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October 2016

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UNCITRAL and the enforceability of iMSAs: the debate heats up – Part 4

“…the mounting global hubbub surrounding mediation, and highly varied perceptions regarding the nature and value of mediation, underscore the need for thoughtful conversation and deliberate reflection on present trends and tendencies. The failure to periodically step back and take stock of where we are and where we are going increases the likelihood of behavioural ‘drift’ – that is, action that becomes increasingly reflexive as opposed to deliberate.” Thomas J. Stipanowich,  ‘The International Evolution of Mediation: a call for dialogue and deliberation

As the 65th session of the UNCITRAL Working Group II on arbitration and conciliation draws to a close today, so too does our series of posts which has reflected on the issues likely to have been discussed and debated in Vienna. In this fourth and final post we consider the application of an arbitration enforcement framework to international mediated settlement agreements (iMSAs) particularly in light of recent trends in international arbitration.

Stipanowich’s appeal above to reflective, rather than reflexive, action has broad resonance. In this post, we focus on the potential relevance of these words to the current reliance on international arbitration to offer up a solution for the allegedly low levels of international mediation.

At the risk of over-simplification, the argument goes that it was the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1957 (the New York Convention) that established, and sustains, international arbitration as a popular dispute resolution process for international disputes. So, if this worked – and works – for international arbitration, why not adopt something similar for international mediation which, it seems, is not enjoying such popularity? It has been argued that until international mediation enjoys an equivalent enforcement mechanism, international mediation will remain less attractive than arbitration.

Some questions

There is, of course, the threshold question of whether we can attribute international arbitration’s rise to prominence and popularity solely to the New York Convention: what else might have led to, and sustains, arbitration as a popular choice for international dispute resolution?

There is then the question of whether it is appropriate to look to international arbitration for a way in which to increase the uptake of international mediation given the fundamental differences between these two dispute resolution processes. Put simply, what worked for arbitration might not work for the very different process of mediation. As noted in our second post, the consensual and voluntary nature of mediation – in contrast to the adjudicatory nature of arbitration – calls into question the need for an enforcement mechanism. Given that the parties themselves determine whether or not they reach a settlement, and the terms of any such settlement, there may well be a likelihood of compliance with the settlement. Indeed, this point has recently been noted by the European Commission in its report on the EC Directive on mediation in civil and commercial matters: “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. It is more likely that parties voluntarily comply with agreements resulting from mediation. These benefits are even more pronounced in cross-border situations.”

And finally, there is the question – which, it seems, has not received much attention – of what are the present trends and tendencies in international arbitration which might inform UNCITRAL Working Group II’s continuing discussions on a proposed convention on the enforceability of iMSAs. It is this issue which will be the focus of the remainder of this post.

Present trends and tendencies

So, what is happening in the international arbitration arena which may be of relevance?

Recent research by the School of International Arbitration of Queen Mary University of London identified that: “A growing concern in international arbitration is a perceived reluctance by tribunals to act decisively in certain situations for fear of the award being challenged on the basis of a party not having had the chance to present its case fully (‘due process paranoia’).” (page 2)

Queen Mary’s study adds that “Many interviewees described situations where deadlines were extended, fresh evidence was admitted late in the process, or other disruptive behaviour by counsel was condoned due to what was perceived to be a concern by the tribunal that the award would otherwise be vulnerable to challenge. Notably, even arbitrators identified this phenomenon as both problematic and commonplace. Indeed, many revealed in interviews that this concern has influenced decisions they have made when sitting as arbitrator. Interviewees were generally sympathetic to the reasons behind the tribunals’ caution. However, they often expressed the view that some of arbitration’s more prevalent problems, such as lack of speed and increased cost, are partly rooted in this due process paranoia.” (page 10)

Why is this recent trend in international arbitration relevant to our discussions on a convention on the enforceability of iMSAs?

First, it reminds us that an enforcement convention cannot guarantee direct enforcement: there will be limited grounds, as there are under the New York Convention, under which the enforcement of an iMSA could be challenged. So, if parties to iMSAs tend not to comply with their agreements – as seems to be suggested by the push towards a convention on the enforceability of iMSAs, though there appears to be no empirical data to support this – a convention may not necessarily bring an end to any such problems of compliance. Put simply, and perhaps cynically, there will still be wriggle room even with such a convention. If the parties wish to renege on their agreement, an enforcement mechanism may not prevent them from doing so.

Secondly, as the research has identified, grounds for challenge can affect – or we might say infect – the process, in the case of international arbitration resulting in what has been termed “due process paranoia.” One of the draft grounds of challenge to direct enforcement which UNCITRAL is currently considering for iMSAs certainly has a “due process” flavour to it. Article 8(1)(e) of UNCITRAL’s draft instrument states:

The conciliator failed to maintain fair treatment of the parties, or did not disclose circumstances likely to give rise to justifiable doubts as to its impartiality or independence.”

Can we sense a collective concern? How will “fair treatment of the parties” be determined? Could a mediator spending more time with one party in caucus sessions (where the mediator meets separately with each party) be unfair treatment of the other party? And what about a perception that a mediator reality tests one party’s view more than another’s? Is that unfair – or fair – treatment? And who will determine “fair”? How will the requirement to treat parties fairly – whatever that might mean – alter the way in which mediators mediate? What might fall within “circumstances likely to give rise to justifiable doubts as to the mediator’s impartiality or independence?” At what point does a doubt become “justifiable”? And there are more questions…

As noted in our second post, there are characteristics of the mediation process which raise significant challenges for any basis of challenge to direct enforcement which touches upon the way in which mediation is conducted. These characteristics include the confidential nature of mediation, its flexibility, its voluntary nature, the focus on party self-determination and, of course, the use of caucus sessions. As UNCITRAL Working Group II continues to review the draft instrument on direct enforceability of iMSAs, the current trend of “due process paranoia” in international arbitration encourages us to continue to ask how the various grounds of challenge might sit with the unique characteristics, and opportunities, of the mediation process.

Reflexive or reflective action?

If there is a tendency for parties to not comply with iMSAs – though there does not seem to be empirical data which suggests that this is the case – is a convention on the enforceability of iMSAs the only, or the best, way in which to address this tendency? Might we be being “reflexive” in borrowing one element (an enforcement mechanism) from international arbitration to address a supposed problem with international mediation? If there is an issue with compliance, in addition to considering a convention on the enforceability of iMSAs, might we also try to establish why parties choose to not comply with their agreements? Could we look more broadly to the various stages and elements of the mediation process, for example, how the parties entered into the process, how it was conducted and how it was concluded, for insights into the reasons why parties renege on their agreements? We could then seek to address these reasons. Adopting an external enforcement mechanism might not be the only – or most effective – way to reduce the likelihood that parties will walk way from their agreements. And, if we think of the broader purpose of a convention on the enforceability of iMSAs, such a convention might not be the only – or best – way to promote cross-border mediation.

There has been much for UNCITRAL’s Working Group II to consider in Vienna. We will eagerly await the outcome of these discussions.

UNCITRAL and the enforceability of iMSAs: the debate heats up – Part 3

If you have been following this four-part series, you will be aware that Nadja Alexander, Anna Howard and I have been reflecting on a very current subject for the dispute resolution community: the enforceability of international commercial settlement agreements resulting from mediation. This week, the UNCITRAL Working Group II on arbitration and conciliation has been discussing this very topic in Vienna. The Working Group has been exploring the creation of an instrument for the enforcement of international mediated settlement agreements (iMSAs). The Working Group has prepared  draft provisions for an instrument, which could take the form of a convention, a set of model provisions or guidance text.

Our first post discussed the legitimacy of a proposed multilateral convention for the recognition and enforcement of iMSAs, addressing the question of why iMSAs should be accorded higher status than other contracts, as well as the view that a convention may infringe the right of access to justice.

We then examined the implications of a convention on the objectives and values of mediation, raising some questions on how mediation confidentiality, mediator neutrality, party autonomy and creativity could potentially be affected by a convention that is not carefully tailored to fit the mediation process.

In this penultimate post, we shift our attention to the threshold issue of whether a convention is actually necessary. We consider some of the doubts that have been cast on the justifications for such a convention.

(A) Is enforcement a problem presently?

First, some have questioned whether iMSAs are seldom complied with and whether a convention is really necessary. Several commentators have pointed out that there are in fact high compliance rates for iMSAs. As the parties in mediation have themselves developed a resolution which they feel is fair and workable, the likelihood of non-fulfilment of their obligations is reduced. Also, in recent empirical research on international commercial mediation conducted by S.I. Strong, it is notable that the respondents were asked whether they thought it would be difficult to enforce an iMSA and not whether they had had experience of needing to do so.

Could the efforts to strengthen the enforcement regime for iMSAs be much ado about nothing?
These doubts could be easily put to rest by undertaking more comprehensive research across jurisdictions to gather more conclusive evidence on the rate of compliance with iMSAs as well as the existing reasons for non-compliance.

Notwithstanding the current uncertainty about compliance rates, it is important to recognise the more significant need of promoting cross-border mediation. Regardless of the actual level of compliance with iMSAs, there is an overarching goal of encouraging greater usage of international mediation. Strengthening the international enforcement regime is a means to achieving this overall aim. As Laurence Boulle has highlighted in a recent article, “While voluntary compliance is the reality of many mediated settlements in many jurisdictions, the fact should not be overlooked that the very existence of an enforcement regime might be a significant inducement for parties to perform in terms of their agreement, in what might be labelled a quasi-compulsory arrangement.”

(B) Do we need a convention to promote the use of international mediation?

We turn then to examine the goal of promoting the use of cross-border mediation. One major question is whether a convention will indeed encourage greater use of international mediation. If we consider the existing empirical evidence, there are mixed conclusions:

(i)  A report on a 2007 survey conducted by the International Bar Association (IBA) summarised that “the enforceability of a settlement is generally of the utmost importance” and “in international mediation…reinforcement is more likely to be sought because of the potential of expensive and difficult cross-border litigation in the event of a failure to implement a settlement”.

(ii) In a 2014 survey conducted by the International Mediation Institute (IMI), 90% of respondents agreed that the absence of any kind of international enforcement mechanism for MSAs presented an impediment to the growth of mediation in resolving cross-border disputes; and 93% indicated they would be likely to mediate a dispute with a party from a country that ratified a UN convention on enforcement of mediated settlements.

(iii) S.I. Strong’s survey in assistance of Working Group II indicated that 74% of respondents thought that an international instrument concerning the enforcement of settlement agreements arising out of an international commercial mediation or conciliation akin to the UN convention would encourage mediation and conciliation.

(iv) A recent study by Queen Mary University of London presented a less enthusiastic response from respondents – only 54% answered “yes” to the question on whether a convention on the enforcement of settlement agreements resulting from a mediation would encourage them to use mediation more often.

The majority of these studies indicate a preference for greater certainty of enforcement of iMSAs. In comparison to arbitration, the enforcement options for cross-border mediation seem to lack certainty and uniformity across jurisdictions. It is highly likely that such “weaknesses” in the enforcement regime have affected the users’ perceptions of mediation in comparison to arbitration. A convention could then be instrumental in reinforcing the users’ confidence in the mediation process, marketing international mediation and sending a symbolic message about the global importance of mediation. Elevating mediation to a similar status as arbitration and litigation could have a huge impact on its future development.

Notwithstanding the benefits of strengthening the enforcement regime, we have suggested in our  previous post that it is much more crucial to ensure that the resulting instrument is consistent with the underlying values of the mediation process. We note, in this regard, that the respondents in the above surveys were not informed about the potential substance of the convention or how it may alter the mediation process. We can thus only conclude that the respondents welcome greater certainty of enforcement of an iMSA, but without any consideration of the content and consequences of such a convention.

We would therefore argue that increasing the level of certainty in cross-border enforcement of iMSAs is secondary to, and conditional upon, crafting an instrument that is in tune with the mediation process. A more rigorous enforcement regime which results in undermining the essential qualities of mediation is far from desirable.

If we were to adopt such an approach, there is perhaps a need to shift our attention to research examining whether an international legal instrument will increase the use of cross-border mediation, enhance client satisfaction of the mediation process and be suitable for the type of mediated outcomes being achieved in cross-border settings.

(C) Are we placing too much reliance on a convention to promote cross-border mediation?

As the ADR community considers how to promote the use of international mediation, there is the danger of focusing narrowly on one option – the multilateral instrument for cross-border enforcement – and neglecting other varied and multi-pronged ways of promoting mediation. The conversation should be opened up to consider how international mediation might be encouraged through other means, such as raising the awareness of mediation and increasing the usage of multi-tiered ADR clauses in contracts. It is also worth examining the ways in which parties enter the mediation process, rather than confining our discussion to how they conclude the mediation process.

The race towards drafting a “NY Convention” for iMSAs may also cause policy-makers to overlook the existing mechanisms and cross-border legal instruments that can support the enforcements of iMSAs. Examples include the  arb-med-arb process, the Brussels I Regulation  and the Hague Convention on Choice of Court 2005. These options deserve further study as to the extent they address the call for harmonisation of enforceability of MSAs.

In sum, a convention for enforcement of iMSAs certainly raises the status of international mediation, putting it on par with other well-used dispute resolution processes. Nevertheless, we hope that the dispute resolution community and policy-makers would look further than a convention, and that researchers provide greater clarity on the existing factors that affect the development of international mediation.

Keep posted for our final post on the application of an arbitration enforcement framework to iMSAs particularly in light of recent trends in arbitration.