The practice of combining mediation and arbitration by the same neutral has been traced back to ancient Greece and Ptolemaic Egypt.
Facilitative (as distinct from evaluative) mediation uncovers the underlying interests of the disputants and allows them to craft their own solution. Arbitration determines the legal issues but may leave those interests unaddressed. Combining the two processes can bring a definite end to the dispute, save time and money, achieve creative solutions, and preserve or restore relationships.
Combining arbitration and mediation with the same neutral
Legislation in Australia, Hong Kong and Singapore allows arbitrators to mediate in the same dispute (including by holding separate private sessions with the parties) and, if the mediation is unsuccessful, to resume the arbitration. The legislative framework involves the following:
- the disputants must consent in writing to refer their dispute to arbitration;
- they must consent in writing to the arbitrator mediating;
- if the dispute is not settled entirely in mediation, they must give their further consent in writing to the arbitrator resuming the arbitration; and
- if the disputants do consent to the arbitrator resuming the arbitration after having mediated, the arbitrator must disclose to the disputants any confidential information learned during the mediation which the arbitrator considers material to the arbitration.
While this last point may at first fill people with horror, the legislation is designed to ensure that disputants know the case they have to meet and that any arbitral award following this procedure will be enforceable. Hence, disputants may opt out after the mediation phase if they feel uncomfortable with the arbitrator resuming the arbitration, in which case someone else will be appointed to arbitrate. This “opt-out” idea and other safeguards to ensure an enforceable arbitral award were put forward by Lord Woolf in the Final Report of the CEDR Commission on Settlement in International Arbitration, November 2009.
The following rules of thumb might assist disputants and their advisers in making this hybrid process work best.
Finding the right dispute
Choose the kind of dispute which has discrete legal issues to be arbitrated (such as intellectual property infringement and validity) and which also holds out the possibility of creative solutions that no arbitral award could provide (such as licensing the intellectual property with territorial and product restrictions – often permissible under competition laws). It is these creative possibilities that should be the primary focus of attention in the mediation phase. As so often in the field of ADR, it is a question of what Harvard Emeritus Professor Frank EA Sander calls “fitting the forum to the fuss”. The credibility of mediation participants should not be at issue in the arbitration and, when mediating, a facilitative rather than an evaluative approach is essential.
Do not go too far down the arbitration path before agreeing to the arbitrator mediating. The best time is as soon as the issues to be arbitrated have become clear. This avoids unnecessary costs of the arbitration should the mediation be successful and prevents a party from getting rid of an apparently unsympathetic arbitrator by agreeing to mediate, refusing to settle and then refusing to consent to the arbitrator resuming the arbitration.
Laying down the issues
Ensuring the issues to be arbitrated are clear before the mediation begins will enable the arbitrator to appreciate whether or not any confidential information learned in the mediation is material to the arbitration.
Keeping information confidential
Most important: before deciding after the mediation whether or not to consent to the arbitrator resuming the arbitration, find out in private session what confidential information of yours, if any, the arbitrator proposes to disclose to the other parties and obtain the answer in writing. If the answer makes you uncomfortable, refuse to consent to the arbitrator resuming the arbitration. The information will remain confidential and someone else will arbitrate.
Although there has been little resort to hybrid processes in Australia hitherto, the legislation should prompt more disputants and their advisers to put their toe in the water, knowing they can withdraw after the mediation phase if they feel uncomfortable with the mediator arbitrating. The legislation should also prompt facilitative mediators to learn to arbitrate, arbitrators to learn to mediate and advisors to learn to choose the process to suit the dispute and the disputants. The outcome should be the swifter, cheaper and more complete resolution of disputes, as distinct from the mere settlement of cases.
The mediation “black hole”
In their enthusiasm to support the use of mediation for the resolution of disputes, Australian state and federal legislatures have frequently enacted provisions designed to prevent evidence being given of communications made at court-ordered mediation, often in terms that override both the common law exceptions to the “without prejudice” rule and statutory provisions designed to codify that rule, with consequences that may not have been intended.
The twin policies said to underlie such legislation are to encourage use of mediation and to discourage “satellite litigation”. Both appear seriously flawed by allowing mediation in court-ordered mediation (as distinct from private mediation) to become an evidentiary “black hole” in circumstances which prevent justice being done.
The common law has long encouraged parties to attempt to resolve their disputes by according “without prejudice” privilege to communications made in the course of settlement negotiations. The public policy justification for this rests on the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the court of trial as admissions on the question of liability. The rule is no longer limited to admissions and is now very much wider than it was historically.
Over time, the courts have developed, and continue to develop, numerous judge-made exceptions to the rule, designed to enable justice to be done and to avoid mediation and bilateral settlement negotiation becoming an evidentiary “black hole” on the basis that the privilege arising from the cloak of “without prejudice” must not be abused for the purpose of misleading the court. Thus, mediation under the common law “without prejudice” rule is not a “no-go area” for all purposes.
Circumstances in which Australian courts have recognised the common law exceptions include:
- where the court would otherwise be misled, for example by excluding evidence which would rebut inferences upon which a party seeks to rely;
- where a party seeks to rely on what was communicated during mediation in order to prove that a settlement was reached, or that a settlement that was reached should be set aside, for example by reason of alleged misrepresentation, oppression or unconscionable conduct;
- where a party sues his or her solicitors over their conduct in the mediation; or
- where those solicitors join counsel and the mediator seeking contribution as joint tortfeasors.
The same approach has been applied when holding admissible communications within mediation alleged to constitute misleading and deceptive conduct in contravention of statutory competition and consumer protection law, on the basis that a party cannot, with impunity, engage in misleading or deceptive conduct resulting in loss to another under the cover of “without prejudice” negotiations.
It is difficult to see how justice can be done when such matters are in issue, unless all the evidence is available to the court. It is also difficult simply to brush aside as “satellite litigation” the circumstances recognised in common law as exceptions to the “without prejudice” rule, as if no issue of injustice warranting judicial remedy could ever arise in the course of mediation.
It therefore appears that, contrary to the policy of encouraging mediation, the legislation governing court-ordered mediation, by placing parties in a worse position than in privately agreed mediation or bilateral negotiation, could have the opposite effect of discouraging resort to court-ordered mediation.
It is hard to argue with the proposition that misbehaviour should see the light of day, whether occurring in mediation or not. As John Locke put it in 1690: “Wherever law ends, tyranny begins.”
Another example of the problems that can arise from a legislated mediation “black hole” is the California Evidence Code, which prohibits evidence of what transpired in any mediation, not solely court-ordered mediation. It has been found by the California Supreme Court to preclude evidence in a legal malpractice action of private communications between attorney and client in the course of mediation.
In February 2011 an Australian advisory committee, the National ADR Advisory Council, recommended that there would be significant benefit in having uniform federal, state and territory legislation that clearly provides for the inadmissibility of ADR communications as the general rule, subject to leave being granted by a court in the public interest. In deciding whether leave should be given, a court or tribunal should be required to take into account:
- the general public interest in favour of preserving the confidentiality of ADR communications; and
- whether leave is being sought to advance a party’s interests or rights with respect to a matter falling within an exception to confidentiality.
In other words, in order to eliminate mediation “black holes” and allow judges to continue to develop and apply exceptions to the “without prejudice” rule in the interests of justice, statutory attempts to codify and override the common law rule should be replaced by such provisions.
This would enable judges to strike the right balance between competing public interests by continuing, where appropriate, to protect the integrity of mediation and other ADR processes, while at the same time avoiding injustice by granting leave, where appropriate, to introduce evidence of what happened.
In Hong Kong, the Mediation Ordinance achieves this result by providing that mediation communications are confidential and may be disclosed or admitted into evidence only with the prior leave of the Court or tribunal, which must take into account, inter alia, the public interest or the interests of justice.
It would be unethical for a lawyer to recommend court-ordered mediation to enable a client to engage in improper conduct with impunity. Yet avoiding court-ordered mediation may enable clients to invoke the court’s assistance when the other party engages in such conduct.