The Rise of Hybrid Mechanisms in International Commercial Dispute Resolution: Mediation-Arbitration and Litigation-Mediation-Litigation

Arbitration or mediation ? Or both ? And in combination with litigation in specialised courts such as in Paris (Chambre Internationale du Tribunal de Commerce de Paris, Chambre Internationale de la Cour d’Appel de Paris) or in Singapore (Singapore International Commercial Court “SICC”).

All exist and are available, each more suitable for certain types of disputes and certain types of parties, but there is a sea change taking place in modern Alternative Dispute Resolution (“ADR”) techniques in a broad sense including specialised courts: Mediation which used to be regarded as a cheap alternative to arbitration is now recognised as a key component of ADR, a strongly suggested (and sometimes even mandatory) step of more complex mechanisms.

“Mediation is entering a golden age”

Such is the view of the Commercial Resolution (CDR) Magazine published in January of this year.

And this is just one of the many testimonials of this strongly emerging trend.

Mediation centres and protocols are expanding rapidly, especially in Asia Pacific and the Middle East.

As the CDR Magazine, wrote: “Reports from mediation centres around the world continue to show healthy year-on-year growth, while new facilities are being launched with increasing regularity.”

At the end of last year, China has announced the opening of an international, intergovernmental mediation centre in Hong Kong and Abu Dhabi has launched a virtual mediation service in the Metaverse.

The Singapore International Commercial Court (SICC) and the other two main Alternative Dispute Resolution institutions of Singapore, namely the Singapore International Arbitration (SICC) and the Singapore International Mediation Centre (SIMC) have announced in January 2023 the creation of a joint interface aiming at advancing Singapore as an Asian hub for dispute resolution.

Based on the SICC Rules 2021, the initiative provides for a LitigationMediation-Litigation Protocol which allows the parties commencing proceedings with the SICC to have them stayed for mediation at the SIMC and have a settlement recorded as a Court Order.

Mediation in Malaysia

In Malaysia, the Asian International Arbitration Centre (AIAC) has been working on the concept of mediation as a ADR tool for years, on its own and alone and in combination with arbitration. It has adopted its own mediation rules (Mediation Rules 2018) which provide guidance for the mediation process in accordance with the legal framework for mediation, the Mediation Act 2012 (Act 749).

As a result, mediation is a well-established and structured process in Malaysia, relying on a trustworthy local arbitration centre (AIAC) and a comprehensive legal framework to support it.

Malaysia has even been a pioneer in Court-Annexed Mediation as early as 2010 with the Practice Direction No.5 using judges to act as mediators and where the judge mediating records a consent judgment on the terms agreed by the parties, although aimed at domestic mediation.

Malaysia v. Singapore in mixed mediation/arbitration

The AIAC in Kuala Lumpur promotes like Singapore the concept known as Mediation-Arbitration, or in short “Med-Arb” which allows the parties to initiate mediation proceedings before resorting to arbitration.

However, after due consideration, the AIAC has decided to follow a different model from the Singapore International Mediation Centre which allows parties having signed an arbitration agreement or commenced arbitration to refer their dispute at any time to mediation.

The AIAC has taken the view that it is preferable to keep the two methods separate i.e. encourage the parties to consider mediation as a first step of the dispute resolution process before the arbitration starts.

Kuala Lumpur and Singapore have clearly positioned themselves as the two main hubs of international commercial mediation in the Indo Pacific Region with the well-known cost-effectiveness advantage of AIAC of particular (but not exclusive) relevance for companies headquartered in Malaysia.

Why such an interest in mediation ?

In the context of post-pandemic Covid, commercial disputes happen often in a different way than they used to, and may occur at all levels, from minor to more substantial ones.

There is an increasing awareness that disputes that have a chance to be resolved amicably must be given that chance because commercial links that have been damaged but have survived the pandemics are too valuable to get discarded without some serious effort being made to salvage them.

Smaller disagreements especially should not destroy a business relationship that may have taken years to build. They have to be dealt with at an early stage before they turn into big ones with damaging effects.

Negotiating face to face is usually not a solution because the managers on both side can’t take a detached view of the history, they are tied in the details of the disagreement as it developed over time and which confronted them with their counterparts on the opposite side, whether it is a contractor, a supplier, a customer or any other kind of business partner.

It is far more effective to resort to an impartial third party to facilitate a consensual agreement to settle the dispute. Obviously, this has to be conducted professionally, rather than casually, serious business interests are at stake.

The process exists and is available including right at home in Malaysia, but many business people have not heard of it or if they have, it is more than likely that they have a distorted opinion of it, assuming that it is about the search for a compromise. Which mediation is not, it is a structured process leading a to “win-win” result.

That is why mediation, domestic and international, on its own or in combination with arbitration or litigation, is the latest trend in commercial disputes resolution world-wide.

Why mediation rather than (or in combination with) arbitration or litigation ?

For a series of reasons which are not just technical but appeal to straightforward common sense.

  • It is faster, less expensive and less complicated than any other dispute resolution mechanism.
  • It helps protecting the continuation of a valuable relationship between business partners.
  • It does not put a losing party at risk of having a court judgment or an arbitration award decided against him/it.

Mediation may not be the best solution for all disputes, but it is without doubt for some depending on the surrounding circumstances.

Arbitration is still a highly effective ADR technique, but mediation is first choice for SME’s

SME’s, unlike large companies, can barely afford the extended process time, the high cost, the complexity of litigation or arbitration, and above all the non reversibility of arbitration.

The differential in costs is a definite advantage of mediation, but the risk side (often overlooked) is essential to SME’s.

A SME can budget for the costs, but not for the risks.

The first aspect is that in arbitration, not only is the award binding upon the parties but there is no possibility of appeal against it. This can drive a SME from what looked at first like a mere commercial feud to bankruptcy and end of business.

By contrast, the decision reached at the end of a mediation is not binding, and a party which does not like the decision of the mediator is under no obligation to comply. In mediation, “the worst that can happen is that nothing happened”.

The second aspect is the preservation of business relationship. SME’s need to continue doing business with the opposite party in spite of the disagreement over a particular issue. Large groups can pick and choose their business partners, but SME’s which have built a business relationship derailed by some disagreement need to preserve that investment to the fullest possible extent.

This should appeal to MFCCI members, whether they are stand-alone SME’s founded by individual entrepreneurs or mid-sized subsidiaries of French and Malaysian Groups.

The advantage of arbitration versus mediation is narrowing

Arguably, an arbitration award can be enforced with the same value as a court judgment in all 170 countries (including where the losing parties has assets) signatory of the New York Convention of 1958.

But a losing party can apply with the local court for the award to be set aside on the grounds set forth by the Convention, which can give rise to legal battles about the impartiality of the arbitrator(s), public policy…etc.

In practice, a high proportion of mediations end up with a settlement accepted by both parties, this is roughly estimated to be above 80% globally. Which is helps with the preservation of the business relationship.

Secondly, the Singapore Convention of 2020 with its 55 signatories to date (and growing) including Malaysia, Singapore of course, PR China, India and the USA provides for the enforcement of international mediation settlements in a way similar to arbitration awards.

No wonder, the number of cases of what was once considered as a lesser version of arbitration is exploding.

According to the Centre for Effective Dispute Resolution, the number of mediations carried out in England and Wales increased by 38% in two years 2019 and 2020, from 12,000 to 16,500 mediations, and there has been a considerable increase in settlements. A significant part of cases that used to be taken to arbitration are no longer, and the parties prefer mediation. And the UK is not even a signatory of the Singapore Convention !

Mediation and the need for Advocacy

Although mediation has the advantages of greater simplicity at process and enforcement stages, it remains highly technical in nature. A successful mediation is a mediation that has been methodically and professionally prepared by the parties, their counsels (here referred to as advocates) and of course by the mediator himself/herself.

From the point of view of the parties, the relative casualness of mediation does not mean that it should be approached lightly, certainly in commercial mediations with an international element.

The tactics has to be adapted to the nature of mediation. To quote myself: “One does not win a mediation, one wins the mediator”.

Unlike in arbitration (or in court) where the skills of the advocate is aimed at proving a case, in mediation it consists of getting the mediator to suggest an agreement which is as favourable as possible to the interests of the party who hired him/her.

This requires both a knowledge of the techniques of ADR including mediation acquired through formal training and qualification (ideally at member level with CIArb, the Chartered Institute of Arbitrators of London), and an experience of mediations backed by an overall understanding of the underlying legal principles.

What’s more, because all mediations are not successful, and although the content of the mediation is confidential and not to be used in other proceedings, inevitably the course of the negotiation during the mediation process will have a bearing on the arbitration that will ensue.

For that reason, it is critically important that the properly qualified lawyer acting as “advocate” in a mediation be also skilled and qualified to act as “counsel” in the ensuing arbitration, if any.

The main objective being of course the success of the mediation.

Source: Philippe GIRARD-FOLEY, MCIArb
Accredited arbitrator and mediator AIAC
Registered Foreign Lawyer SICC

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