Concluding an international mediation

This is the third and final item in our series offering practical advice for anyone involved in the mediation of an international dispute. Previously, we looked at choosing the right mediator (issue 3) and preparing for and conducting a mediation (issue 4); here, we consider how to conclude an international mediation.

At a very basic level, a mediation can go one of two ways: either the dispute will settle, or it will not. This is, however, to simplify what can be a very complex process.

We will look at three main issues.

1. What constitutes a ‘successful’ mediation?
2. If the dispute settles, how best to render the settlement enforceable?
3. If the dispute doesn’t settle, can the information learned during a mediation be used in a subsequent arbitration and can the costs of the mediation be recovered in any subsequent arbitration?

A mediation that does not settle is often referred to as a mediation that does not settle is often referred to as a mediation ‘failing’, but a great deal of useful information can be learned during the process. What constitutes ‘success’ in a mediation very much depends on the position of each of the parties, and, quite possibly, whether the mediation was imposed upon the parties or voluntarily agreed to. Often, the nature of the interactions between the parties in commencing the mediation has an impact on how the mediation finishes.

A voluntary negotiation affords the parties the greatest level of ‘free’ participation (and, arguably, a greater level of ‘buyin’ to the process). Mediation which has been mandated by a ‘step’ clause (see issue 4 of International arbitration report) has a degree of choice, in that the parties chose the original clause. Conversely, court-ordered mediation has no element of choice since it is a mandatory obligation prior to the court determining the dispute.

It is rare to have a situation in which an international mediation has been mandated by anything other than the wording of the dispute resolution clause. Alternatively, the parties may have agreed to conduct a mediation voluntarily prior to or after commencing an arbitration.

• Mediations that have been commenced in a balanced way, with both parties feeling they have had equal input into the choice of the mediator, the procedure to be followed and the level of participation and seniority of the corporate representatives who will be present, are likely to be more conducive to settlement.
• A mediation where a party is a reluctant participant in the process – possibly feeling that they are simply there to be ‘pumped’ for information – is much less likely to resolve the dispute.

Anecdotally, the settlement rate of international mediations is around 80 per cent. On this basis, there is a very good chance that the dispute, once the parties have agreed to submit it to mediation, will settle. However, there is no way of testing this figure and our experience is that high-stakes complex disputes that are submitted to mediation are not resolved at this rate. None the less, there is a reasonable chance that even a very significant dispute may settle at the mediation stage.

If the mediation is successful, the parties will be in possession of a binding settlement agreement. This is not an enforceable arbitral award, unless steps are available to the parties to convert it into such. For some parties this will not be an issue, but for others the ability to enforce an award under the New York Convention might be an important consideration.

• It is possible to mediate, then appoint the mediator as arbitrator in order to turn the agreed settlement into an arbitration award by consent.
• Unless an arbitration is already ongoing prior to the mediation, issues may arise when it comes to enforcing any such award.
• Where parties appoint the mediator as arbitrator after they have resolved their differences, views differ as to whether the resulting award is properly enforceable under the New York Convention. Accordingly, if the parties need any settlement to be reflected in an enforceable arbitral award, then they should ideally have commenced an arbitration prior to the mediation in order to be in a position to request that the arbitration tribunal issue a consent award reflecting the settlement agreed by the parties.

Most major institutional rules governing mediation do not expressly refer to arbitral awards securing mediation settlements. However, article 14 of the Mediation Rules of the Arbitration Institute of the Stockholm Chamber of Commerce specifically provides: ‘In case of settlement, the parties may, subject to the consent of the Mediator, agree to appoint the Mediator as an Arbitrator and request him/her to confirm the settlement agreement in an arbitral award.’

All major international arbitration institutions provide for a form of ‘consent award,’ where parties that settle postcommencement of arbitration proceedings can obtain an arbitral award, if so requested and if the arbitral tribunal agrees. The UNCITRAL Model Law sanctions such awards and their recognition: ‘[i]f during the arbitral proceedings, the parties settle the dispute, the Arbitral Tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the Arbitral tribunal, record the settlement in the form of an Arbitral Award on agreed terms.’ Article 31 provides that ‘such an award has the same status and effect as any other award on the merits of the case.’

There are similar provisions giving deference to ‘agreed awards’ in the rules governing ICC, ICDR and ICSID arbitrations. Article 26.9 of the LCIA Rules similarly notes that, in the event of any final settlement of the parties’ dispute, the arbitral tribunal may decide to make an award recording the settlement if the parties jointly so request in writing (a ‘consent award’), provided always that such consent award contains an express statement on its face that it is an award made at the parties’ joint request and with their consent. A consent award need not contain reasons. As noted, these consent awards should be enforceable under the provisions of the New York Convention.

The costs of a mediation, while much less than those of an arbitration, can still be significant.

• In the event of a failed mediation, it is extremely unlikely that the costs incurred in the mediation will be recoverable in any subsequent arbitration.
• None of the major international arbitration institutional rules allow for the recovery of these mediation costs as costs of the arbitration, although many do give the tribunal discretion in how they award costs at the end of the arbitration.
• Most major mediation rules provide that costs should be borne equally between the parties. Alternatively, if the dispute does settle, the parties will be free to provide for the costs of the mediation to be incorporated into the settlement, if appropriate.

A major factor in mediations is the obligation to maintain confidentiality regarding information learned during the process and most of the major mediation rules provide for this.

• ICDR Mediation Rule 10 imposes a duty of confidentiality, forbidding the disclosure of offers made, views expressed, and admissions made by a party during mediation – although the existence of the mediation itself is not confidential.
• Article 9 of the ICC Mediation Rules has a similar obligation, allowing for disclosure of the existence of mediation proceedings but not the content.
• Article 3 of the Stockholm Chamber of Commerce Mediation Rules imposes a high standard of confidentiality: ‘Unless the parties have agreed otherwise, neither the parties, the mediator, nor the SCC shall disclose the existence of the mediation and the outcome, or use any information learned in the context of the mediation’.
• Article 10 of the LCIA Mediation Rules imposes a similarly high standard, mandating that the mediation be confidential: ‘unless agreed among the parties, or required by law, neither the mediator nor the parties may disclose to any person any information regarding the mediation or any settlement terms, or the outcome of the mediation’.

While rules on confidentiality of arbitrations vary from institution to institution, the obligation of confidentiality in relation to a mediation endures even after the mediation has ‘failed’ and information learned during the course of a mediation may not be relied upon in any subsequent arbitration, if obligations of confidentiality attach to that information.

Even if a mediation ‘fails’, it can still be a successful experience for the parties and may lay the foundation for resolution of the dispute at a later stage. However, whether or not the mediation can be considered a positive experience will largely come down to both the quality of the mediator and the level of preparation undertaken by counsel and the parties to best position themselves through the process.

Mark Baker is an editor-in-chief of International arbitration report and a partner and global co-head of arbitration and Lucy Greenwood is foreign legal consultant, both in Norton Rose Fulbright’s Houston office.