Mediation in arbitration proceedings – a Hong Kong perspective

The procedures of mediation and arbitration are regularly combined in some jurisdictions, such that an arbitrator assumes the role of mediator part-way through arbitral proceedings in an attempt to settle the dispute early (arb-med).  An alternative formulation is where a mediator, appointed by the parties in the early stages of a dispute, subsequently becomes the arbitrator in the event that the facilitated negotiations fail (med-arb).

Judicial and legislative developments in Hong Kong have prompted parties, counsel and arbitrators to re-evaluate the merits of these procedures, and their place within the framework of international arbitration.  Immediate reactions tend to be coloured by a party’s legal background and cultural experience.  For instance, while arb-med is relatively common in civil law jurisdictions such as Austria and Germany, the procedure is typically viewed with scepticism by common law lawyers. Continue reading for a discussion on the advantages and disadvantages of arb-med. 

Potential advantages of arb-med

There are many reasons why engaging in formal mediation proceedings can be beneficial.  The most frequently cited advantages of mediation are: (i) time and cost efficiency in disposing of a dispute early; (ii) availability of flexible and creative solutions, including resolving multiple proceedings in one settlement; (iii) privacy over the specific settlement terms, by inclusion of comprehensive confidentiality provisions; (iv) increased likelihood of compliance; (v) preservation of on-going relationships; and (vi) the option of converting a settlement agreement into an arbitral award (thereby improving its enforceability).

However, what specific benefits are brought by combining the roles of arbitrator and mediator?

First, there are likely to be time and cost savings, in that an arbitrator-mediator will not need to read in to the case.  Depending on the nature and complexity of the dispute, this advantage may be significant.  Secondly, familiarity with the case should place an arbitrator-mediator in the best position to assist in its settlement, including identifying the most appropriate time to suggest settlement negotiations (although, arguably, the parties’ counsel should be equally well-placed to do this).  Finally, where parties have reached a deadlock, the credibility and authority of an arbitrator with whom the parties are familiar can bring sufficient pressure to bear in order to encourage a resolution.

Potential disadvantages of arb-med

Set against these advantages are a number of risks and potential drawbacks where the arb-med procedure fails and the arbitration resumes.  First, there is risk that the arbitrator may lose their impartiality and/or objectivity as a result of hearing confidential revelations in private caucus sessions with the parties.  Secondly, these perceptions of partiality – whether warranted or not – increase the chance of a challenge to either the arbitrator or the award.  Thirdly, the parties are likely to be more reluctant to speak candidly in ex parte sessions with the arbitrator-mediator, fearing that any concession or admission with respect to their position may influence the arbitrator’s judgment subsequently.  This, in turn, may impede the effectiveness of the procedure.  Fourthly, the arbitrator may be required by law to disclose to each of the parties any confidential information learned during the mediation.  Finally, where an arbitrator-mediator provides an evaluative view of the case, there is a danger that the parties will become further entrenched in their positions (eg the “losing” party may seek to better its case, filling in any gaps which have been identified; at the same time, the “winning” party may be more reluctant to negotiate downwards from its position, on the basis that it is likely to win at a hearing).

It is important to consider each of these factors and risks when assessing whether or not arb-med is suitable or appropriate for a particular case.  The nature of the case, as well as the backgrounds of the parties, their counsel and the arbitrator(s), are also critical factors to bear in mind – and it may be that arb-med is only adopted in specific cases.  Two developments in Hong Kong – one legislative reform and one judicial decision – have been useful in highlighting a number of additional practical considerations with respect to arb-med procedures.

Ula Cartwright-Finch
Ula Cartwright-Finch
Associate, Hong Kong
Email
+852 21014142

A version of this article originally appeared in the September 2012 issue of the Newsletter of the Mediation Committee of the Legal Practice Division of the International Bar Association, Vol 8 No 1, published by the International Bar Association, London, UK. © International Bar Association.

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