Mediation has the potential to resolve disputes and maintain relationships, and the Singapore Convention marks a milestone for this approach, writes Richard Li
Harmony is a long-lasting belief in Chinese culture. Confucianism emphasizes “cherishing harmony”, while the Taoist Taiji diagram (Yin and Yang) reflects the traditional Chinese belief that two conflicting elements can merge into one harmonious unit.
Influenced by such culture, China has had a long tradition of using mediation to resolve disputes – not just in ancient times, but in modern China as well. The majority of cases accepted by mainland Chinese courts have been actually resolved by mediation.
But the popularity of mediation is not unique in China. As arbitration has become less efficient and more expensive, the penchant for mediation has become increasingly visible across the world. As the final draft for the Singapore Convention was approved by the United Nations Commission on International Trade Law (UNCITRAL) in June, 2018 is bound to be a milestone year for mediation.
“Recent years have seen states and parties move towards non-adjudicative methods of resolving disputes, including mediation and conciliation,” says May Tai, the Greater China managing partner at Herbert Smith Freehills in Hong Kong. “Alongside this shift … a recent series of surveys showed a clear desire among commercial parties, particularly in Asia, for more regulation of non-adjudicative processes like mediation.”
In June 2018, the Draft Convention on International Settlement Agreements Resulting from Mediation, and the Model Law on International Commercial Mediation and International Settlement Agreements resulting from Mediation, were adopted at the 51st session of UNCITRAL.
The mediation convention, once adopted by the General Assembly later this year, is expected to be open for signature at a signing ceremony hosted by Singapore on 1 August 2019. It is therefore also called the “Singapore convention” or “Singapore mediation convention” for short.
“The convention … aims to implement, for the first time, an international regime for the enforcement of mediated commercial settlements, similar to the 1958 New York Convention on the enforcement of foreign arbitral awards and the 2005 Hague Convention on the enforcement of foreign court judgments,” says Matthew Brown, a senior associate at Clifford Chance in Singapore.
Terence Wong, a partner at Winston & Strawn, who works in Hong Kong and Shanghai, says the fundamental purpose of the Singapore convention is to allow parties to rely on a mediated settlement agreement and enforce it across borders according to simplified procedures. “The Singapore mediation convention is expected to make mediation a more attractive method to settle cross-border disputes, in addition to other methods such as litigation and arbitration, and to create a more diversified international dispute resolution system that will satisfy different needs from different international parties,” he says.
Ernest Yang, a partner at DLA Piper in Hong Kong, agrees the convention is a welcome development in mediation. “Commercial parties are clearly keen to try their hardest to resolve their disputes amicably before being forced down the route of arbitration and litigation,” he says. “[The convention] will create additional impetus for everyone involved in the dispute resolution process to consider carefully why mediation should be attempted on every occasion before going down the arbitration or litigation route.”
Although mediation is also an important approach of dispute resolution, it is different in many aspects from arbitration, not to mention the formal court proceedings.
The job of a judge or an arbitrator is to decide which party wins the case, or which party’s claim should be supported. But a mediator’s responsibility is to help find a consensus.
“The mediator’s role is to facilitate discussion between the parties to help them reach an agreed settlement,” says Tai, from Herbert Smith Freehills. “The mediator has no power to decide the dispute, nor to compel the parties to reach an agreement.”
Wong, from Winston & Strawn, says the aim of mediation is to resolve the dispute via an arrangement that is acceptable to all parties. “A mediator’s role is generally to help the parties reach a settlement agreement by assisting with communications, obtaining relevant information, developing options and narrowing differences,” he says.
Unlike litigation and arbitration, in which the decisions of the court or the arbitral tribal are binding on the involved parties, “a mediator in the mediation process generally does not have the power to make any binding decision”, says Wong.
Sun Wei, a partner at Zhong Lun Law Firm in Beijing, says the outcome of mediation is determined by the involved parties. Having compromised on the disputed matter, the parties reach a settlement agreement on terms and conditions decided mutually between them.
Sun says that unlike institutional arbitration – the preferred arbitration approach among parties to most cross-border arbitration cases – the proceedings of which must be administered according to established procedures, mediation does not need to follow definite procedures. “While arbitration is characterized by its procedural certainty, mediation is unique for its procedural flexibility,” he says.
Parties who choose mediation are often drawn to this flexibility, says Paul Starr, a partner at King & Wood Mallesons (KWM) in Hong Kong. “[It means] they engage in a more collaborative process where they can negotiate for a wider range of remedies that are not limited to financial compensation. Mediation is non-binding and the outcome is determined by the will of the parties; parties can decide whether to sign on to mediation settlements on a voluntary basis.”
The procedural flexibility also contributes to the efficiency of mediation. Compared with litigation and arbitration, mediation is considered by many experts as fast and cost-effective.
Arthur Dong, a partner at AnJie Law Firm in Beijing, says mediation benefits particularly from the lack of mandatory procedures. In sharp contrast to “inflexible and lengthy litigation proceedings and international commercial arbitration proceedings that are becoming increasingly lengthy and expensive as compared to what they initially were”, he says, “settlement negotiations prior to rulings, and even those prior to formal court hearing, are drawing attention from a growing number of legal professionals”.
Eric Liu, a partner at Han Kun Law Offices in Beijing, says that “under normal circumstances, mediated settlement agreements are more convenient and cost-effective.” “Compared with cross-border litigation and international commercial arbitration, mediation is more likely to save both time and cost,” says Liu. He also believes that mediation is one of the possible dispute resolution approaches that may cause the least adverse impact on a relationship between parties, especially when it is necessary to keep that relationship.
Relationship keeping is another advantage of mediation. Unlike arbitration or litigation, mediation is not adversarial.
“Mediation provides an avenue to determine disputes without the need for an award or judgment as to which party is ‘right’ or ‘wrong’, and thus is often the best way for commercial parties to resolve disputes while preserving their commercial relationship,” says Brown, from Clifford Chance.
In contrast, Tai, from Herbert Smith Freehills, says arbitration’s contentious nature makes it difficult for parties to maintain commercial relationships during and after the proceedings. “In certain cultures – including many in Asia – parties typically prioritize these relationships and prefer to resolve differences without open confrontation,” she says.
Of course, not everyone appreciates the idea of mediation, or any other form of dispute resolution. But dispute parties are sometimes required to attend a mediation process in jurisdictions in mainland China and Hong Kong.
They still don’t have to agree on any settlement, but even so, Yang, from DLA Piper, believes that mediation can help resolve a dispute. “Very often the obstruction to settlement is the reluctance of both or either of the parties to take the first step to come together,” he says. “Once they have taken the first step, and are forced to sit in a room, with the right people attending and the correct amount of preparation, rational parties can often come to a commercial resolution of all, or at least some, of the disputes.”
He says even if parties in the mediation do not settle in the end, they come out knowing more about the other party’s case. “They often reach a settlement later on in the case, or are able to narrow the issues in dispute. Parties faced with court or arbitration proceedings can often come out bruised.”
However, Yang’s argument is based on a prerequisite – rationality. “Although it is helpful for rational parties to resolve their disputes, [mediation] is entirely unhelpful for irrational or recalcitrant parties,” he adds.
That is why Wong, from Winston & Strawn, cautions that parties to a dispute should also always be mindful that “mediation does not always result in a settlement agreement, in which case time and costs may be wasted”.
Liu, from Han Kun, also agrees there is significant uncertainty surrounding the outcome of solving cross-border disputes through the mediation process. “If the parties are unable to reach consensus through mediation, they will need to submit the dispute to litigation or arbitration,” he says. “In this case they will have to spend more time and money.”
Even if a settlement agreement is reached during the mediation, “it is also possible that the parties may still end up with a dispute on the validity of the settlement agreement, which could make the dispute between the parties more complicated”, says Wong.
Even for a valid settlement agreement, there is no specific regime for enforcement since the signing of the Singapore convention has not yet begun. “When the parties conclude a settlement agreement through a mediation process and such an agreement is not performed, the defaulting party will need to be sued under the settlement agreement,” says Yang.
According to Tai, from Herbert Smith Freehills, a settlement agreement is simply regarded as a contract between the parties under the current legal system. “The only way to enforce it is by starting new proceedings for breach of contract,” she says.
“This can be time consuming and expensive. There is no guaranteed result. Moreover, it involves the parties in exactly the type of contentious, formal proceedings they sought to avoid by mediating. Unless the settlement agreement provides for arbitration, the end result will be a court judgment. Unlike arbitral awards, court judgments are very difficult to enforce cross-border.”
That is why many dispute resolution experts think highly of the Singapore convention, to be signed next year, which will provide a cross-jurisdictional system for enforcing mediation settlements.
Prior to the Singapore convention, “enforcing a mediation settlement is like enforcing any other contract; it can be a difficult and lengthy process attempting to obtain a judgment and enforcing it in a foreign jurisdiction,” says Starr, from KWM. “The Singapore Convention on Mediation provides an international framework for enforcing mediation settlements, akin to the New York Convention for enforcing arbitral awards.”
TRENDS OF INTEGRATION
Sun, from Zhong Lun, says that “the popularity of mediation will be conducive to diverting cases from litigation and arbitration”. He says that with the Singapore convention in place, lawyers or parties will be more willing to try mediation before going down the arbitration or litigation route. To some extent it will be helpful for the establishment of a multi-tiered dispute resolution mechanism, where disputes will not be submitted to litigation or arbitration until the mediation process fails.
According to Tai, recent data collected from Global Pound, a series of conferences about alternative dispute resolution (ADR) held in many cities and countries, revealed a strong interest in referring disputes to mediation first, and arbitration/litigation only if mediation fails.
Tai says China is encouraging parties to Belt and Road deals to provide for negotiation, then mediation, and then arbitration – namely, escalation clauses or pre-dispute protocols – in their contracts.
There is a similar push in respect of deals in the Guangdong/Hong Kong/Macau “Greater Bay Area”. However, given the concern that mediation may fail to produce an agreed settlement, “there seems to be a discrepancy between parties’ preferences for mixed-mode dispute resolution, and the number of escalation clauses they actually put into their contracts”, says Tai.
In addition to the model of starting a mediation process prior to arbitration or litigation, “in some cases the parties or their lawyers can ask for a parallel mediation process to be initiated by an independent mediator, even after litigation or arbitration proceedings have commenced”, says Sun. “If mediation does result in an agreed settlement, the litigation or arbitration proceedings will terminate.”
The model of inserting mediation into arbitration is also called “arb-med-arb”. “Arb-med-arb refers to a process where parties may pursue mediation after the commencement of arbitration,” says Starr, from KWM. “If parties successfully settle their disputes by mediation, their mediation settlement will be recorded in a consent award, which is generally accepted as an arbitral award and enjoys the benefit of enforcement in over 150 [jurisdictions] under the New York Convention. If the parties are unsuccessful in settling their dispute by mediation, they continue to go through with the arbitration.”
This “arb-med-arb” is widespread in mainland China and is becoming increasingly popular beyond the country as well.
Starr says the Singapore International Arbitration Centre and Singapore International Mediation Centre have partnered up to offer administration of “arb-med-arb” services, which parties can opt into through incorporating their “arb-med-arb” model clause. The Hong Kong International Arbitration Centre also has plans to revise its 2013 Administered Arbitration Rules this year to allow parties to pursue “arb-med-arb”.
Tai says Hong Kong’s civil court rules – Practice Direction 31 – now require mediation in the context of litigation for almost all civil disputes. The Hong Kong Arbitration Ordinance expressly allows arbitrators to try to mediate a dispute.
However, Arthur Dong, from AnJie, warns that the process of combining mediation with arbitration and litigation is bound to give rise to new problems, one of which, for example, relates to the reasonableness of the arbitrator and mediator being the same person. “If during the mediation process the arbitrator has obtained any confidential information of one party due to unilateral contact, he will be unconsciously affected when administering the arbitration proceedings – and this is contrary to the strict neutrality principle,” he says.
“Meanwhile, given the concern that the mediator will proceed to take the role as an arbitrator if mediation fails, it may be difficult for the parties to discuss their case with the mediator frankly, thus weakening the effectiveness of the mediation process.”
Nevertheless, mediation is worth being considered as a dispute resolution approach after the Singapore convention is signed next year. “Compared with other dispute resolution approaches, mediation relies more on the willingness and initiative of the parties for friendly co-operation,” says Arthur Dong. “Mediation is a desirable approach if the parties wish to solve the disputed matter quickly and amicably, and are willing to negotiate, discuss and communicate with each other, and if the dispute indeed needs to be solved quickly and efficiently.”
Starr says mediation can be especially suitable for parties who are willing to engage in good faith negotiations, and who have a pre-existing amicable relationship that they are eager to preserve. “In the context of cross-border mediation, it is also important for parties to engage a mediator who is alive to cultural sensitivities, and who is capable of identifying any cultural differences or barriers that may come in the way of the parties’ collaborative process,” he says.