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POSSIBILITIES FOR COMBINING ARBITRATION AND MEDIATION: THE PERILS AND OPPORTUNITIES Teresa Cheng Senior Counsel, current CIArb President. Wednesday 1st October 2008 We were delighted to welcome Teresa Cheng SC (the equivalent of a Q.C.) to our branch meeting in October and very grateful that she was able to fit us into her hectic presidential tour schedule. Her talk was titled "" and opened up some lively debate on whether this approach could be adopted into the English Legal System. Teresa has successfully combined mediation and arbitration on a number of occasions, though recognizes that it is not always possible or suitable in every circumstance. She likened it to "dressing to go out", i.e. one must choose the right outfit to suit the occasion. To apply the dual process one must consider whether it is suitable for the occasion and the implications for Natural Justice. Teresa initially explored the ethos and techniques deployed in both processes before moving on to illustrate how it is in certain parts of the world that the two very different processes can be dovetailed to provide a bespoke resolution process. On the one hand the Arbitrator is tasked with arriving at a final binding decision, while the Mediator is there as a third party neutral and is certainly not there to decide the outcome. The Arbitrators may encourage the Parties to narrow the issues by agreeing facts and figures and the Parties have the opportunity to challenge the evidence. The objective in arbitration is to arrive at the "truth" by a process of testing the evidence and award the winning party on the basis of the merits of the claim. However, in mediation Teresa warned that the Mediator is rarely told the truth and rarely if ever establishes the parties "bottom line", as tactically the parties want to keep something up their sleeves and may not wish to prejudice their position if the mediation breaks down and another form of dispute resolution becomes necessary. So, how is it that arbitration and mediation are successfully combined in countries such as Taiwan, Germany and Switzerland? Teresa suggested that one factor may be that these Countries operate arbitration under civil law systems and not common law as here. The legal profession is therefore brought up with a very different outlook and arbitration is not conducted as an adversarial process as in the UK. So how does one take off the Arbitrator's hat and don that of Mediator whilst in mid process? Teresa gave an example of one of her first cases, which was a tunneling arbitration in Taiwan between a Taiwanese Employer and foreign contractor, with a tri-parte panel of Arbitrators. At the end of the 3-4 day hearing there was a natural break in the proceedings. The Arbitration rules allowed for Mediation and informal off the record discussions were possible between the panel and the individual Parties, in separate corners of the room. The Parties had already had the opportunity to test the evidence in the formal arbitration hearing and had by then realistic expectations about the strengths and weaknesses of their case, so were more amenable to reaching a settlement. In a mediation atmosphere the focus was on the merits of the claim and it was possible for an agreement to be reached on retention and defects. Within 1 hour it was possible to agree a Consent Award. The Arbitrators did not express their views and the Parties were pleased there was no formal award and had arrived at a settlement of their own volition. If the Parties hadn't reached a settlement the Tribunal could have proceeded to write its award. (This is a good example of Arb-Med working in practice). In another case, goods were manufactured by a Chinese company and supplied to a foreign purchaser. The supply of the goods was delayed, but the purchaser wanted the goods rather than monetary compensation. It was put to the Parties whether they would like to mediate. The Supplier was willing to pay off the purchaser, but the other Party did not want this, so the Tribunal proceeded to write its award. (A process of Arb-Med-Arb). In a third instance Teresa explained that the issues in the Arbitration included both defects and late payment. At the end of the formal hearing it was evident that the Parties were not happy with the expert evidence and it was felt that more could be done in respect of the defects. The Parties therefore agreed to deal with the defects separately from the late payment issue. (In this example the case was successfully split between Arbitration and Arb-Med). A Hong Kong Ordinance permits mediation to progress to Arbitration provided the 3rd Party Neutral discloses to the other side the contents of private meetings. According to Teresa, Med/Arb like this is not much practiced, unlike Arb/Med or Arb/Med/Arb as just described. A Judge can read without prejudice documents and decide if privileged, then carry on. In the same way a tri-parte Tribunal can listen to the evidence and formulate an award, but should be capable of listening to the Parties and separating out the matters heard in caucus from the matters heard or disclosed in the formal hearing. In Teresa's experience the Parties favour Arb/Med because:
Clearly, it works with a 3 person Tribunal because it is possible for the Chair to remain neutral while the 2 wing Arbitrators breakout to caucus together, though in practice Teresa noted that it is common for all 3 of the panel to be in attendance when meeting the Parties. So why is the UK so reticent in combining Arbitration and Mediation at present? Well, the same effect clearly cannot be achieved so easily by a one person tribunal such as is usual here and in this situation there is a risk of the Arbitration being set aside because of perceived bias. In the case of Glencot Development and Design Co Ltd v Ben Barrett & Son (Contractors) Limited before His Honour Judge Humphrey Lloyd QC Mediation / Adjudication was put under scrutiny. In adjudication here in the UK it is unwise for an Adjudicator to make enquiries of and receive evidence and submissions from one Party in isolation even if a note can be prepared for circulation, unless the absence of one Party is despite ample opportunity having been afforded for that Party to participate and every attempt has been made to keep precise records and maintain transparency. Moving from the caucus stage of Mediation, where things occur in private, to an adjudication process, as happened in Glencot, persuaded the Judge of a risk of unconscious or insidious bias. As a consequence the Adjudicator's decision was unenforceable on grounds of apparent bias. There is therefore a risk that a process that obviously produces satisfactory results in the Far-East and elsewhere will not find favour here. Colin Featherstone Report by Colin Featherstone |
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