International commercial dispute resolution is big business. Which are the key centres for the resolution of such disputes? Having seen at first hand quite a number of such centres, I am satisfied that London can lay a strong claim to pole position. As I see it, English law (the grandfather of the common law systems) has a big part to play in this, achieving, as it does, a high degree of certainty through decided cases.
Key criteria
What are the key criteria for commercial parties when deciding where to have their disputes resolved? I suggest these are threefold, namely:
- Certainty of outcome.
- Speed.
- Cost.
There will of course be other important factors (for example, the integrity of the lawyers, judges and arbitrators), but let us take these as read. That said, I certainly have experience of some jurisdictions where these factors cannot be taken as read at all!
London scores well when it comes to certainty of outcome. What about speed? Thanks to the Civil Procedure Rules (CPR) the speed of English Commercial Court proceedings compares very favourably with that in other jurisdictions.
What about arbitration which, after all, has historically been the preferred means of resolving international commercial disputes? Well, arbitrators are encouraged to make robust orders for the expeditious conduct of the arbitration reference. Indeed they have an express duty under section 33(1) of the Arbitration Act 1996 (AA 1996) to:
“…adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense…”
This then brings me to the third of the three key factors: cost. There are real concerns that London is an expensive jurisdiction in which to litigate commercial disputes. It used to be suggested that arbitration is more cost effective than litigation, but at least one High Court judge has described London arbitration as “unwigged Court proceedings”; in other words, every bit as expensive as court proceedings. When matters have reached the point that costs become disproportionate to the amount in dispute, then it is certainly time to look for solutions.
Possible solution
The solution, as I see it, is to have a more creative and flexible interplay between mediation and arbitration. The English courts are now strongly supporting mediation, imposing legal costs sanctions on parties who unreasonably refuse to mediate or engage with the mediation process. The question arises whether arbitrators have similar powers to those exercised by the English judges and I suggest that the answer is in the affirmative. This is consistent with the arbitrators’ duties under section 33(1) AA 1996. Section 33(2) continues:
“The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it”.
There are those who suggest that it is unnecessary to give the judges and arbitrators such powers because it is open to the parties to include a multi–tier dispute resolution clause in the contract. Such a clause will typically provide for:
- Good faith negotiations between the parties.
- Mediation.
- Arbitration or litigation.
Such clauses are, in general terms, forces for good. The English courts will enforce not only the agreement to arbitrate but also any agreement to mediate and, indeed, even the agreement to engage in good faith negotiations (in the particular case, the clause provided for “friendly discussions”), provided the multi–tier dispute resolution clause has been properly drafted.
The problem with such clauses is that they operate in a sequential and rather inflexible manner. In other words, first in point of time the good faith negotiations take place; second, the mediation; and then thirdly the arbitration or court proceedings. However, the mediation may have a much better prospect of success if arbitration proceedings are first started and the arbitration is allowed to proceed some way before the mediation hearing takes place.
Again, the rules of some international arbitration and mediation institutions do cater for joined up arbitration and mediation. One institution stipulates that arbitration be started and then immediately stayed in favour of mediation. If the mediation succeeds, the settlement agreement goes back to the arbitrators to draw up as a consent award and, if the mediation fails, then the matter goes back to the arbitrators to decide the dispute in the usual way.
If arbitrators have the powers which I am suggesting then the remedy is there. Either party can apply to the arbitrators at any stage for a stay of the arbitration proceedings. This will enable a mediation to take place. I suggest that if the other party refuses to mediate, the arbitrators would have the same power as a judge to sanction the refusal with an adverse costs order.
Mediation does have key advantages over litigation and arbitration, not only in terms of cost and speed, but also in terms of preserving business relationships and enabling creative solutions to be found to business disputes. Cost and speed, of course, go hand in hand, given that most lawyers, arbitrators and mediators tend to charge on an hourly rate basis.
It is easy to understand that overall cost savings in excess of 80% may be achievable, given that the run up to a court trial or an arbitration hearing may be a year or more. The run up to a mediation hearing is generally counted in weeks or months . Further, the average court trial or arbitration hearing lasts approximately five days, whereas the norm at a mediation is one day.
Conclusion
The combination of court and mediation proceedings (which the commercial judges strongly support), and the combination of arbitration and mediation proceedings (which I am suggesting the arbitrators have the power to support), should bring us to the point that dispute resolution is indeed affordable, and in the interests of all.
It may be counter-intuitive that a process, which involves only a facilitator and no decision maker, can enjoy a high success rate. However, reliable data suggests that approaching 90% of mediations result in settlement.
