24 April, 2015
Many ADR options exist. Below is a summary of the most frequently used processes and their application in Asia.
1. Mediation (Non-Binding)
Structured settlement discussions facilitated by a neutral third party (the mediator) with no decision-making power. Overwhelmingly the most frequently used ADR process, including across Asia. The mediator spends at least a part of the mediation engaged in 'shuttle diplomacy' between the parties, who are usually located in separate rooms. The hope is that progress can be made where direct negotiation has become deadlocked. The style of mediators varies from pure 'facilitators' (who assist the parties in their negotiations) to 'evaluators' (who encourage settlement by expressing views on the merits and likely outcomes).
If the parties decide to settle their dispute at the mediation, the terms will be captured in a binding settlement agreement. In the event of a failure to comply with its terms, the successful party will typically need to enforce the agreement as a breach of contract.
Mediation may be undertaken at any time by consent of the parties (either ad hoc or by virtue of an underlying contract), and in some jurisdictions it is required during litigation. Mediation is recognised across Asia, where it is often deployed as a court-annexed process. In some jurisdictions, for example Japan, the People's Republic of China (PRC) and Singapore, mediation is referred to as 'conciliation' in some contexts. Conciliation, as a distinct process (eg, in Hong Kong labour disputes) is typically a precursor to mediation, and is less structured in its procedure.
2. Early Neutral Evaluation (ENE)1 (Non-Binding)
Neutral third party provides a non-binding evaluation of the dispute, usually at an early stage in the dispute. There are no particular procedural requirements for ENE beyond those agreed between the parties. In contrast to mediation, the aim of ENE is to provide a without prejudice evaluation of the merits of the case.
The idea behind ENE is that a considered opinion of a mutually respected neutral may assist the parties in narrowing a disputed point of contractual construction, for example, and assist the parties in forming a realistic appraisal of their case. However, it is non-binding and can serve to polarise positions in negotiations if one party considers it is 'right' as a result. ENE is more prevalent in the West, particularly the USA. Whilst very rarely used in practice, some Asian jurisdictions support ENE. For example, the Hong Kong Law Society provides a standard outline for agreements for ENE, CEDR Asia Pacific, the Singapore Mediation Centre and the Singaporean courts all offer ENE services, and the Philippine courts operate a scheme whereby the pre-trial judge acts as an evaluator to facilitate settlement.
3. Adjudication (Binding)
Adjudication consists of an abbreviated court-like procedure under the direction of an adjudicator, where rules of evidence may be applied flexibly or dispensed with altogether. The process is quick (often only a few weeks) and the decision of the adjudicator is binding pending any final determination of the dispute by way of litigation or arbitration (which rarely happens in practice). It is generally used in the construction industry and on large infrastructure projects as it provides certainty and minimises disruption (including cashflow problems) to a long term project. Adjudication is provided for in Hong Kong2 , as well as in Singapore3 , and Malaysia.4 Furthermore, the NEC3 model construction contract, which will be used by the Hong Kong government for all its projects put out for tender in 2015/16, includes a standard adjudication clause.
4. Dispute Review Boards /Dispute Adjudication Boards (DRB/DAB)
(non-binding recommendation (DRB) or binding (DAB))
A project–specific dispute resolution process, often comprising a panel of three persons (one appointed by each party with a neutral chairperson). Most often used in large international construction and engineering contracts, DABs provide a binding decision pending subsequent determination by a court or arbitral tribunal, should the losing party refuse to comply with the decision. In this sense they are similar to adjudicators' decisions. They are intended to keep a long term project on track by providing quick resolution to disputes encountered during the project. In Asia, DABs are sometimes seen in international standard form contracts in the construction and infrastructure industries.
DABs were deployed successfully in relation to disputes arising out of the HKD 20bn construction of Chep Lap Kok International Airport in Hong Kong as well as the USD 3.4bn Ertan Hydroelectric Project in the PRC. The Hong Kong government includes DRB provisions in its default contract for construction contracts, and the Hong Kong Architectural Services Department has a full set of rules for DRBs. DABs are mandated for all projects financed by the Asian Development Bank and the FIDIC suite of contracts (if unamended). Enforcement of DAB decisions is not always straightforward in the context of arbitration as recent case law from the Singaporean courts has demonstrated.5
5. Expert Determination (Binding)
A neutral third party with expertise in the subject matter of the dispute is appointed pursuant to an agreement between the parties to make a final and binding decision. It can be highly effective where the parties anticipate a specific type of technical dispute arising, in which the expertise of the decision-maker will be critical. Examples include completion accounts disputes, valuation disputes and technical engineering matters. It is quicker/ cheaper than litigation or arbitration, and is confidential and flexible as to procedure (this will be determined by the expert in the absence of agreement between the parties). However, there is usually no right of appeal.6 To enforce the expert's decision in the event of a failure to comply, the successful party would need to sue the uncooperative counterparty in the courts for breach of contract (being the agreement to be bound by the expert's decision). The absence of a straightforward system for international enforcement of experts' decisions weakens their effectiveness in international disputes (when compared, in particular, to arbitration).
Expert determination is used occasionally in some Asian jurisdictions (for example, in Hong Kong on technical and valuation matters, and in Singapore on intellectual property, construction and energy disputes). It is not recognised in other jurisdictions (for example, in the PRC, Japan, Thailand and Indonesia, usually because it is regarded as an abrogation of the jurisdiction of the courts). It is sometimes deployed across the region pursuant to international standard form contracts partnered with a governing law that recognises expert determination.
6. Domain Name Dispute Resolution (DNDR)
This is a widely used process to adjudicate disputes between trademark owners and registrants of domain names by a specialist panel. A domain name corresponds to a routing address on the internet (eg, '.com', '.hk', etc). The Internet Corporation for Assigned Names and Numbers (ICANN) monitors and administers the use of domain names by including specialised dispute resolution procedures in its domain name registration agreements. The Asian Domain Name Dispute Resolution Centre (ADNDRC) – a cooperative effort operated by the China International Economic and Trade Arbitration Commission (CIETAC), Hong Kong International Arbitration Centre (HKIAC), Kuala Lumpur Regional Centre for Arbitration (KLRCA), and Korean Internet Address Dispute Resolution Committee (KIDRC) – provides dispute resolution services, most notably under the ICANN Uniform Domain Name Dispute Resolution Policy (UDRP).
DNDR is fast: the panel appointed is usually required to render a decision within 14 days. The parties technically have the option to challenge the decision in a court of mutual jurisdiction, and execution of the panel's decision is suspended for 10 days to offer the parties the chance to appeal. In practice, very few decisions are appealed.
Under the Domain Name Dispute Resolution Policy used by the Hong Kong Internet Registration Corporation (HKIRC), which is the sole authority on the '.hk' domain name, a decision by the panel is automatically treated as an arbitral award. It is therefore subject to the provisions of the Arbitration Ordinance for the purposes of appeal and enforcement.
7. MedArb / ArbMed (Hybrid)
Hybrid processes using mediation either before (MedArb) or during (ArbMed) arbitration proceedings, usually with the same person or people acting as mediator(s) and arbitrator(s). If the mediation results in a settlement, the parties may have their agreement recorded in the form of an arbitral award and the arbitration proceedings (where on foot) are terminated. If the mediation fails, the arbitration proceedings are commenced (MedArb) or continued (ArbMed), and a final and binding arbitral award is handed down by the arbitral tribunal and is binding on the parties.
In some Asian jurisdictions, particularly those based on civil law traditions such as the PRC7 and Japan8, tribunals have long offered to help the parties settle (or “conciliate") their dispute as a matter of course at some point during the arbitration. In these countries, mediation is sometimes referred to as “conciliation”, but it refers to broadly the same process. When an arbitral tribunal raises the possibility of mediation, particularly towards the end of the arbitral proceedings, the risk of losing the arbitration can be helpful in focusing the parties' minds on a reasonable settlement.
Whilst ArbMed is provided for in the laws and procedures of certain other Asian jurisdictions (notably Hong Kong9 and Singapore10), the practice of combining arbitration with mediation is often viewed with skepticism, and is very rarely used. Parties, particularly those with a common law background, appear reluctant to disclose their true assessment of the dispute (particularly any potential weaknesses on their side) to a mediator, given the possibility that the same individual will be required to determine their dispute in arbitration proceedings if the mediation fails. This has resulted in certain institutions enacting rules providing that the mediator(s) and arbitrator(s) should be different individual(s) (see endnotes 8 and 10)
(Click to enlarge)
End Notes
1. A corollary is Early Expert Evaluation (EEE), where an independent expert provides an expert opinion
2. Both the Hong Kong Institute of Construction Managers (HKICM) and HKIAC have a panel of trained adjudicators with region and sector specific experience. Furthermore, the HKIAC offers Adjudication Rules based on English law sources, standard international construction contracts (ICE and JCT), and Hong Kong sources. These Rules pertain to be suitable for non-construction contracts. HKIAC also provides a Code of Ethical Conduct for Adjudicators. To date no adjudications have been undertaken by the HKIAC
3. Building and Construction Industry Security of Payment Act, (Chapter 30b)
4. Construction Industry Payment and Adjudication Act 2012
5. See PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia) [2014] SGH C146
6. For example, the Hong Kong courts have generally held that an expert determination will not be set aside due to a procedural breach or because the court would have reached a different conclusion. Consequently, for the court to consider overruling the expert, a severe breach of natural justice or the expert's mandate must have occurred in relation to the determination. Similarly, the courts in Singapore have generally only considered setting aside an expert determination for a material departure from instructions, manifest error, or fraud and partiality
7. Article 51 of the Arbitration Law of the People's Republic of China enshrines ArbMed in law. In addition, both CIETAC Arbitration Rules 2015 and the Beijing Arbitration Commission (BAC) Arbitration Rules 2015 provide for ArbMed, in keeping with previous editions of the respective rules
8. See Article 38(4) of the Arbitration Law (Law No. 138 of 2003) and Rules 54 and 55 of the Japan Commercial Arbitration Association (JCAA) Rules (latest version dated 1 February 2014). Note that Rule 54 of the JCAA 2014 Rules provides for the arbitrator and mediator generally to be different individuals and Rule 55 imposes procedural and evidential restrictions where the parties agree they should be the same individual(s)
9. Section 32 and 33 of the Arbitration Ordinance (Cap 609, Hong Kong)
10. The Singapore International Arbitration Centre (SIAC) provides for ArbMed in its rules. The Singapore International Mediation Centre (SIMC) launched in November 2014 a new Arb-Med-Arb Protocol, but the arbitrator(s) and mediator(s) will "generally" be different individuals (unless otherwise agreed). This represents a departure from the traditional notion of ArbMed, where the arbitrator(s) also act as mediator(s)
For further information, please contact:
Chinnawat Thongpakdee, Partner, Herbert Smith Freehills
chinnawat.thongpakdee@hsf.com
Jessica Fei, Partner, Herbert Smith Freehills
jessica.fei@hsf.com
Brenda Horrigan, Partner, Herbert Smith Freehills
brenda.horrigan@hsf.com
May Tai, Partner, Herbert Smith Freehills
may.tai@hsf.com
Peter Godwin, Partner, Herbert Smith Freehills
peter.godwin@hsf.com
peter.godwin@hsf.com
Dominic Roughton, Partner, Herbert Smith Freehills
dominic.roughton@hsf.com
Gareth Thomas, Partner, Herbert Smith Freehills
gareth.thomas@hsf.com
Dominic Geiser, Partner, Herbert Smith Freehills
dominic.geiser@hsf.com
Alastair Henderson, Partner, Herbert Smith Freehills
alastair.henderson@hsf.com
James Doe, Partner, Herbert Smith Freehills
james.doe@hsf.com
Richard Norridge, Herbert Smith Freehills
richard.norridge@hsf.com
Emily SY Lam, Herbert Smith Freehills
emilysy.lam@hsf.com
John Siu, Herbert Smith Freehills
john.siu@hsf.com
