the statute, and thereafter a decree could be executed in court.20
With reference to Med-Arb/Arb-Med-Arb, the Arbitration and Conciliation Act, 1996 makes a provision for settlement of the dispute through other methods, by the arbitral tribunal. Section 30 of the Arbitration and Conciliation Act, 1996 states that the arbitral tribunal may, on the agreement of the parties, encourage the settlement of the dispute through mediation, conciliation or other processes, at any time during the arbitral proceedings.21 If the dispute is settled, the arbitral tribunal may, on the parties request, record the settlement in the form of an arbitral award on agreed terms, and terminate the arbitration proceedings.22 In addition to provisions made in statutes, the Indian judiciary has also weighed in on the importance of the marrying of Mediation and Arbitration procedures, to create a procedure that promotes settlement between two parties, with the backdrop for the same being an incentive to either reduce the burden on the arbitration, or avoid it entirely. A Med-Arb clause or Agreement contemplated under the UNCITRAL Model Law was considered valid and shall be considered to be of equivalent value of any other existing contract/arbitration agreement in the eyes of the law.23
Arb-Med-Arb is also recognized by the Indian Institute of Arbitration and Mediation (IIAM) Rules which defines it as the commencement of mediation on a referral by the arbitral tribunal.24 In this regard, the IIAM Rules also state that where a dispute is fully or partially resolved, the same shall be written and signed by the parties and forward it to the IIAM, which shall forward the same to the Arbitral Tribunal, along with the Mediation Status Report and settlement agreement if any.25 The IIAM rules also include suggested model clauses for both Med-Arb and Arb-Med-Arb procedures. The power given to arbitral institutions by appointed by the High Court of a State or the Supreme Court by the Arbitration and Conciliation (Amendment) Act, 2019 may also add to the popularity of the Med-Arb/Arb-Med-Arb prodecure. Once notified, all arbitrations must be referred to arbitral institutions appropriately designated, who shall be incharge of appointing the arbitrator(s)26 and laying down the rules for the arbitral proceedings. Arbitral Institutions may, in conjunction with the changing global landscape of arbitration and mediation, may make the provision for Med-Arb/Arb-Med-Arb in its rules, in conjunction with the opinion of the Supreme Court in Centrotrade Minerals and Metals and the UNCITRAL Model Law. We can assume the day where such practices become common is not too far with arbitral institutions like the IIAM leading the way by pre-empting the popularity of the procedure and make necessary provsions for it in their Rule.
V. CONCLUSION
From the discussion above, I conclude by stating that fault isn't in the innate qualities of these two mechanisms, but in our failure to follow due process in the quest for efficiency in terms of time and cost. This is seen in the cases of Ku-ring-gai and Keeneye where the procedure established by the law has been blatantly flouted. The rise of Med-Arb and Arb-Med-Arb, especially in Asia, has been impressive and has largely been welcomed with open arms. Countries like China and Singapore have set up independent arbitration, mediation and even conciliation institutions and have been extremely successful in taking the burden off of courts. Not only this, the efficiency with which international commercial disputes are being conducted in these States have resulted in referrals from several other countries within Asia. Numerous countries through their domestic laws have allowed for settlement agreements through mediation and conciliation to be enforced as an arbitral award by stating that such an award shall have the same legal effect as an arbitral award enforceable under the New York Convention, thereby making it enforceable internationally. However, we must ensure that Med-Arb and Arb-Med-Arb standards in Asia are in full compliance with the due process standards that are recognized internationally.27
Although it is apparent that there is a sharp difference between the two mechanisms, in that the function of an Arbitration is to assess the merits of the parties' claims while the functions of a mediator is to facilitate communication between parties and assist them in reaching a settlement. It is largely possible that the Arbitrator/Mediator shall take into account the information received during a mediation, whether intentionally or unintentionally. Since the concept is still novel and new, it is the responsibility of the international community to take the plunge and keep fine tuning the same over the years to perfect it. The usage of some of the solutions provided to ensure that the process is tailored to liken investment disputes, shall ensure the longevity of the usage of the these procedures. The SIAC-SIMC proposed Arb-Med-Arb Protocol is attempting to do the same by marrying two organisations where disputes are referred to an Arb-Med-Arb procedure, by ensuring that these organisation are separately handling each component of the procedure. This attempts to do away with the issues relating to violation of due process, coercion by the med-arbiter, and partiality by the med-arbiter.
Although there is a long way to go to find the perfect balance and pick out the errors in the process, the hybridization of ADRs may prove very beneficial for arbitration jurisprudence in the long run. With developing countries like China and India jumping on the bandwagon, there remains to doubt that the world may just be about to see the advent of a whole new dispute resolution system on the horizon.
Footnotes
1. Dr. Richard Stengel, Mandela's Way: Lessons on Life, Love and Courage, Crown Archetype (1st ed. March 30, 2010).
2. Available at: https://www.wipo.int/amc/en/arbitration/what-is-arb.html
3. Undecided on Your Dispute Resolution Process? Combine Mediation Mediation and Arbitration, Known as Med-Arb, Harvard Law School Program on Negotiation, Daily Blog. Available at: https://www.pon.harvard.edu/daily/mediation/deciding-on-arbitration-vs-mediation-try-combining-them/
4. Available at: http://simc.com.sg/dispute-resolution/mediation/.
5. Sam Kagel, 'Alternative Techniques-Combining Mediation and Arbitration' [1973] Monthly Labor Review September 62, 63.
6. Harry Polland, 'Alternative Techniques- Mediation-arbitration: a trade union view' [1973] Monthly Labor Review, September 64.
7. American Arbitration Association, Commercial Arbitration Case No. 13T-117-0636-85 [Sept. 15, 1987 and Nov 29 1988].
8. Peter James, 'Med-Arb in International Arbitration', The American Review of International Arbitration, [1997] 8, 103.
9. Clause 5, SIAC-SIMC Arb-Med-Arb Protocol. Available at: http://simc.com.sg/v2/wp-content/uploads/2019/03/SIAC-SIMC-AMA-Protocol.pdf
10. Blankenship, John T.,' Developing your ADR Attitude: Med-Arb, a Template for Adaptive ADR' [2006] Tennessee Bar Journal, 13.
11. CACV No.79 of 2011
12. Gu Weixia, 'The Delicate Art of Med-Arb and its Future Institutionalisation in China' [2014], Pacific Basin Law Journal, 31, 99.
13. Blankenship, John T., Developing your ADR Attitude: Med-Arb, a Template for Adaptive ADR, TENNESSEE BAR JOURNAL 13 (2006).
14. Ibid.
15.Clause 9, SIMC Rules. Available at: http://simc.com.sg/v2/wp-content/uploads/2019/07/SIMC-Mediation-Rules-FINAL_A4.pdf
16. [(2018) NSWSC 610 (8 May 2018)].
17. Alan Limbury, 'How Not To Do Arb-Med-Arb', Kluwer Mediation Blog, Available at: http://mediationblog.kluwerarbitration.com/2018/07/05/not-arb-med-arb/
18. James T. Peter, 'Med-Arb in International Arbitration', The American Review of International Arbitration, [1997] 8, 101.
19. Section 89, Code of Civil Procedure, 1908.
20. Section 74, Arbitration and Conciliation Act, 1996.
21. Section 30(1), Arbitration and Conciliation Act, 1996.
22. Section 30(2), Arbitration and Conciliation Act, 1996.
23. Centrotrade Minerals and Metal Inc. vs. Hindustan Copper Limited, (2006) 11 SCC 245.
24. Indian Institute of Arbitration and Mediation Rules, Rule 1, C. Rev in 2017.
25. Rule 10 (D), Rule 11 (D)
26. Section 3 of the Arbitration (Amendment) Act, 2019.
27. Gao Haiyan v. Keeneye Holdings Ltd., CACV No.79 of 2011at 102.
Waseem Pangarkar - Senior Partner, Nadiya Sarguroh - Principal Associate, Radhika Vijayraghavan - Associate
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