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The Downside of Arb-Med-Arb Procedures

by Gracious Timothy
August 2015 Gracious Timothy

Introduction

The enforceability of settlement agreements resulting from international commercial conciliation/mediation has been long desired. Earlier, the option was to prepare a model legislative provision that would give recognition to a situation where the parties appointed an arbitral tribunal with the specific purpose of issuing an award based on the terms settled upon by the parties (Med-Arb procedure). Such an award, envisaged in article 30 of the UNCITRAL Model Law on International Commercial Arbitration, would be capable of enforcement as any arbitral award. That option was rejected as it was considered inappropriate for a model legislative provision to suggest in a general manner that all mediation proceedings leading to a settlement agreement should result in the appointment of an arbitral tribunal. The reason was that an arbitration could only be invoked from a dispute and not a settlement.1 Many other models of providing enforcement to mediated settlements were also rejected because introducing a level of formalism would simply contradict existing mediation practice.

The AMA Procedures

The concept of Arb-Med-Arb delivered by various jurisdictions and institutions especially, the celebrated AMA Protocol under Singapore International Mediation Centre’s (SIMC) regime has been effective in paying attention to the needs of ADR users. This need is germane to mediation cases of cross border disputes. Now, mediating parties can make use of the possibility of an enforced settlement by converting it into an ‘award on agreed terms’.

It has been valuable in filling the vacuum that exists in enforcing settlement agreements resulting from international commercial mediation. But, the bottom line is that mediation has ended up being sandwiched between arbitration. Mediation under the AMA Protocol no longer stands as independent process for the parties to choose but, is more like an add-on if you should chose to arbitrate. For instance, after the commencement of the AMA procedure, in the event a dispute has not been settled by mediation, there remains no choice but to resume arbitration. To put it in simple words, yes, mediation takes the arm of arbitration to enjoy the benefits of enforcement but, also sacrifices its liberty to let go off its hand from arbitration. So, does the AMA procedure really cater to mediation?

Therefore, the AMA procedure is neither a water tight solution nor does it pre-empt the need for a convention on enforceability of settlement agreements resulting from international mediation. This post extrapolates two compelling issues that present the inadequacy of the AMA procedures and the need for a convention.

The Problem

Mandatory election of arbitration to have enforceable mediated settlements

The Arb-Med-Arb procedure is an innovative way of addressing the unenforceability of mediated settlements however, it occasionally fails at addressing a Mediation User’s interests in case the User has no interest in opting for arbitration in the event mediation fails.

Mediation’s key features include its goal to end dispute on terms that are acceptable to both parties and not determine the parties’ legal right or arrive at ‘correct’ legal position; the voluntary nature of undergoing through the process; and the non-binding status of the settlement agreement till it is signed by all the parties. Most importantly, if no binding settlement is achieved, the parties retain the ability to pursue their rights either through litigation or arbitration or whichever way they consider appropriate.

However, under the AMA procedure, if no binding settlement is achieved in mediation, parties who never intended to arbitrate would be forced to arbitrate because they opted for an AMA clause only to have an enforceable mediated settlement. Parties who only want mediation are now bound to arbitrate after a failed mediation because they opted for an AMA clause in the need of an enforceable mediated settlement.

So, under the AMA procedure where such mediations do not end positively, the parties do not retain the ability to pursue their rights in any other manner appropriate according to them. As a matter of practicality, parties have no choice but to subsequently accept to arbitrate. For example, parties may not consider arbitration to be appropriate till the issue has run into a win-lose situation and there remains no scope for compromise or till the time when parties are self-assured about abiding by an arbitrator’s decision etc.

The unfitting application of the legal regime governing arbitral awards to mediated settlement agreements

Settlements resulting from mediations are essentially simple agreements between parties. Their legal nature doesn’t change and they remain agreements subject to the rules of contract law and therefore, the validity of a settlement agreement may be challenged under such principle. 

For challenging the binding and enforceable character of a settlement agreement, the grounds listed in article V of the New York Convention and in article 36 of the Model Law on Arbitration for refusing enforcement, as well as the grounds listed under article 34 of that Model Law for setting aside an arbitral award, might be insufficient or inappropriate to deal with circumstances related to contractual invalidity and unenforceability such as fraud, mistake, duress or any other grounds on which the validity of a contract might be challenged. Clearly, the former is not compatible to situations arising from a mediation. Again, the AMA procedure, has no answer to this problem ascending from mediations.   

When contract law principles apply, the grounds for challenging the validity of a settlement agreement would include, for example, consideration of the capacity of the parties, and whether the agreement was procured by misrepresentation, duress or undue influence. Violation of substantial procedural rights during the process of mediation should, in principle, be grounds for refusing enforceability of the agreements such as the impartiality and independence of the mediator(s), the equal treatment of the parties, and in particular in case of an evaluative process: the right to be heard on any fact or circumstance on which the mediator/conciliator bases his or her evaluation (which raises the question of conditions for using techniques such as a caucus).

The question of Arbitrability of Disputes?

The Arb-Med-Arb procedure initiates or sources from invoking arbitration and then, by the order of the tribunal transcends into mediation. Therefore, the issue of arbitrability of a dispute becomes a major concern since, mediation follows arbitration.

Many national legal systems have drawn the line between arbitrable and non-arbitrable disputes. A similar division, however, isn’t found in the practice of mediation. There is no such thing called “non-mediatable” dispute nor is there a specific arena for mediation. But, if the dispute is non-arbitrable, even the process of mediation would suffer from an illegality because the AMA process initiates from an arbitration. In simple words, the illegality transfers to the process of mediation.  

Conclusion   

The AMA procedure is not the end of the line. Enforcement of settlement agreements is cited as a crucial aspect and the AMA procedure is not completely geared up for it. It would be desirable and feasible to prepare a uniform model provision on enforcement of mediated settlement agreements that would be universally acceptable.

1 See also, Official Records of the General Assembly, Fifty-seventh Session, Supplement No. 17 (A/57/17), para. 121.

Biography


Gracious Timothy is an Advocate, principally focusing on commercial arbitration and litigation. He is also an Accredited Mediator empaneled by the Indian Institute of Arbitration and Mediation (IIAM). He is also the Ambassador of the Young Mediator’s Initiative (YMI) by the International Mediation Institute (IMI), and an YMI Blogger for Kluwer Mediation Blog. He is the Global Ambassador of CDRC Vienna, and Chairs the Young Global Ambassador Program (YGAP). Gracious is also a member of the Advisory Committee for Lex Infinitum: International Dispute Resolution Competition, India. He is the Founding Trustee of the Peacekeeping and Conflict Resolution Trust (also known as the PACT) which is an organization being nurtured with the sole aim of breaking down barriers and inspiring people to explore consensual  as an appropriate conflict resolution option.

 



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