19 July, 2018
What you need to know
Mediation-arbitration is a hybrid form of dispute resolution that allows the mediator of an unresolved dispute to assume the role of arbitrator.
The use of med-arb in Australia is regulated by the uniform Commercial Arbitration Acts in each State and Territory jurisdiction.
Parties should carefully consider the potential advantages and disadvantages of med-arb when resolving their disputes.
The Supreme Court of New South Wales has recently provided guidance on the use of med-arb and found that an arbitrator had no mandate because the parties did not provide written consent for the mediator (arbitrator) to subsequently resume acting as the arbitrator.
Background
Med-arb and arb-med are hybrid forms of dispute resolution. Med-arb allows the mediator of an unresolved dispute to assume the role of arbitrator in relation to all or particular issues that remain in dispute between the parties. Arb-med allows the arbitrator of an unresolved dispute to assume the role of a mediator.
Med-arb has the advantage of certain procedural and time-related efficiencies, in that it removes any requirement to engage a separate arbitrator if mediation is unsuccessful. However, it is common for parties to have concerns that potential conflicts inherent in the dual mediator/arbitrator role could impact both the mediation and the arbitration processes.
Examples of these concerns include:
- A potential lack of procedural fairness: A mediator generally speaks with the parties in private. If something is said to a mediator by a party in private, it may lead to them subsequently having a partial or skewed view of the parties' positions in the arbitration in circumstances where the counter-party has not had an opportunity to respond.
- An apprehension of bias: Mediation is meant to be facilitative and conducted in confidence without having regard to the rules of evidence. Where mediation fails and the parties resume arbitration, the arbitrator may make an award with knowledge of matters disclosed by the parties confidentially and on a "without prejudice" basis during the course of the mediation. Although the arbitrator cannot technically rely on such matters in making an award, parties may apprehend that the arbitrator's views are informed by the information that was provided during the mediation.
- A potential lack of candour: Parties may be less forthcoming in a mediation because they are aware that the mediator may be later acting as their arbitrator. This may reduce the likelihood of the parties being able to achieve a mediated outcome of their dispute.
Med-Arb Internationally
While use of med-arb is low in Western jurisdictions, it is a common form of dispute resolution in Asia. It is especially popular in mainland China where it is estimated that the China International Economic and Trade Arbitration Commission (CIETAC) resolves approximately 20% to 30% of its caseload through med-arb.
Med-arb is specifically contemplated in the arbitration legislation of Hong Kong, Japan, Singapore and India. It is also contemplated by the procedural rules of some of the arbitration and mediation centres in those jurisdictions. For example, in November 2014, the Singapore International Arbitration Centre (SIAC) collaborated with the Singapore International Mediation Centre (SIMC) to launch an arb-med-arb protocol.
In light of the common concerns mentioned above and the potential impact of these issues on the enforceability of an arbitral award, some arbitration legislation internationally requires that parties provide their written consent prior to permitting their mediator to act as their arbitrator (for example, in Hong Kong and Singapore). However, in other jurisdictions, such as the United Kingdom, no such requirement is imposed.
Med-Arb in Australia
In Australia, the uniform Commercial Arbitration Acts (Acts) regulate the use of med-arb for domestic arbitrations. There are no corresponding provisions in the International Arbitration Act. The Acts deal with concerns about the impact on the arbitration process noted above by permitting med-arb only in circumstances where provision has been made for it in the relevant arbitration agreement or where the parties subsequently consent to it in writing. Further, the uniform Acts provide that, before the arbitration proceedings commence, the arbitrator (previously the mediator) is under an obligation to disclose to the parties all confidential information obtained from any one party during the mediation that the arbitrator considers to be material .
The decision in Ku-ring-gai Council v Ichor Constructions Pty Ltd [2018] NSWSC 610 provides guidance on the use of med-arb under the Acts in Australia.
Ku-ring-gai Council v Ichor Constructions Pty Ltd
Ku-ring-gai Council (Council) and Ichor were parties to an arbitration. During the course of the arbitration, the arbitrator asked "off the record" whether the parties would consent to a proposal for settlement from him "under the cloak of mediation". Written consent for the arbitrator to act as a mediator was given by both of the parties and the arbitrator. The arbitrator proposed that each party walk away from the arbitration. The proposal was not accepted and the arbitration resumed.
Section 27(D) of the Commercial Arbitration Act 2010 (NSW) regulates the ability of an arbitrator to act as a mediator in an arbitration. Section 27D(4) provides that an arbitrator who has acted as a mediator may not thereafter conduct an arbitration in relation to the dispute unless the parties, on or after termination of the mediation, give their written consent.
Four days after the last day of the arbitration hearing, Ichor sent a letter to the arbitrator protesting that the arbitrator did not have a mandate to resume the arbitration following the mediation because the parties did not provide their written consent pursuant to section 27(D) of the Act.
The Council subsequently commenced proceedings in the Supreme Court of New South Wales arguing that the arbitrator had not acted as a mediator in "mediation proceedings" for the purposes of section 27D of the Act (alternatively it argued that written consent was provided by the parties and, in any event, Ichor had waived its right to and/or was estopped from claiming otherwise).
McDougall J held that the arbitrator did not have a mandate to resume the arbitration because the parties had not provided their written consent:
- contrary to the Council's suggestion, his Honour held that the arbitrator did act as a mediator in the proceedings – this was because, among other reasons, the arbitrator in putting forward his proposal was acting in a "non-arbitral capacity" (i.e. as a mediator) because it is not part of the core function of an arbitrator to bring about a settlement by compromise;
- as the arbitrator did act as a mediator, a mediation took place between the parties and, therefore, the arbitrator did not have a mandate to continue to act as an arbitrator unless the parties gave written consent;
- what is required to satisfy the requirement for "written consent" is a "written expression of consent signed for or by, or otherwise attributable to [the parties]" and that "[t]he writing must make clear that the party consents to whatever it is that cannot happen without written consent"; and
- there was no statutory waiver of the requirement for written consent as statutory waiver requires actual knowledge and Ichor's unchallenged evidence was that it remained unaware of the requirement for written consent until four days after the last day of hearing (when it protested the resumption of the arbitration).
Analysis
The use of med-arb in Australia (and other Western jurisdictions) remains relatively low. This is partly due to the potential conflicts perceived to be inherent in the dual mediator/arbitrator role. While the requirement under the Acts for an arbitrator to disclose material confidential information obtained during mediation prior to commencing arbitration may help overcome potential procedural issues in the arbitration, this may affect the approach taken by the parties to the mediation and weigh upon the decision to consent to med-arb thereafter.
However, the increasing links between Australia and other Asian jurisdictions may result in med-arb being a more frequently used form of dispute resolution by Australian parties both in Australia and overseas. As ever, parties should consider the most efficient way to resolve their disputes, and med-arb represents one of a number of alternatives to arbitration that may be the most efficient in a given circumstance.
The decision in Ku-ring-gai Council provides useful guidance on the use of med-arb in Australia under the Acts. Given the legitimate concerns that arise in respect of the use of med-arb, parties should be aware both of its potential advantages and disadvantages, as well as the strict requirements of the Acts when considering its use to resolve their disputes. Specifically, the decision demonstrates that Australian courts will strictly construe the requirement for written consent and that an arbitrator who has acted as a mediator may not resume arbitration proceedings unless the parties have expressly provided it. Failure to comply with the procedural requirements of the Acts is likely to mean that any arbitral award will be vulnerable to challenge on the basis that the arbitrator lacks a mandate to give the award.
For further information, please contact:
Adam Firth, Partner, Ashurst
adam.firth@ashurst.com
