International Mediation: A substitute for International Arbitration?



For quite a long time, international arbitration became the more preferred approach respecting cross-border commercial dispute resolution because of its advantages over court-centered lengthy litigation system. The model of international arbitration was initially designed to provide for a cost effective, confidential and efficient dispute resolution system with an effectively enforceable arbitral award. Effective enforcement mechanism of international arbitral award by the New York Convention on the Enforcement of Foreign Arbitral Awards of 1958 (“New York Convention”) is one of the major reasons behind the cross-border disputants opting for international arbitration. However, some academics and practitioners argue that international arbitration tribunal is increasingly becoming a court by another name with the same inflexible procedural methods involving document discovery, cross-examination and witness testimony that are common to litigation; and the lawyers are slowing down the arbitration process while escalating costs by adopting adversarial tactics.[1] As the arbitrators are getting remuneration by the parties, unlike the judges, arbitration is sometimes more expensive than litigation.[2] Some also argue that arbitration has become just as time-consuming as litigation, may be even more so.[3] In this backdrop, ADR mechanism like international mediation has started to gain popularity in resolving cross-border commercial disputes due to its associated advantages.


Whereas international arbitration is seen as a confidential formal procedure leading to the obtaining by the parties of a binding decision, susceptible to enforcement pursuant to both the domestic and international laws; mediation is deemed a flexible procedure for dispute resolution governed by the confidentiality principle, a private procedure aimed at achieving a negotiated settlement by the parties with the help of a third party neutral facilitator.[4] Parties willing to opt for mediation may either invoke mediation clause in the respective agreement or may consensually decide to mediate their dispute. Parties may follow the mediation rules of different international dispute resolution institutions like United Nations Commission on International Trade Law (UNCITRAL), International Chamber of Commerce (ICC), American Arbitration Association (AAA) and others. Mediation is much more flexible than arbitration and the parties are free to choose their own procedure. Rather than imposing a decision of his own, the neutral third party mediator facilitates the parties in crafting their own creative solution.


This informal procedure not requiring compliance with strict procedural rules, calling of evidence and formal representation system is a key factor making mediation more cost effective and less time consuming than arbitration. Whereas in arbitration proceedings commonly parties would have to bear the expenses of a tribunal consisting of three arbitrators specialized in the area; in mediation, parties would have to bear the cost of just one professional mediator in most cases. While an arbitration proceedings involving complicated commercial dispute would last for at least a couple of years, a mediation would conclude in days or, at best, in months. Thus the mediation costing is significantly lower compared to arbitration costings. Due to increased popularity of mediation, international organization like International Mediation Institute (IMI) is emerging with exclusive concentration in the area.


The main difference between international arbitration and mediation is twofold; one in approach and structure, and the other in the nature of outcome. Firstly, arbitration is a form of adjudication and is essentially a confrontational process conducted in a climate of hostility.[5] Mediation is completely the opposite in that its success depends on the willingness of the disputant parties to mutually settle their disputes where co-operation is of essence. As the parties are determined to go for a mutually beneficial outcome, unlike arbitration or litigation, successful mediation preserves the relationship of the parties. Secondly, whereas a binding and enforceable arbitral award is the product of an arbitration proceedings, a successful mediation would result in a settlement agreement the enforceability aspect of which is problematic.


Enforcement of mediated settlement agreements (MSAs) has been a major drawback until recently for mediation to become a more preferred resolution system than arbitration because transnational corporations settling their cross-border commercial disputes would feel uncertain about the practicality of the outcome of mediation. Moreover, there is a worldwide network of treaties making arbitral awards internationally enforceable, which is a significant consideration for many international parties to go for arbitration instead of mediation.[6] Recently UNCITRAL approved and adopted the United Nations Convention on International Settlement Agreements Resulting from Mediation (“the Singapore Convention on Mediation”) in 2018 which is a landmark international multilateral treaty providing a framework for recognition and enforcement of MSAs in international commercial mediation. This in effect is giving MSAs the same recognition and enforceability status that arbitral awards have been enjoying since 1958 by way of the New York Convention. The main goal of the Singapore Convention is to provide an incentive to mediate in many cases in which mediation might otherwise not be attempted.


The preamble to the Singapore Convention on Mediation makes it clear that the increased use of international mediation is reducing the instances where a dispute leads to the termination of a commercial relationship, facilitating the administration of international transactions by commercial parties and producing savings. The said instrument defines mediation in a manner which is consistent with the present practice as a process of attempting to reach an amicable settlement with the assistance of a third person mediator lacking the authority to impose a solution upon the parties to the dispute.[7]


For obvious reasons international mediation might be unable to take the place of arbitration in case of multiparty complicated commercial dispute or commercial dispute giving rise to extensive and extremely challenging legal issues the resolution of which would best be done within a formal arbitrational framework. Thus mediation is sometimes thought as less important than arbitration notwithstanding the fact that mediation is more cost effective and more flexible.[8] However, there are views that any international dispute is well suited for mediation regardless of its type.[9] Increased use of international mediation is giving rise to institutionalized mediation like arbitration.


Proponents of arbitration would support arbitration over mediation because through arbitration the dispute is bound to be resolved which might not be the case with a mediation which might fail for lack of cooperation. The major criticism of lack of enforceability of MSAs is likely to go away with the adoption of the Singapore Convention. However, it remains questionable as to what extent mediation is suitable to resolve extensively complicated commercial dispute involving multiple number of disputants. Proponents of mediation would mainly point out on its effectiveness in reaching amicable settlements while maintaining workable business relationships between the parties in dispute which is very important in this modern day commercial world. It is argued that turning the rivalrous relations between arbitration and mediation into cooperative or convergent modes of dispute settlement mechanism (e.g. in the form of med-arb) seems inevitable given the demands by users for quicker, cheaper, more collaborative dispute resolution mechanisms.[10]


The growing concern of the arbitration industry regarding the increased use of mediation is indicative of the fact that the time has come for the arbitration industry to rethink its global strategy and policies. The Singapore Convention along with the revised UNCITRAL Model Mediation Law is also going to boost the mediation industry substantially. This enhanced competition should be welcome as this would provide more effective options to the transnational corporations in resolving their cross-border disputes more efficiently at a competitive cost with internationally enforceable outcomes. The parties with lesser affordability would have mediation as an equally effective choice. This increase in options and choices to choose between two equally effective diverse ADR mechanisms would undoubtedly result in more efficient resolution of international commercial disputes which would benefit both the commercial industry and the ADR industry in many respects.




Refrences:-

[1] Anselmo Reyes, ‘The Business of International Dispute Resolution’ (2017) 4 J INT'L & COMP L 69, 70 [2] Klaus Lionnet, “Arbitration and Mediation -Alternatives or Opposites?” (1987) 6(4) J. Int. Arb. 69 [3] Richard M Mosk, ‘Trends in International Arbitration’ (2011) 18 SW J INT'L L 103, 107 [4] Manuela Sirbu, ‘Relationship between Mediation and Arbitration in the Light of the New Mediation Rules Issued by the International Chamber of Commerce’ (2013) 2013 LAW ANNALS TITU MAIORESCU U 42 [5] Markus Petsche, ‘Mediation as the Preferred Method to Solve International Business Disputes: A Look into the Future’ (2013) 2013 INT'L BUS LJ 251, 254 [6] Karen DeSoto, ‘International Enforcement of Mediated Settlements: A Problem and a Solution’ (2018) 21 INT'L TRADE & BUS L REV 311, 314 [7] Art 2(3), The Singapore Convention on Mediation [8] Chang-Fa Lo, ‘Desirability of a New International Legal Framework for Cross-border Enforcement of Certain Mediated Settlement Agreements’ (2014) 7 CONTEMP ASIA ARB J 119, 121 [9] Christian Buhring-Uhle, Lars Kirchhoff and Gabriele Scherer, Arbitration and Mediation in International Business (Kluwer Law International, 2006), p.176 [10] Kim M Rooney, ‘Turning the Rivalrous Relations between Arbitration and Mediation into Cooperative or Convergent Modes of a Dispute Settlement Mechanism for Commercial Disputes in East Asia’ (2019) 12 CONTEMP ASIA ARB J 107, 128

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