Colin J Wall of Commercial, Mediation & Arbitration Services Ltd explores the growth of international mediation in commercial disputes over the past 20 years.
The publishers are to be congratulated for introducing The International Who’s Who of Commercial Mediation.
Mediation is undoubtedly the leading alternative method of dispute resolution, both domestically and, excluding arbitration, internationally as a means of resolving all manner of commercial disputes. Its usage has dramatically increased over the past 20 years.
The growth of mediation domestically in various jurisdictions has often been led by reforms to the civil justice system, looking for cheaper and quicker alternatives to litigation, and has led in some instances to the introduction of court-attached or court-annexed schemes. While the vast majority of mediations that take place are still domestic, there is an increasing trend to use the technique to resolve international disputes. This growth has been led in part by the legislation in the European Union, as reflected in EU Directive 2008/52/EC (the Directive). Preamble (6) of the Directive provides a useful description as to what mediation is and its advantages. It reads as follows:
(6) Mediation can provide a cost-effective and quick extrajudicial resolution of disputes in civil and commercial matters through processes tailored to the needs of the parties. Agreements resulting from mediation are more likely to be complied with voluntarily and are more likely to preserve an amicable and sustainable relationship between the parties. These benefits become even more pronounced in situations displaying cross-border elements.
Article 3(a) of the Directive provides a useful definition of mediation as follows:
‘Mediation’ means a structured process, however named or referred to, whereby two or more parties to a dispute attempt by themselves, on a voluntary basis, to reach an agreement on the settlement of their dispute with the assistance of a mediator. This process may be initiated by the parties or suggested or ordered by a court or prescribed by the law of a Member State.
While the Directive is said to apply to cross-border disputes in civil and commercial matters, several EU member states have gone further and enacted legislation that also caters for domestic mediations. Virtually every EU country has implemented the Directive in a different way. So in some EU countries mediation is purely voluntary, while in Italy, for example, the move has been towards mandatory mediation. In some EU countries only lawyers can be mediators, while in others no such restrictions apply.
These differences aside, the Directive has undoubtedly given a boost to mediation, but its development and the knowledge of mediation, especially in Europe, remains patchy and varies from jurisdiction to jurisdiction. For example, in England and Wales and the Netherlands, the use of mediation is widespread and the process is widely understood by lawyers and the business community, but this is not the case in countries such as Greece and Portugal, where the concept of mediation is relatively new and poorly understood.
To help reduce this disparity in understanding, in 2001 the International Union of Lawyers (UIA) established the World Forum of Mediation Centres, which brings together at regular intervals the most important commercial mediation and ADR centres from around the world to offer an opportunity for an exchange of views on the development of mediation and best practices. One of the most interesting aspects of the work of the forum is comparing the differences between domestic and international mediations. By their very nature, international mediations introduce the complexity of cross-cultural and linguistic issues, which are usually absent in purely domestic mediations.
For example, Hong Kong, with its free market economy is something of a melting pot of various cultures and as a result many mediations involve parties from different cultures and jurisdictions, who have distinctly different ideas on what mediation is and how mediations should be conducted. Some parties come from an arbitration culture and suppose mediations will be conducted as a form of non-binding arbitration; expecting the mediator to suggest solutions. Others presume that the mediation will be conducted in a facilitative manner, focus only on the underlying business interests and needs of the parties, put the legal issues to one side and allow the parties to fashion their own business solutions. To some parties, the use of the private meeting, known as a caucus, is a significant component to the success of the mediation process but to others, face-to-face discussions in joint meetings are not only the norm but the key to success. In other mediations the problems between the parties might well stem from communication difficulties, particularly when a third language, often English, is being used as the common language of the parties or their contract, or both.
Sophisticated international lawyers are to some extent able to bridge the cultural expectations of the parties and advise their clients of the potential differences to be expected in the mediation, but it is the mediator himself or herself who really makes the difference between success or failure in complex international disputes, especially those involving multiple parties or joint ventures of different nationalities. Much has been written about cultural differences in mediation and, for example, the differences between the Western and Eastern cultures, with interest-dominated and relationship-dominated value orientations. These are, of course, generalisations and the simple fact remains that there is in reality a whole spectrum of cultures and not simply an East-West divide. A mediation involving an Austrian party and a Spanish party will normally throw up significant cultural differences, as will a mediation between a Japanese and Chinese party. The cultural combinations are thus endless. However, with increasing globalisation, it is dangerous for a mediator to make stereotypical assumptions as to how someone may behave in a mediation, simply because they are of a particular culture or nationality. The Korean or Taiwanese businessman may well have been educated in the US and be perfectly content with a mediation conducted with the use of caucuses.
The real key to success is for the mediator to try and gather as much information as possible, by preliminary meetings or telephone/video conference calls, before the parties and their lawyers meet face to face in the plenary session of the mediation. This should enable the mediator to have a good feel for why the parties were unable to settle the dispute by unassisted negotiations, what their expectations are, how they may behave and negotiate during the mediation and what the parties might really want to achieve from the mediation. At its simplest level it is no more than good preparation as would be required in any negotiation.
Unfortunately with some mediations, particularly those that are heavily administered, the mediator often has little contact with the parties or their lawyers, prior to the plenary session of the mediation. Thus there is much to be said for either having ad hoc mediation or writing into the dispute settlement clause in the contract, a mediation institution or a set of mediation rules that enable the mediation to be administered with a “light touch”, such as the International Chamber of Commerce Amicable Dispute Resolution Rules. This then gives the mediator the opportunity to retain maximum flexibility and tailor the process to the specific needs of the dispute and the wishes of the parties.
It is also important for the parties and their lawyers to try and appoint a mediator of their choice, rather than having a mediator appointed by an institution of some description, as is sometimes the case in international arbitrations. In practice, this is easier said than done because when parties are in dispute they can rarely agree on anything, but, nonetheless, because of the inherent benefits of doing so, every effort should be made. Techniques can be used for reducing adversarial attitudes, such as the parties preparing, exchanging and ranking lists of potential mediators. Research by the UIA World Forum of Mediation Centres has demonstrated that parties and their lawyers feel more comfortable in appointing a mediator who not only has mediation process expertise and experience but also has general subject matter expertise. This enables the chosen mediator to speak and understand the same technical language as the parties, to assist, if necessary, in the option-generation phase of the mediation and enables the mediator to reality test the various settlement options being considered by the parties. It is rarely necessary for a mediator to have specific expertise on the issue that may be at the heart of the dispute but if highly specialised knowledge is required, this can always be introduced into the mediation process by party or mediator-appointed experts.
Cooperation in appointing a mediator obviously sets a good tone for the mediation itself and the arguments relating to the independence of the neutral or jurisdictional challenges, which so often occur in international arbitrations, rarely exist in international mediations. It should also be remembered that, in some cultures, parties are not comfortable with having a complete stranger as their mediator and they would much prefer to appoint a mediator that they know and trust. If this is not possible then, as noted above, parties will at least try to appoint a mediator with general subject matter expertise. It is sometimes the case that the dispute resolution provisions of the contract require that the nationality of the appointed mediator, rather like that of the Chair of a three-person international arbitration tribunal, be different to that of the parties. In these circumstances it is important for the parties and their lawyers to choose a mediator, with an international background who may have some understanding of the cultures and possibly differences in attitude of the parties.
No matter who is appointed as mediator, the mediation is unlikely to be successful unless the mediator gains the trust of the parties and their lawyers. This may be a time-consuming process, particularly in some cultures, where indirectness and relationship-building are the norm and it is thus important for the mediator to allow sufficient time for the mediation. This is not just for scheduling the plenary session but also for using the preliminary meetings or telephone/video conference calls as a means of building some form of rapport and gaining trust, as well as allowing parties to prepare properly for the plenary session.
One of the main advantages of mediation is that it is a non-binding process and the parties are free to try various compromise solutions. It is only when the parties have reached an agreement and reduced that agreement to a written and signed document that the agreement becomes binding. This is normally by way of a contract but in some jurisdictions, and especially if there is a multi-tier dispute resolution clause, it might be possible to convert the settlement agreement into an arbitration consent award.
In most jurisdictions, mediation is a legally privileged and confidential process, which further encourages the parties to try to reach a compromise, safe in the knowledge that anything said or done within the mediation cannot be used in subsequent proceedings, should the mediation not resolve or only partly resolve the dispute. The protection provided by legal privilege and what is regarded as confidential does however vary from jurisdiction to jurisdiction, so it is also important that everyone is aware of this. So, preferably the mediation should take place in a mediation friendly jurisdiction, such as Hong Kong, so as to maximise protection and give confidence to the process; or the parties should include effective and comprehensive dispute resolution procedures in their contract, perhaps by adopting a set of internationally recognised mediation rules.
While there are undoubtedly more complications to overcome in international mediations, as compared to domestic mediations, anecdotal evidence would suggest that international mediations, conducted by a competent experienced mediator enjoy approximately the same settlement success rate of about 80 per cent. Mediation will not resolve every dispute of course, but, given the high chances of settlement, there are few disadvantages in attempting to resolve a dispute by mediation. Mediation increasingly forms part of a multi-tiered dispute-resolution process and is often employed before resorting to international arbitration. Importantly, mediation allows the parties to retain control of the outcome of the dispute, enables them to fashion their own commercial business solutions and is ideally suited for maintaining relationships.