Editor’s Note: The American Bar Association has designated this week as Mediation Week in recognition of advances made by the legal profession “in institutionalizing mediation as one of several appropriate dispute resolution process.” Besides the column below, see other commentaries pertaining to Alternative Dispute Resolution in a recent DBR Arbitration and Mediation Special Report at DailyBusinessReview.com.
‘Mejor un mal acuerdo que un buen pleito,” as the Spanish saying goes, “better a bad settlement than a good lawsuit.”
Wise, certainly, yet cross-border disputes often commence without formal mediation efforts. While some recognize mediation as an essential step in the resolution of cross-border disputes, others argue that lack of understanding and information, varying industry demands or even differences in legal and cultural landscapes prohibit effective mediation.
Although mediation has not yet become ubiquitous to cross-border disputes, there is an international “buzz” regarding its use. This year’s ICC New York Conference was dedicated entirely to mediation. The ICDR conference in Miami explicitly addressed the topic of mediation. Conversations about cross-border disputes will continue later this month at the inaugural U.S.-Latin America Legal Summit, presented by ALM, the Daily Business Review and Akerman Senterfitt. Are we now at a tipping point regarding the use of mediation in cross-border disputes?
A 2011 study of dispute resolution practices at Fortune 1000 corporations conducted by Cornell University, Pepperdine University and the International Institute for Conflict Prevention & Resolution reveals that companies are less likely to employ “hardball” litigation as a primary strategy, and now broadly embrace mediation. Companies are more proactive in managing disputes early on; employing third parties to evaluate and assess the dimensions of the dispute. Roughly two-thirds of responding counsel said they employ some form of “early case assessment.” However, when it comes to adjudication, more companies are returning to court litigation while binding [domestic] arbitration usage has dropped.
The results reflect US practices and trends, but have clear implications for the future of mediation in international practice. Survey author Professor Thomas Stipanowich notes: “The common theme in these changing patterns appears to be a desire for maximal control of the dispute resolution process. Corporate attorneys logically prefer to manage outcomes, so mediation and other approaches that aim at achieving a mutually acceptable settlement are strongly favored.”
Mediation is not likely to supplant international arbitration. Neutral venues and the worldwide enforcement of awards under the New York Convention ensure that international arbitration remains the preferred mechanism for adjudication of cross-border disputes. However, mediation will play an ever increasing role in the process.
Linklater’s “Commercial Mediation — a Comparative Review 2013″ offers insight on mediation across 21 jurisdictions, and notes that several countries have passed legislation to mandate its use. Significant among these are laws enacted by states to bring into effect the EU Mediation Directive and its objective: “to facilitate access to dispute resolution and promote the amicable settlement of disputes by encouraging the use of mediation and by ensuring a balanced relationship between mediation and judicial proceedings.”
Although the directive does not obligate parties to mediate, it does provide member states with principles to guide the creation of mediation laws. Enforceability, the ability for the judiciary to invite mediation, and confidentiality all factor heavily in the European directive and in the resulting mediation laws enacted in several European countries, including France, Germany, Luxembourg and Spain.
Turning toward Latin America we see that Peru passed its Ley de Conciliación — Ley No. 26872 requiring mediation. In Brazil, there currently exist two bills before the National Congress which seek to make mediation mandatory for all litigants who submit claims to the courts.
International arbitration practitioners are working to promote mediation, too. Arbitral institutions, for quite some time, have provided tiered model clauses that provide for mediation prior to arbitration. In 2012, the IBA promulgated rules for mediation in the investor-state context. The new 2012 ICC Rules of Arbitration, in Appendix IV – Case Management Techniques, encourage tribunals to suggest mediation. The ICC is revising its own ADR Rules to place greater focus on mediation.
No doubt the most radical change is the AAA’s recent inclusion of mandatory mediation in disputes involving over $75,000. Specifically, in the just released Commercial Arbitration Rules and Mediation Procedures, Rule 9 provides: “… the parties shall mediate their dispute pursuant to the applicable provisions of the AAA’s Commercial Mediation Procedures.” Mediation is now mandatory in all AAA arbitrations administered under its commercial rules unless the parties opt-out.
Mediation in cross-border disputes is here to stay. A 2011 Chartered Institute of Arbitrators survey of 254 arbitrations conducted between 1991 and 2010 reported that, on average, cross-border arbitrations last 17 to 20 months and costs roughly $2 million. When facing such an investment of time and money, parties are incentivized to look to mediation as a way resolve disputes in a confidential and amicable manner, and control costs. Further, mediation is effective in the cross-border context. According to the ICC’s 2012 Statistical Report, 16 out of 21 new cases or 76 percent filed in 2012 under the ICC ADR Rules were settled through mediation, with two additional settled by conciliation, one by a combination of neutral evaluation and mediation, and the remaining two withdrawn before a settlement technique had been fixed.
The framework for international mediation has become “user friendly.” Today, hundreds of mediators are listed on the International Mediation Institute’s website, alongside valuable party feedback about mediator performance. A necessary precondition for acceptance of mediation in the international dispute field — party access to qualified mediators — is rapidly becoming a reality. Together with the continued adoption of national mediation legislation and arbitration rules that promote mediation, it is evident that we are indeed at a tipping point for mediation in cross-border disputes.