Mediation and Arbitration

Introduction

A number of exhaustively researched and well rounded off articles and blogs have been published on our site, Indian Law Portal. These range from the general concept of ADR to specific arenas like the Energy Sector. So instead of dwelling much on the concepts of Mediation and Arbitration, and the general growth of Alternative Dispute Resolution mechanisms, I shall try to focus on the new emerging era of a hybrid system of dispute resolution, a combination of Mediation & Arbitration.

As I started my first article, Employment Bonds, on the blog I began with a line I would like to repeat, “History fosters understanding by tracing origins.”

Therefore, a necessary evil be it, we must dwell some time to understand the concepts of Mediation and Arbitration individually, though as promised it shall not be an ounce more than essential. In India, so far as ADR processes are concerned Section 89 of the Code of Civil Procedure, 1908 holds the field. Section 89 of the Code of Civil Procedure, 1908, speaks of the following methods of resolution of disputes: arbitration, conciliation, judicial settlement (including settlement through Lok-Adalat) and mediation.

ADR mechanisms have the following modes at their disposal:

  • “Conciliation” shall mean mediation conducted as per the procedure for conciliation followed as provided under Arbitration and Conciliation Act, 1996. A settlement agreement in a conciliation proceeding is enforceable in law as an arbitration award under Section 74 of Arbitration and Conciliation Act, 1996.
  • “Mediation” shall mean a voluntary and confidential process of facilitated negotiation where a neutral third party known as the mediator assists parties in reaching a mutually acceptable settlement to their dispute(s). The role of the mediator may be facilitative, evaluative, and/or transformative. However, only the parties shall have the right to mutually decide the final terms on which the dispute is settled.
  • Arbitrations are a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.
  • “Med-Arb” shall mean the process by which the parties shall first refer the dispute to mediation. If the dispute is not settled through mediation, the mediator shall submit possible terms of settlement to the parties. If the parties agree on the terms of settlement, the mediator shall record the terms of settlement as awarded through mutual consent under Section 73 of Arbitration and Conciliation Act, 1996. If the parties do not agree to the terms of settlement, the mediator or any other arbitrator appointed by the parties shall conduct arbitration in relation to the dispute.
  • “Arb-Med-Arb” shall mean a process where the parties shall attempt to settle the dispute through mediation after initiation of arbitration proceedings. If the dispute is not resolved through mediation, the parties shall continue with arbitration. If the dispute is resolved through mediation, the mediation settlement terms shall be referred to the arbitrator who shall record the consent terms as awarded through mutual consent under Section 73 of Arbitration and Conciliation Act, 1996.

Mediation

Henry Brown and Arthur Mariot in their book ‘ADR Principles and Practice’ define mediation as a “facilitative process”, a process by which “disputing parties engage the assistance of an impartial third party, the mediator, who helps them to try to arrive at an agreed resolution of their dispute. The mediator has no authority to make any decisions that are binding on them, but uses certain procedures, techniques and skills to help them to negotiate an agreed resolution of their dispute without adjudication.”[1]

‘Mediation’ is a way of settling disputes by a third party who helps both sides to come to an agreement, which each considers acceptable. Mediation can be ‘evaluative’ or ‘facilitative’. At its core, Mediation is a more informal way by which the parties approach each other, facilitating discussions and negotiations, in the presence of a neutral third person (called the ‘Mediator’) who helps mould the dialogue in a constructive manner. The Mediator helps prevent the parties into skidding off to juvenile remarks, unconstructive criticism, and keeps the discourse on track.

In the event of a deadlock, the Mediator holds one-on-one sessions with each party to help them allay their concerns. What must be kept in mind is that the mediator’s role is never to force a conclusion upon the parties; instead the mediator helps facilitate mutual consensus between the parties. If a mutual consensus is reached the mediator then condenses the terms of the consensus in the form of a written document which then is signed by both the parties. This agreement is absolutely consensual, and the terms contained thereunder are proposed by the parties.

The arbitration and conciliation act 1996 as well as the UNCITRAL model provide that the role of a mediator is not proactive, which is also in tandem with section 89 of the code of Civil Procedure. Unlike the arbitrator a mediator does not take evidence or hear pleadings. , instead t, help the parties articulate their issues, encourages them to devise feasible solutions which not only satisfies their immediate interests but also helps provide a long lasting solution.

As discussed earlier the outcome of a mediation is an agreement called the settlement agreement. In addition to dispute resolution mediation helps build better relationships between the parties and focuses on people cohesion rather than the actual problem. the mediator has to use psychological and communication skills in order to understand the parties and influence them to agree on a single solution.

Mediation can be referred to at any stage of the dispute as following:

  • before arbitration
  • during arbitral proceedings
  • before court proceedings
  • during court proceedings
  • before any stage of appeal right up to the Supreme Court.

Arbitration

Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.

Any commercial matter including an action in tort if it arises out of or relates to a contract can be referred to arbitration. However, public policy would not permit matrimonial matters, criminal proceedings, insolvency matters, anti-competition matters or commercial court matters to be referred to arbitration. Employment contracts also cannot be referred to arbitration but director – company disputes are arbitrable.[2]

In relation to arbitration proceedings, parties can approach the Court only for two purposes: (a) for any interim measure of protection or injunction or for any appointment of receiver etc. ; or (b) for the appointment of an arbitrator in the event a party fails to appoint an arbitrator or if two appointed arbitrators fail to agree upon the third arbitrator.

The Act provides that the arbitral tribunal may rule on its own authority, including any objections with respect to the existence or validity of the arbitration agreement. The arbitration agreement shall be deemed to be independent of the contract containing the arbitration clause, and invalidity of the contract shall not render the arbitration agreement void. Hence, the arbitrators shall have authority even if the contract in which the arbitration agreement is contained is vitiated by fraud and/or any other legal infirmity.

In SBP & Co. v. Patel Engr Ltd.[3] the Supreme Court of India (in a decision rendered by a Bench of 7 Judges) held that the nature of power conferred on the Court under Section 11 of the Act is judicial (and not administrative) in nature. Accordingly, if parties approach the Court for appointment of arbitral tribunal (under Section 11) and the Chief Justice pronounces that he has jurisdiction to appoint an arbitrator or that there is an arbitration agreement between the parties or that there is a live and subsisting dispute to be referred to arbitration and the Court constitutes the Tribunal as envisaged, this would be binding and cannot be re-agitated by the parties before the arbitral tribunal.

The arbitrators are masters of their own procedure and subject to the party’s agreement, may conduct the proceedings “in the manner they consider appropriate.” This power includes- “the power to determine the admissibility, relevance, materiality and weight of any evidence”. The only restrain on them is that they shall treat the parties with equality and each party shall be given a full opportunity to present his case, which includes sufficient advance notice of any hearing or meeting.[4]

Mediation-Arbitration

The dual system of Mediation and Arbitration and is utilized when mediated negotiations do not lead to a settlement. An essential of such a Med-Arb system is an advance agreement under which the parties agree to arbitrate the issues which could not be settled through mediation or which could not be mediated.

American attorney and Arbitrator, Sam Kagel is often credited with coming up with the technique of ‘Med-Arb’. As the New Your Times quoted,

“Mr. Kagel practiced a technique he christened “med-arb,” in which he projected some of the authority he had in personally deciding arbitration cases, his specialty, to persuade parties to agree in mediation cases.”

My first experience with Mediation-Arbitration hybrid was through a National level competition at TNNLS. It was the 2nd edition of this hybrid format competition. This provided us with great insight into the structure of such forms.

This process involves either the same person acting as the mediator and the arbitrator or two different individuals. Keeping in mind the clog of cases suffocating our judiciary such a form of dispute resolution has serious advantages. The development of this format in India itself reflects the need for a more expedient and less formal approach towards dispute resolution.

In such a format, where meditation and arbitration occur in sequence, it is often the same individual or individuals who perform both the neutral functions. This is so because the parties expect the mediator to be adept at formulating settlement strategies based on their expertise and legal and industrial practices.

Though such an approach has a serious shortcoming. As discussed earlier, in arbitration, the arbitrator is expected to be neutral and only has information as much as the parties present before it. Whereas in mediation the parties disclose additional information, confidential information, and other aspects of their actual which they would not be comfortable or willing to disclose before an authority like the arbitrator.

For this reason, the position taken in most international arbitration rules is that any mediation method ought to be separate from arbitration or judicial proceeding, so as to take care of the neutrality and objectivity of the proceedings.

This process has its own advantages and demerits. The chief advantage of this ADR approach is that the resolution of dispute is certain, if not by mediation, then by arbitration. This method of ADR is cost-effective and less time consuming. The chief demerit is that of “award contamination”, coupled with the fear that the information supplied by the disputants during separate sessions with the mediator may be used unfairly, in case, parties eventually end up in litigation. This disadvantage can however be diluted by adopting the New South Wales Model. In New South Wales, the Commercial Arbitration Act, 2010, by virtue of Section 27D(4) provides an opportunity to the disputing parties to step-out of the Med-Arb process, i.e. once the mediation phase is over, and for some reason or the other, resolution of dispute doesn’t take place, then either of the disputing party is entitled to opt-out of the Med-Arb process. Pursuant to the failure of the Med-Arb process any of the disputing parties can have the option of proceeding with the arbitral mechanism with engagement of a person other than the one who acted as the mediator in the first place.

Let us end with certain illustrations of different Med-Arb clauses contained in various agreements around the globe.

The Chartered Institute of Arbitrators[5]

“Any dispute arising out of or in connection with this contract shall, at first instance, be referred to a mediator for resolution. The parties shall attempt to agree upon the appointment of a mediator, upon receipt, by either of them, of a written notice to concur in such appointment. Should the parties fail to agree within fourteen days, either party, upon giving written notice, may apply to the President or the Vice President, for the time being, of the Chartered Institute of Arbitrators, for the appointment of a mediator; should the mediation fail, in whole or in part, either party may, upon giving written notice, and within twenty eight days thereof, apply to the President or the Vice President, for the time being, of the Chartered Institute of Arbitrators, for the appointment of a single arbitrator, for final resolution. The arbitrator shall have no connection with the mediator or the mediation proceedings, unless both parties have consented in writing. The arbitration shall be governed by both the Arbitration Act 1996 and the Controlled Cost Rules of the Chartered Institute of Arbitrators (2014 Edition), or any amendments thereof, which Rules are deemed to be incorporated by reference into this clause. The seat of the arbitration shall be England and Wales.

New York City Bar Association[6]

“If a dispute arises from or relates to this contract or the alleged breach thereof, and if the dispute cannot be settled through negotiations within 30 days, the parties agree to endeavour first to settle the dispute by mediation administered by the (name administrative provider) under its Commercial Mediation Procedures before resorting to arbitration. Any dispute arising from or relating to this contract or alleged breach thereof shall be resolved by arbitration administered by the (name administrative provider) in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. If all parties to the dispute agree, a mediator involved in the parties’ mediation may be asked to serve as the arbitrator.”

LCIA Arbitration and ADR[7]

“In the event of a dispute arising out of or relating to this contract, including any question regarding its existence, validity or termination, the parties shall first seek settlement of that dispute by mediation in accordance with the LCIA Mediation Rules, which Rules are deemed to be incorporated by reference into this clause. If the dispute is not settled by mediation within […………] days of the commencement of the mediation, or such further period as the parties shall agree in writing, the dispute shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause.

The language to be used in the mediation and in the arbitration shall be […………].

The governing law of the contract shall be the substantive law of […………].

In any arbitration commenced pursuant to this clause-

  • the number of arbitrators shall be [one/three].
  • the seat, or legal place, of arbitration shall be [City and/or Country].”

Question & Answers

  1. What is Med-Arb?

Med-Arb (Mediation-Arbitration) means the process by which the parties shall first refer the dispute to mediation. If the dispute is not settled through mediation, the mediator or any other arbitrator appointed by the parties shall conduct arbitration in relation to the dispute.

  1. Are Mediator and Arbitrator the same individual in Med-Arb?

It depends upon the parties. Though international norms highly advise against such a practice of having the same individual as the Mediator and the Arbitrator.

  1. Why should Mediator and Arbitrator not be the same individual?

Arbitrator is expected to be neutral and only has information as much as the parties present before it. Whereas in mediation the parties disclose additional information, confidential information, and other aspects of their actual which they would not be comfortable or willing to disclose before an authority like the arbitrator.

  1. Why should the Mediator and Arbitrator be the same individual?

Since it is the same individual the parties expect the former mediator now arbitrator to be adept at formulating settlement strategies based on their expertise and already available knowledge.

  1. What should be the approach as to the appointment of a Mediator-Arbitrator?

As discussed in the article, the disadvantage of the same individual can be diluted by adopting the New South Wales Model. In New South Wales, the Commercial Arbitration Act, 2010, by virtue of Section 27 D (4) provides an opportunity to the disputing parties to step-out of the Med-Arb process.


[1] I.R. Scott, Professor, ADR: Principles and Practice by Henry J. Brown and Arthur L. Marriott, Arbitration International, Volume 11, Issue 4, 1 December 1995.

[2] Comed Chemicals Ltd. v. C.N. Ramchand 2008 (13) SCALE 17.

[3] SBP & Co. v. Patel Engr Ltd., (2005) 8 SCC 618.

[4] International Airports Authority of India v. K.D. Bali & Anr; (1988) 2 SCC 360.

[5] The Chartered Institute of Arbitrators, http://www.ciarb.org/docs/default-source/das/contractclause.pdf?sfvrsn=4.

[6] New York City Bar Association, http://www2.nycbar.org/pdf/report/uploads/20073042- CompilationofSampleMediationClausesALTDIS442016.pdf.

[7] LCIA, http://www.lcia.org/LCIA/introduction.aspx.

Leave a Reply

Your email address will not be published. Required fields are marked *