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« Speak softly and carry a big stick » (Theodore Roosevelt)
What are ADR hybrids?
Alternative Dispute Resolution (ADR) includes practices, techniques and approaches for resolving and managing conflicts short of, or alternative to, full-scale court process. The variety of ADR models found in most countries may be described in two fundamental ways:
- basic ADR processes, which include negotiation, conciliation, mediation, and arbitration;
- hybrid ADR processes, in which specific elements of the basic processes have been combined to create a wide variety of ADR methods (e.g., mediation is combined with arbitration in med-arb). Hybrid ADR processes may also incorporate features found in court-based adjudication; for example, the mini-trial mixes an adjudication-like presentation of arguments and proofs with negotiation.
ADR is defined in various ways. ADR has been defined as an "umbrella term for processes, other than judicial determination, in which an impartial person assists those in a dispute to resolve the issues between them".
Some methods, such as mediation, involve seeking resolution by agreement reached between the parties.
Mediation is a process in which the parties to a dispute, with the assistance of a dispute resolution practitioner (the mediator), identify the disputed issues, develop options, consider alternatives and endeavor to reach an agreement.
The mediator has no advisory or determinative role concerning the issues in dispute or the outcome (especially in facilitative mediation). The mediator will, however, usually advise on or determine the process of mediation. Mediation may be undertaken voluntarily, by a court order, or under an existing contractual agreement.
Other methods for resolving disputes, such as arbitration, may involve binding determination by a third party.
There are also a variety of "alternative" means by which judicial officers may involve independent third parties to assist in the resolution of cases that are being litigated. ADR techniques may be used to determine some or all of the legal and factual issues in dispute.
Some "hybrid" ADR methodologies may involve a combination of different techniques or processes. In cases which are the subject of litigation in courts, ADR may be employed by agreement between the parties, at the suggestion of the court or by direction or order of the court.
Sometimes the term ADR includes approaches that enable parties to manage and resolve their own disputes without outside assistance.
Although there is widespread support of the use of ADR, there is controversy about a number of issues, including whether litigants should be compelled to participate in ADR, particularly in processes which may have a non-consensual binding outcome. There are also divergent views about both the policy question of whether judicial officers should directly participate in ADR processes and the practical issue of the resources required to facilitate this.
ADR is increasingly referred to as "appropriate dispute resolution", in recognition of the fact that such approaches are often not just an alternative to litigation, but may be the most appropriate way to resolve a dispute.
Dispute resolution processes are often classified as facilitative, advisory (or evaluative), determinative or hybrid.
Facilitative processes: the dispute resolution practitioner assists the parties to a dispute to identify the issues in dispute, develop options, consider alternatives and endeavor to reach an agreement about some issues or the whole of the dispute. Facilitative processes include negotiation, facilitation, conferencing and mediation.
Advisory processes: the dispute resolution practitioner considers and appraises the dispute and provides advice as to the facts of the dispute, the law and, in some cases, possible or desirable outcomes, and how these may be achieved. Advisory processes include expert appraisal, case appraisal, case presentation, mini-trial and early neutral evaluation.
Determinative processes: the dispute resolution practitioner evaluates the dispute (which may include the hearing of formal evidence from the parties) and makes a determination. Examples of determinative dispute resolution processes are arbitration and expert determination.
Hybrid processes: the dispute resolution practitioner plays multiple roles. For example, in conciliation and in conferencing, the dispute resolution practitioner may facilitate discussions as well as provide advice on the merits of the dispute. In hybrid processes, such as med-arb, the practitioner first uses one process (mediation) and then a different one (arbitration).
There are basically two types of definitions of ADR hybrids:
- one set of definitions refers to ADR hybrids as variations of mediation with other forms of ADR;
- another set of definitions refers to ADR hybrids as any kind of ADR method using techniques from various basic ADR mechanisms.
The role of the third party neutral often determines the type of ADR process to be used.
ADR processes normally fall into one of four different categories:
• Adjudication-based (the decision is imposed by a judge (e.g. in "private judging" or "rent-a-judge", i.e. simplified proceedings presided by an actual judge, or a retired judge - less common in Europe - or an arbitrator);
• Recommendation-based (e.g. in evaluative mediation);
• Facilitation-based (the parties themselves try to reach agreement with the help of a neutral, e.g. in facilitative mediation)
In adjudication-based processes, the role of the third party neutral is to make a decision for the parties after some form of hearing or decision-making process. That decision is binding on the parties by consent or through the operation of law.
With recommendation-based ADR processes, the third party neutral does not make a decision for the parties. Rather, the neutral will make suggestions to the parties regarding how the dispute may be resolved.
In facilitation-based processes, the neutral has no formal role in determining the terms under which the dispute may be resolved. Rather, the neutral guides the process to be followed by the parties in attempting to find their own resolution of the dispute.
Hybrid processes combine two different roles for the neutral. An example of a hybrid process is med/arb (mediation/arbitration), where the third party neutral initially mediates between the parties and attempts to help the parties reach resolution. In the event the parties fail to resolve the dispute, the third party neutral will then assume the role of arbitrator and determine the outcome of the dispute on behalf of the parties.
Hybrids have been developed, essentially, to combine the best of both worlds.
In other words, hybrids are intended at combining advantages of ADR methods, whilst attempting to minimize or eliminate potential disadvantages.
A reflection on the usefulness of ADR hybrids therefore has to start with a reflection on the benefits and disadvantages of ADR in general.
Benefits of ADR
Some of the benefits of ADR include:
• ADR can allow access to justice. For example, as there can be cost and time savings in ADR, it can be more accessible to those of limited financial means.
• ADR can be faster. A dispute can often be resolved in a matter of months, even weeks, through ADR, while a legal proceeding can take years.
• ADR can save time and money. Court costs, lawyers' fees and experts' fees can be saved. There can also be savings for the courts and government.
• ADR can permit more participation. The parties may have more chances to tell their side of the story than in court and may have more control over the outcome ("empowerment" of the parties).
• ADR can be flexible and creative. The parties can choose the ADR process that is best for them. For example, in mediation the parties may decide how to resolve their dispute. This may include remedies not available in litigation (e.g. a change in the policy or practice of a business).
• ADR can be cooperative. The parties may work together with the dispute resolution practitioner to resolve the dispute and agree to a settlement that makes sense to them, rather than work against each other in an adversarial manner. This can help preserve relationships.
• ADR can reduce stress. There are fewer court appearances. In addition, because ADR can be speedier and save money, and because the parties are normally cooperative, ADR is less stressful.
• ADR can remain confidential. Unlike the court system where everything is on the public record, ADR can remain confidential. This can be particularly useful, for example, for disputes over intellectual property which may demand confidentiality.
• ADR can produce good results. Settlement rates for ADR processes are often very high, generally between 70% and 85%.
• ADR can be more satisfying. For the above reasons, many people have reported a high degree of satisfaction with ADR (resulting in higher rates of compliance with settlement agreements - i.e. less need for lengthy and risky enforcement proceedings).
Or, in other words:
Type of Benefit
• Cheaper redress
• Resolution of dispute more quickly than mainstream court processes
• In recommendation- and facilitation-based processes, retention of decision making with the parties rather than referral to a third party
• In recommendation- and facilitation-based processes, a reduction of the need to enforce proceedings to ensure that parties will comply with an agreement, since the parties enter into their agreements consensually.
Private sector benefits:
• Enhance private sector development by creating a better business environment;
• Lower direct and indirect costs of enforcing contracts and resolving disputes;
• Lower transactional costs so that resources are not diverted from the business;
• Reinforce negotiation-based methods of doing business, depending on the process.
• Enhance good public sector governance by reducing the backlog of disputes before the courts and improving the efficiency of the court system;
• Provide better access to justice through a greater choice of dispute resolution methods;
• In particular jurisdictions, improve the reputation of the court system in providing effective resolution of disputes.
Disadvantages of ADR
Some of the (actual or potential) disadvantages of ADR include:
• Suitability. ADR may not be suitable for every dispute - for example, if a party wishes to have a legal precedent or it is a public interest case, judicial determination may be more appropriate.
• Lack of court protections. If ADR is binding, the parties normally give up most court protections, including the right to a decision by a judge or jury, based on admissible evidence, and appeal rights; also, in the case of judicial decisions, the right to reasons for the decision (although in many jurisdictions, an arbitral award has to be reasoned - and many ADR mechanisms in which there is no reasoned decision, end in a settlement agreement to which both parties agree, which reduces or eliminates the need for a reasoned decision).
• Lack of enforceability. The durability of ADR agreements can be an issue if they lack enforceability. Generally not a serious problem in European jurisdictions.
• Disclosure of information. There is generally less opportunity to find out about the other side's case with ADR than with litigation. ADR may not be effective if it takes place before the parties have sufficient information about the strengths and weaknesses of their respective cases.
• Cost of ADR. Dispute resolution practitioners may charge a fee for their services. If a dispute is not resolved through ADR, the parties may have to put time and money into both ADR and a court hearing.
• Delay. ADR adds an extra step, which may increase delay.
• Fairness. ADR processes may not be as fair as court proceedings. Procedural rules and other laws governing the conduct of court proceedings contain many safeguards to ensure the fairness of the process and the outcome. These are not necessarily included in ADR. In addition, there may be power imbalances if a party is not represented.
• Delaying tactics. ADR processes can be used as a delaying tactic or to obtain useful intelligence on an opponent before proceeding with litigation.
• Inequality. Effective ADR requires that parties have the capacity to bargain effectively for their own needs and interests. A party may be vulnerable where there is an unequal power relationship, particularly if the party is not represented.
Discussion of various forms of hybrids
Med-Arb, or Mediation-Arbitration: An example of multi-step ADR, parties agree to mediate their dispute with the understanding that any issues not settled by mediation will be resolved by arbitration, using the same individual to act as both mediator and arbitrator. Having the same individual act in both roles, however, may have a chilling effect on the parties participating fully in mediation. They might believe that the arbitrator will not be able to set aside unfavorable information learned during the previous mediation. Additional related methods have evolved to address this problem.
Other definitions of Med-arb:
Mediation-Arbitration (Med-Arb) is a combination of mediation and arbitration. Initially, a neutral third party mediates a dispute until the parties reach either a settlement or an impasse. After the impasse, a neutral third party issues a binding arbitration decision on the cause of the impasse or any unresolved issues. The disputing parties agree in advance whether the same or a different neutral third party conducts both the mediation and arbitration processes. Use of the same person for both processes creates a problem, according to some authors, when the mediator turned arbitrator must ignore previously acquired confidential information.
Or, in other words:
Med-Arb is an abbreviation for mediation-arbitration. There are basically two distinct forms. In the first, the mediator, by agreement, acts as both the mediator and the arbitrator pursuant to a binding arbitration agreement. If there are still unresolved issues after the mediation, the matter goes to arbitration. The second process involves the pre-selection of a separate arbitrator (i.e., in that form of med-arb, another person), who deals with the unresolved dispute if mediation is not successful. Med-arb can be particularly useful where the parties have a desire to continue a relationship or resolve the matter in a timely fashion.
Advantages of med-arb
The following advantages of Med-Arb have been identified:
1) Finality: the dispute will be resolved by either mediation or arbitration.
2) Flexibility: the process offers the opportunity to move from mediation to arbitration and back to mediation (even in the arbitration phase the arbitrator can step back to his or her mediator's role to mediate a particular part of the award).
3) Med-Arb can result in cost and time efficiencies, compared to separate mediation and arbitration proceedings.
4) There is a powerful incentive to settle: the presence of the neutral party and the threat of an arbitrated decision creates an incentive for the parties to successfully mediate their dispute.
5) Med-Arb creates an incentive for the parties to participate in the mediation phase genuinely and in good faith because they know that if they fail to reach agreement, they lose control over the outcome.
6) There is a good success rate: relatively few cases in Med-Arb actually proceed to arbitration.
7) The neutral party can gain insights during mediation that may contribute to a more appropriate arbitration award (if the same person is used).
Studies regarding hybrid processes have shown positive results. Research conducted in Canada into the use of Med-Arb in Crown employee grievances in Ontario concluded that:
- Med-Arb seemed to reduce costs and increase efficiency. Med-Arb is more likely to be used when the hearing is extremely long and when there are many interrelated issues.
- The success of Med-Arb is evident in the fact that only a small percentage of cases progressed to the arbitration stage.
- The research failed to support the usual criticisms of Med-Arb.
The following disadvantages of Med-Arb have been identified:
1) A neutral party who mediates and then arbitrates may be perceived as biased and may be aware of information conveyed informally and confidentially in mediation.
2) Private sessions, which are confidential, may violate due process because the other party may not have the opportunity to challenge what is said to the neutral person.
3) The fear of arbitration could make mediators too forceful, resulting in a decision that unduly represents the position of the mediator.
4) The neutral party may not have the skills to function effectively as both a mediator and arbitrator.
5) The parties may be inhibited in their discussions with the mediator and reveal less if they know that the mediator might be called on to act as arbitrator in the same dispute.
6) A party to Med-Arb can force the transition from mediation to arbitration to occur by simply refusing to participate or negotiate.
7) The mediation phase could be used as preparation for a possible arbitration, making it more likely the dispute will go to arbitration.
Concerns about hybrid processes and procedural fairness
One of the primary concerns raised with respect to Med-Arb is procedural fairness. The arbitrator may appear to be and may actually be biased if the arbitrator received private representations from the parties when acting as mediator. Procedural fairness in the arbitration may require full disclosure to the parties of any such private representations.
If the mediator does not hold private sessions issues of procedural fairness may not arise but the disclosure of confidential or 'without prejudice' information may give rise to problems. Such difficulties may result in parties not being as open as may be desirable. One way around the problem is to appoint a different arbitrator who was not privy to the information disclosed in a private session. However, this would reduce the efficiency of the process and add to costs.
One commentator suggests that confidential information acquired in a Med-Arb process creates no more a problem than when an arbitrator or a judge has to consider the admissibility of evidence. Even if the evidence has already been heard, if it is deemed inadmissible, a competent judge or arbitrator knows how to disregard it. Similarly, a competent med-arbiter will be able to disregard what was learned in a failed mediation when deciding a case.
Other methods suggested to reduce potential problems include:
- appointing a dispute resolution center to administer the processes and if requested, nominate a different person to conduct the second stage
- introducing a code of ethics for neutrals to assist them in handling confidential information obtained in private sessions
- training neutrals to ensure that any confidential information is only considered in the context of mediation and that any arbitration decision is based directly on the evidence presented.
Some authors define the identity between mediator and arbitrator in med-arb as one of the fundamental characteristics of med-arb, although it can very well be defended that using a different person as mediator and arbitrator does not fundamentally change the nature of the process. Doing so can tackle one of the main issues by which some critics of med-arb seem to be preoccupied - but at the same time, such a change can increase the costs and can be more time-consuming for the parties, in addition to being a possible source of frustration caused by the need to start all over again if the dispute resolution practitioner would be a different person in the arbitration stage of the proceedings.
Given the undeniable success of both arbitration and mediation, it was inevitable that these two processes would attempt to be merged into a "hybrid" procedure. The singular point of definition of mediation-arbitration (med-arb) is, according to some authors (see e.g. Richard P. Flake, "MED/ARB - a viable ADR vehicle? Nuances of Med/Arb-A Neutral's Perspective", full text available on www.cedires.com) that the same neutral acts as both the mediator and if need be, the arbitrator. The end result of this process is that there is no question the dispute will be resolved; moreover it will be resolved more quickly than if an arbitration with a different neutral were to follow an unsuccessful mediation. The question to be answered is should these two distinct processes be merged? Is combining the two processes desirable? The answer will depend on the perspective of the opinion-giver. While there is more recent literature on the med/arb process, mostly from the theoretical perspective, field studies are still largely anecdotal. Some have criticized the combination because of ethical issues raised by the dual role of the neutral and have charged that the process is flawed.
However, it seems that critics of med-arb are usually those who have never seen this process work in practice. An important factor in deciding the question of the viability of this hybrid process is the level of its understanding by the actual participants. If the parties and their counsel understand the pros and cons of merging the two processes and the other nuances that result from their combination, med-arb can be an extremely effective method of resolving disputes.
There are strong arguments to accept having the same person act as both mediator and arbitrator (especially in terms of efficiency, both in terms of time and money). Yet, the concept is - especially when one accepts med-arb with caucuses, which remains open for debate - a radical departure from "classic" arbitration philosophy. Ethical rules governing arbitration prohibit an arbitrator from discussing or interacting in any way with the parties, except in an administered conference in which both parties and counsel are in attendance. There should be no ex parte communication with the arbitrator. In practice, an arbitrator being considered for appointment is usually requested to disclose prior knowledge of the case and contacts with the parties or their counsel. This is to prevent the purity of the arbitration process from being tainted by possible partiality on the arbitrator's part.
But in med-arb, because the arbitrator also acts as the mediator, the neutral will meet with each side independently in private sessions out of the presence of the other party - that is, if the process is designed in such a fashion that the mediation stage of the med-arb proceedings would include caucuses, which is not necessarily the case. Conceivably, if a caucus would occur, discussions on significantly important issues can take place between the neutral and one of the parties.
The mere thought of a decision-making neutral discussing the facts of a dispute privately with one disputant is a major reason why the process receives less than universal support. This is precisely the reason why those in favor of med-arb, may consider to forget about caucus altogether.
Med-arb can give parties the chance they need to fashion a resolution on their own terms in mediation, and the assurance that if mediation fails, a rapid award will be obtained from a neutral with thorough knowledge of the dispute. While the ultimate outcome of a particular ADR process is important to users, almost equal in importance is the ability to bring finality to the situation in a relatively inexpensive and time-efficient manner. Said another way, while the parties want to win, they want to do so in the most efficient, cost-effective way. The med-arb process without question favorably satisfies the desires of timely resolution and, if properly done, cost-efficiency. In that regard, one might say that med-arb combines the best of both mediation and arbitration.
The parties may agree to participate in med-arb either before or after a dispute arises. Parties who agreed to arbitrate may choose to participate in a prior mediation with the arbitrator serving as mediator; similarly, parties who agreed to mediate may ask the mediator to become the arbitrator and decide their dispute.
In med-arb, the parties generally create the methodology that will be followed. As an example, the mediation portion of the proceeding may be scheduled for a definitive time period. A complete mediation can be scheduled for half a day, or one or more days, and a separate arbitration can be scheduled for a later time. Sometimes, however, the arbitration immediately follows the mediation portion of the process. Thus, in a one-day med-arb, a half-day arbitration immediately follows a half-day mediation; in a two-day schedule, the first day is devoted solely to mediation and the second, if necessary, solely to arbitration.
The arbitration hearing may be a "standard" arbitration, with a full presentation of evidence, including witness testimony. The parties should determine in advance of the med-arb whether a full evidentiary hearing will take place at the arbitration stage. In many if not all cases, such a hearing will not be necessary. Typically, after the mediation session runs its course (assuming no resolution was reached), the parties, having fairly presented their case to the neutral in the mediation phase, are content with either a summary presentation of the case or simply closing arguments for the arbitration portion of the process. It is very important for the parties, who are the designers of the med-arb process (except if they use the services of an dispute resolution service provider offering a comprehensive med-arb procedure), to reach agreement on methodology and to memorialize their agreement prior to the commencement of the med-arb.
It is also critically important for both parties and counsel to fully understand nuances, imperfections and ethical issues associated with the process. Not every case is appropriate for med-arb, and many parties or counsel will not wish to accept the imperfections considered by some to be inherent therein.
Pros and Cons of med-arb
Med-arb's most appealing attribute is the certainty that the dispute will come to an end, one way or the other, in relatively quick fashion. Ideally, the parties will resolve the dispute to their mutual satisfaction during the mediation, making arbitration unnecessary. If agreement does not occur, however, the mediator will put on the arbitrator's hat and ultimately issue an award, following whatever arbitration procedures the parties have previously agreed upon. The dispute ends at that point, allowing the parties to move on to other business.
The speed and decisiveness of the med-arb process is not without sacrifices, however. One such sacrifice relates to confidentiality on the part of the mediator. In the mediation process, any statement made by a party to the neutral mediator is absolutely confidential unless the party has authorized its disclosure. This is often considered to be a cornerstone of the mediation process. Further, in most jurisdictions, the entire mediation process is cloaked with confidentiality, such that the neutral cannot be subpoenaed to testify to what was heard or discussed with either party in the mediation. Concern regarding confidentiality in mediation is so great that some jurisdictions are in the process of creating ethical rules for mediators.
How is confidentiality affected in the med-arb process? Essentially, the neutral's responsibilities relative to confidentiality do not change. Confidential information related by a party to the neutral during the mediation phase must be held in confidence by that neutral throughout the entirety of the process, including the subsequent arbitration, if any.
The difficulty arises, of course, when the neutral puts on the arbitrator's hat and decides the issue, while in full possession of the confidential information. This information, if not brought forth by the party itself during the arbitration, will not be subject to challenge or cross-examination. This raises concerns about the information influencing the arbitrator's deliberation of the merits of the case, particularly since the information may be unreliable or, at least, untested.
As a practical matter, once a fact is put into the universe, the law of human nature usually dictates that it will be considered on some level.
Because the arbitrator conducts private caucuses during the mediation phase of med-arb and may come into possession of information, even critical information, not known by the other party, there is a risk the arbitrator's decision may be based in part on that information (that is: if caucus is allowed to be part of the process...). This risk cannot be stressed enough. However, because both parties will get to "ex parte" the mediator, so to speak, the playing field is somewhat leveled. The import of this particular issue must be clearly understood by all parties involved.
The "trust factor" in the neutral also plays an important role. Parties usually trust an experienced neutral to be able to cut the wheat from the chaff. Still, the issue of compromised confidentiality is a main reason why some commentators and practitioners do not accept the med-arb process as a legitimate vehicle for alternative dispute resolution. A more balanced approach seems to embrace med-arb as a very effective and efficient dispute resolution mechanism, but not to allow caucus to be part of the process. In situations where the parties feel the need to privately converse with the mediator, but still wish to have the comfort of finality, i.e. the certainty that the matter shall be resolved, co-med-arb can be a valid option (see below).
Withholding of Information
A by-product of the concern that the arbitrator may be influenced by confidential information is that the parties, who usually feel more comfortable confidentially discussing the weakness of their case in the typical mediation, will be reluctant to do so during the mediation phase of the med-arb proceeding. It is simply human nature not to readily discuss any weakness with a potential ultimate decision maker.
One of the main activities of pure mediation is the honest and candid give and take regarding the strengths and weaknesses of the case in a confidential setting with the mediator. The mediator's ability to perform "reality testing" with the parties is a key ingredient of successful mediation, and one of the tools every competent mediator uses to help the parties seek common ground. This activity is, according to some, compromised in the med-arb process, and as a result the mediation part of the process may be more difficult, and ultimately may be unsuccessful.
The neutral should discuss these confidentiality-related issues fully with the parties in order to allow them to make an informed decision about what is potentially being compromised. After such a discussion, the parties may be content to compromise this issue for the sake of a speedy and decisive resolution. A well-drafted med-arb agreement covering the confidentiality issues is highly recommended.
Another issue to be considered is the ability of the neutral who will act both as mediator and arbitrator. Successful mediation techniques include an ability to obtain the confidence of the parties, hear what they have to say, and discuss the potential weaknesses of their positions. These skills can be critical to achieving a resolution at mediation.
In arbitration, the neutral should be able to sift through the critical facts and render an award based on fact and/or law.
The ideal med-arb neutral should have the necessary skills to perform both roles. There is always the possibility, however, that the individual selected may have more of an aptitude in one ADR process than in another. Parties may even desire a neutral with greater skills in one process.
Combining mediation and arbitration may affect the mediator's own conduct. Whereas the typical mediation involves the reality-testing discussions referred to above, some neutrals may question whether to engage in opinion giving when they may become the ultimate arbiter of the case.
Some authors with considerable practical experience in med-arb proceedings, believe it is not appropriate for the neutral to opine on particular issues during the mediation, and as a result they report having become less opinionated during the mediation phase of med-arb. It is certainly possible and some would argue somewhat easier for a neutral in this process to "steer" the parties to a resolution, given the neutral's ultimate power as the arbitrator. While giving opinions or suggestions actually may hasten a mediated settlement, it is actually preferable for the parties to mediate the case to a resolution based on their own feelings and understandings about the dispute.
Because of this "chilling effect" on both the parties and the mediator, the success rate of resolution in the mediation phase is, predictably, perhaps not as high as in the "standard" mediation context (although reliable statistical data is not available). This information should, according to some, also be shared and understood by all parties prior to agreeing to use the med-arb process. Others believe that informing the parties about a possible lower success rate of mediation in med-arb proceedings would be both irrelevant and speculative.
In order for the neutral in a pure mediation to avoid conduct that could later taint an arbitration of the dispute, it is very important for the parties and the mediator to agree up front as to whether the mediator will later become the arbitrator in the case. Some mediators refuse to become an arbitrator in a case in which they acted solely as the mediator. They do not want the parties to misinterpret their discussions with them as a mediator, as their intent was solely to gain voluntary settlement. This point of view seems to be entirely valid: in order for a mediator to be able to become an arbitrator in a particular case, it is preferable that all parties knew from the start that such a "transformation" could be part of the process.
Effect on Costs
Because in med-arb, a relatively short, binding arbitration by a neutral already fully familiar with the dispute will quickly follow a mediation that has not produced a settlement, the parties generally will not be worried about how long it will take to resolve the dispute or how much it will cost should the mediation not succeed. This distinguishes med-arb from pure mediation, where the mediator typically raises the specter of incurring these costs and expenses, and the time it will take to resolve the dispute through litigation, in order to encourage the parties to settle during the mediation.
In med-arb, there is no threat of a lengthy and expensive litigation in case of failure of the settlement attempt. However, what needs to be emphasized in this context is the actual savings of resources, both time and money, using the med-arb process. Its inherent efficiency in that regard is the very reason many users have no difficulty deciding to sacrifice the protections available in separate mediations and arbitrations.
Conclusion on med-arb
Despite its inherent issues and the criticisms (legitimate or not) the process has received, med-arb should be looked upon as what it is: a singular alternative dispute resolution process that gives the parties the chance to resolve the issues on their own terms.
It should not be considered "unsuccessful" simply because the parties were unable to resolve their dispute during the mediation phase. While both practitioners and academics in the ADR community are divided in their views on the process, parties themselves generally have a very favorable view. While theoretical views should never be discounted (and especially so in this instance) should not the opinion of the end user be given paramount importance?
The ultimate goal of any ADR mechanism is resolution of the dispute. Med-arb, either by mediated settlement or arbitral award, will result in an efficient resolution, which is a primary goal of most parties. The debate will surely continue.
"Combining mediation and arbitration in a hybrid process with the same neutral can be an effective mechanism for reducing costs, increasing efficiency and maximizing the possibility of achieving the win-win result that optimizes the position of all parties and arrives at the best resolution of a dispute. If the parties are fully informed and consent knowingly to same neutral mediation and arbitration, party autonomy should be respected and the resolution derived from the process should be honored." (Sussman, Edna, "Developing an Effective Med-Arb/Arb-Med Process", New York Dispute Resolution Lawyer, Spring 2009, Vol. 2, No. 1, 71, full text available on www.cedires.com).
In Co-Med-Arb, different individuals serve as neutrals in the arbitration and mediation sessions, although they both may participate in the parties' initial exchange of information.
If the parties (or dispute resolution practitioners) feel that in the case at hand caucus could be particularly helpful, they may consider to agree to the person acting as mediator to participate in the caucuses, in the absence of the dispute resolution practitioner who will act as arbitrator.
However, it may also be argued that the presence during the caucus of the dispute resolution practitioner who will act as the arbitrator, does not necessarily have to be a problem, especially if all parties consent to this and if all parties are fully aware from the outset of the proceedings that anything said in confidence during the caucus, even though it may very well leave no visible trace in the arbitral award (which will be based on evidence formally presented by each party, and submitted to the other party's scrutiny during the debate), could have some influence on the ultimate decision.
The parties or the dispute resolution service provider shall, ideally, determine the role of the various dispute resolution practitioners at the beginning of the process (especially the role of the arbitrator during the mediation phase - should he or she participate, or remain silent, or be allowed to only ask questions without expressing opinions, or could expressing opinions on particular points, on the contrary, perhaps be helpful to speed up the process?).
Also the role of the mediator during the arbitration phase shall have to be determined.
In co-med-arb, it could be argued that there is no role for the mediator during the phase of arbitration.
In some jurisdictions, such as Belgium, the law provides that arbitral tribunals have to be composed of either one, three or more arbitrators, but always in an uneven number.
Any process of co-med-arb under Belgian law, should therefore be designed in such a fashion that either the mediator does not become an arbitrator, or else the entire panel has to consist of three - or in exceptionally large and complex cases five - members from the outset.
In Arb-Med, the neutral first acts as arbitrator, writing up an award and placing it in a sealed envelope. The neutral then proceeds to a mediation stage, and if the case is settled in mediation, the envelope is never opened.
Arb-Med is an abbreviation for arbitration-mediation. It commences by the conduct of an arbitration hearing. The neutral person prepares an award on the issues with reasons, which is not issued to the parties. The parties then conduct a mediation. If the dispute does not resolve, the arbitrator then issues the award and the parties are bound by the decision.
In larger cases, the parties may select an arbitration panel consisting of three arbitrators.
Arb-Med can be used in various types of matters, although it may not be the most appropriate dispute resolution mechanism for smaller matters (given the availability of other mechanisms with increased cost-efficiency).
Arb-med has gained credibility over the past few years. It has support both for its results and its ethics in eliminating potential arbitrator bias.
Arb-med is a process whereby:
- a neutral and impartial third party receives evidence and testimony provided by disputants in an arbitration, writing a decision that is withheld from the parties, after which;
- the neutral facilitates communication between the parties in mediation to enable the parties to reach agreement, and;
- failing agreement, the arbitration decision is issued as binding resolution.
Arb-Med begins in an arbitration phase. The neutral writes a binding award, but instead of revealing the award, he or she keeps it confidential (usually in a sealed envelope) and the parties proceed to the mediation phase with the same neutral. If the parties reach voluntary agreement in mediation, the neutral never discloses the arbitral award. If parties are unable to agree, the award is revealed and becomes binding.
The structure of Arb-Med allows a party to evaluate its arbitration case compared to that presented by the opponents, possibly recognizing strengths or weakness that could allow common ground during mediation. After the close of the arbitration phase, the neutral is free to explore private communication during mediation, thereby protecting the already-written award from taint by ex parte communications.
Although this variation eliminates the ethical problem of award contamination, it introduces two new concerns. Parties might feel greater pressure to reach agreement during the mediation phase of the arb-med process. They are aware of the relative strength of their cases and now have a binding award hanging over the mediation.
Their only alternative to accepting the arbitration award would be to reach a mediated agreement. Arb-med is credited with greater rates of voluntary agreement, because it may cause disputants to actively consider the possibility of losing because a ruling already has been rendered.
The deal sealer in arb-med is the "power of the envelope".
Arb-med also leads to another question after the arbitration award has been written. The neutral cannot change the award regardless of insight gained during the subsequent mediation. Arb-med offers no procedure for changing the award based on new information discovered during the mediation process (except, of course, if the parties would agree to proceed to a new mediation attempt after the envelope has been opened, some refer to this as "arb-med-arb-med-arb"). Unfortunately the last term sounds as something of a never-ending story or perhaps even something ridiculous, so therefor the term "arb-med" is preferable, even though one must be aware of the fact that the process does not necessarily have to come to an end at the opening of the envelope, if both parties agree to that.
Advantages of arb-med
The following advantages of Arb-Med have been identified:
1) Finality: the dispute will be resolved by either mediation or arbitration.
2) It has superior cost and time efficiency over separate mediation and arbitration proceedings.
3) The impending threat of an imposed decision can have a positive impact in helping disputants reach their own negotiated agreement.
4) The parties have good reason to disclose all pertinent information to the arbitrator as the arbitrator's decision may ultimately decide the dispute.
Disadvantages of Arb-Med
The following disadvantages of Arb-Med have been identified:
1) The cost and time of participating in the arbitration may be unnecessary if the dispute settles at mediation;
2) Compared to Med-Arb, it is likely to be a less expedited process because it always involves both an arbitration phase and a mediation phase;
3) A neutral person who participates in both arbitration and mediation may be perceived as biased when information in one process has been conveyed confidentially;
4) Suggestions by the mediator at mediation may be interpreted as hints regarding the sealed arbitral award, inappropriately coercing or pressuring the parties into settlement.
Closing remarks on arb-meb
Arb-Med is a combined process that can add value to disputes where a solution is pressing and parties seek to retain control over time, costs and outcome. Very often, the subject-matter submitted to arbitration is limited to the point which parties fail to agree. It often happens that a deal is near closure when parties are unable to close the gap between their specific positions; usually the conflict is regarding money or other form of compensation. In this context, no lengthy arbitration is required and the parties need a quick and final decision to progress their deal.
On top of the current trend and in-house lawyers inclinations towards the combinative use of arbitration and ADR, a successful Arb-Med case helped heat up the discussions. Michael Leathes, head of Intellectual Property for British-American Tobacco, recently published a much debated article reporting a successful Arb-Med experience. BAT had an issue with a licensee and analyzed its options on how to resolve it. BAT wanted to sell one of its trademarks to its licensee, who was very interested in buying it. Negotiations went well until both parties presented their figures. Due to its disparity, each party instructed an independent professional firm expert to value the brand in dispute and arrive at a fair price. Again, both expert evaluations had different figures. The parties had no intention to start a conflict. They just wanted to close the deal. According to Michael Leathes, "the merit in the Arb-Med process over the other options was that an outcome was always guaranteed at the end of the day, but the parties had ample opportunity to control that outcome themselves by arriving at an amicable arrangement".
In any negotiation, there are many factors that seal the deal. The process can be divided in two main levels: a rational and a psychological/emotional decision making. At the end of the day, a successful interaction of both levels will guarantee the outcome. The psychological/emotional feature of any negotiation usually plays a part in either making communications more complex or blocking the decision-maker vision to alternative options. In an Arb-Med process, the deal sealer is, as mentioned before, the power of the envelope. Parties will sit at the negotiation table because they know that otherwise a decision made by a third party is waiting for them.
In deal breakers an Arb-Med process may last a day or two. In simple cases, parties may opt for fast-track arbitration, albeit due process is respected, to keep the process cost and time viable. In some cases, parties are bound to arbitrate by law or contract, as the case may be, and there is no disadvantage in mediating the dispute after the arbitration process is concluded.
Arb-Med is all about risk management: parties have a last chance to produce a creative outcome that fulfills their business needs, rather than being forced to live with a third party decision. Since mediation nature is contractual, thus flexible, the parties have the ability to tailor the process to meet their particular needs and reach a creative solution not bound to any previous established limits.
The arbitration award sealed in an envelope represents the potential worst alternative to an amicable, well-discussed business solution. It is a clear, tangible threat: a permanent reality check for both parties. Obviously, due to the contractual nature of the mediation process, the parties are not obliged to settle. However, the power of the envelope drives them into exploring all possible avenues and business alternatives before being forced to leave with a third party decision.
Arb-Med is a powerful, creative and effective mechanism for resolving a commercial dispute. It is a process aligned with the fast-changing business world and all myriad of rational and emotional features present in a negotiation. Parties have the ability to creatively transform their issues into a business opportunity and a new way forward.
Conclusion on hybrids
Despite the concerns raised, hybrid processes should be included in the "shopping list" of ADR options. Using a hybrid process provides parties with flexibility and finality in the resolution of their dispute. The processes may involve less time, expense, aggravation and inconvenience compared with litigating a dispute in court.
Given the concerns about hybrid processes, particularly in relation to procedural fairness, it is desirable to obtain the fully informed consent of the parties at the outset of the proceedings.
If the process is carefully designed, ADR hybrids can actually offer the best of both worlds, maintaining most of the advantages of mediation, and avoiding most of the disadvantages of both mediation (risk of failure, no finality) and litigation.
Source: various publicly available internet sources, compiled and adapted by CEDIRES.