Binding mediation: a new form of amiable composition

Much has been written in recent years on the subject of mediation-arbitration or Med-Arb. Rather less has been written on amiable composition, although it is frequently used in some civil law jurisdictions. Binding mediation is similar to Med-Arb, but it also has many similarities to amiable composition. This article considers these similarities and key differences.

Med-Arb

Med-Arb is a hybrid dispute resolution process that seeks to combine the benefits of mediation and arbitration; including, providing the parties with autonomy, control of the process, flexibility, confidentiality, interest-based solutions and a final determination in the event of no settlement between the parties.

It can be used where mediated negotiations do not lead to a settlement. In these circumstances the parties can agree that the mediator becomes the arbitrator and renders a final and binding award on the outstanding matters.

It can also occur where within the framework of arbitration with the parties being encouraged to explore mediation at appropriate stages of the arbitration. Typically, should the parties go to mediation, the arbitration proceedings will be stayed pending the outcome of the mediation or a “Mediation Window” provided for in the procedural timetable.

Generally, Med-Arb will involve the same third party neutral acting as both mediator and arbitrator. Adopting such a combined role may offer advantages since it avoids the need to educate two different people on the same facts and legal submissions. This increased efficiency may provide the parties with significant time and cost savings. This is certainly true if the parties reach a partial agreement where they dispose of factual or legal issues during the mediation part of the proceedings.

Where the arbitration focuses on the parties´ future commercial relationship, Med-Arb´s efficiency becomes even more crucial to the parties. In the arbitration phase of the process, the Med-Arbitrator will use his or her understanding of the relationship between the parties during the mediation phase, or use his or her prior knowledge of their respective underlying interests to find an adequate resolution that the parties may find more acceptable.

The prospect of the same mediator becoming the arbitrator (or vice-versa), however, may cause some to be concerned that this dual role risks undermining the benefits of mediation and arbitration. For example, it may inhibit the parties in engaging in full and frank discussions with the mediator if there remains the possibility that he/she may later become the arbitrator who will determine the dispute. It may also risk exposing the arbitrator and the award to challenge on ethical and due process grounds.

It is a fundamental principle in international arbitration that an arbitrator must be and remain impartial and independent. Not surprisingly, the predominant concern of arbitration specialists is that, as a result of his/her active involvement in both the mediation and the arbitration phase of the process, the mediator-arbitrator may lose his/her impartiality by becoming privy to information regarding the motivations and interests of the parties that would otherwise be privileged and/or confidential, and/or that might separately influence an arbitrator´s judgment in considering the terms of the award.

Some might argue that an arbitrator (like a judge) can close his/her mind to information acquired while wearing the mediator´s cap when determining an issue as arbitrator and wearing the arbitrator´s cap. The reality, however, is that is quite difficult (if not impossible) to do. For example, parties often provide a mediator with both the strengths and weaknesses of their positions, so as to give the mediator the best possible assessment of the case in brokering a realistic settlement. Indeed, such information will be provided as a result of the mediator having worked hard to win a party´s confidence to make such full and frank disclosure. Parties, rarely, if ever, provide this same level of candour to an arbitrator who has authority to decide the merits of the case.

A clear tension exists, therefore, where one person assumes the role of both the mediator and arbitrator.

Amiable composition  

Amiable composition, also known as ex aequo et bono or amiable compositeur is a concept that is known to numerous systems of law and arbitration. It nonetheless remains relatively little used in practice and is often poorly understood.

A number of reasons can be identified for this. The first might be that it could open the floodgates to an overly subjective approach by arbitrators. A second is that it could be argued to be futile, to the extent that arbitration intrinsically is a system which involves the application of good commercial sense and common practice in the resolution of disputes.

This argument is strengthened by the development of the lex mercatoria which, through submitting a dispute to internationally recognized rules and principles, purports to be the very expression of equity.

Despite its general lack of popularity, amiable composition endures. This perhaps demonstrates that the criticism directed against it may not be well-founded, or that it is articulated with insufficient precision. In any event, such criticism presents an obstacle to fully understanding what is amiable composition.

Amiable composition imposes on an arbitrator the task to give a solution to a dispute that may be based in law but that in all cases is consistent with equity. When parties have not chosen a system of law to be apply to their contract, the arbitrator chooses the rules of law that he or she deems appropriate. This may include the lex mercatoria whose flexible nature permits a wide latitude to apply a rule which is apt to produce the desired result. The arbitrator to a certain extent can choose the rules of law in such a way that they coincide with the solution to the dispute in equity.

Where, on the other hand, the parties have made a choice of the rules of law applicable to the dispute the arbitrator is bound to follow this choice. However, he or she is free to interpret these rules in such a way that the equitable solution that he or she gives to the dispute is presented as being based in law.

Failure to render an award that is not found in equity, may mean that the arbitrator has not fulfilled his or her duties and thus risk rendering the award ipso facto voidable by an action for avoidance.

Binding mediation

While binding mediation has all of the characteristics of Med-Arb in that a final decision is made by the neutral if no agreement is reached, the essential difference is that there no final award that is rendered that is capable of enforcement under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Instead, it is a decision that is made subject to contract, such that failure to comply with the decision would be actionable as a matter of breach of contract.

The principal similarity with amiable composition is that the decision is reached on the basis of information provided during the mediation phase that perhaps would not otherwise have been provided by the parties. Thus, allows the arbitrator to make a more informed, and thereby just and equitable decision.

If the parties wish to combine the virtue of all of these processes and obtain an award that should be enforceable, an agreement can be reached to conduct a med-arb, with the arbitration phase, if necessary, to be decided based on the principles of amiable composition. An arbitration process based on that agreement should obviate many of the objections that have been raised to having the mediator serve as the arbitrator. Those objections arise in the context of a strictly law-based arbitration and would be largely irrelevant if the parties agreed to an amiable composition.