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London Conference on “Shaping the Future of International Dispute Resolution”

Fri, 2014-09-26 16:09

Emma Ewart of the International Mediation Institute writes:

Earlier this year we circulated the article ‘Time for Another Big Bang in Alternative Dispute Resolution’, by Michael Leathes and Deborah Masucci: http://imimediation.org/global-pound-conference, proposing a new conference to wake up the field of ADR. We appreciated your words of support in response to that article, and before the official invitation goes to the wider IMI community, we would like to let you know of the upcoming convention ‘Shaping the Future of International Dispute Resolution’, which is the first planned in a series of conferences.

The official invitation can be seen below. All information plus a registration link can be found at:
http://imimediation.org/shaping-idr-convention-2014

We hope that you might be able to join us at this ground-breaking interactive convention!

A host of cooperating organizations are joining this effort.  Unfortunately, the invitation did not include an offer to appear as a speaker, and worse yet was not accompanied by a round-trip ticket to London.  Nevertheless I urge those who can, to attend, and to let us know how it went.

Business Lawyers and ADR: Ethical Challenges

Thu, 2014-09-18 11:09

The third and final part of the morning-long Commercial Finance and Dispute Resolution Symposium at the recent ABA Business Law Section Annual Meeting was a discussion, among audience and experts, of some hypotheticals implicating the obligations of attorneys who negotiate dispute resolution clauses and who represent clients in ADR procedures.

The experts were Stan Sklar of Chicago and Alex Wald of Boston’s Cohen and Gresser.  The audience included some of the sharpest minds in commercial negotiation and dispute resolution.  And the hypos brought out some clever analysis, even if not every one led to clarity.  The scenarios, and a capsule of the discussion of each, follow.

Tom Transactional is negotiating a multi-million deal for Clyde Client. Counsel for the other side suggests a “stepped clause” that requires mediation as a first step and then arbitration thereafter. Tom asks his partner Larry Litigator for advice.  Larry says no way, mediation is worthless, all you do is provide cheap discovery without court control. Same with arbitration, I want court rules, I want discovery, I want right of appeal. So the final contract excludes any dispute resolution procedure. Five years later, the deal is in shambles. The parties have been in court for the past two years. Clyde Client tells Tom that he now understands that, if they had gone the arbitration route as proposed, the case would be over by now — and that Tom never really explained the rationale behind not doing so.  Clyde’s new lawyer, Sarah Sue-Me, will be filing a malpractice action against Tom and his Firm. Did Tom and Larry breach their duty to Clyde?

The audience approached this as a dual question:  whether any ethical obligation was breached, and whether the firm opened itself to malpractice, which is a different legal standard.  The experts noted that very few jurisdictions expressly require counsel to advise a client facing the prospect of litigation of non-litigation alternatives.  And more than one attendee noted that advice was sought and given — the fact that it may be contested with hindsight doesn’t give rise to a challenge to its validity at the time.  In other words, this is not a case of neglect.  Nevertheless, the group agreed with the experts that best practices would dictate advising a client of alternatives to litigation in a manner somewhat more nuanced than Larry Litigator did here.

A lender engages a mediator pursuant to an arrangement by which the lender is obligated to pay the mediator’s services.  The lender proposes that the mediator’s fee be some fraction of the amount recovered during the mediation.  Is the offer ethically proper?  May the mediator ethically accept?  What about if both parties agree to split the fee equally, and both parties also offer the mediator a 30% “incentive premium” in the event that a deal is struck by the mediator prior to close of business on Friday (i.e., a “success fee”)?

At first this was greeted as the opportunity to shoot ducks in a barrel: No one even remotely entertained the propriety of either offering or accepting a mediator fee that was a function of the amount collected by one of the parties.  A nicer question arose, however, as to a “kicker” to a mediator’s fee, that would be based on whether an agreement was reached — any agreement — by a certain time.  Many thought it gave the mediator an unhealthy incentive to push reluctant parties to agree to a deal that is not in their best interests.  Yet it was pointed out that Rule 4.5.5(c) of the CPR/Georgetown rules for attorneys as third-party neutrals permitted such an arrangement, as long as the parties knew what they were getting themselves into.  Put otherwise, principles of informed party autonomy dictate that a neutral is not rendered unethical by accepting to do what informed parties ask her to do, the way they want her to do it.

Hearings have closed and Panel cannot agree on the interpretation and applicability of a legal issue.  A Panel member in a large law firm volunteers to have her summer associates do some research on the issues.  Is there an ethical problem with arbitrators’ conducting independent legal investigation, and relying upon it in framing their award?

This is a topic on which there is much heat but not all that much light.  Binding outcomes based on law that the parties did not have the opportunity to brief seemed to most of the audience to be something to be avoided.  But then so is an outcome based on law that the arbitrators, but not the attorneys, know to be inapplicable or overruled.  The consensus was that the panel should alert the parties to their concern on the question, and direct preparation of briefing addressing that concern, but that they should not go off and draft an award that is based on their own legal research.

Midway through an arbitration a young associate informs you that she has determined that the sole arbitrator’s law firm had represented an affiliate of the adversary party four years ago, before the arbitrator joined the firm.  This had not been previously disclosed.  Do you raise it at the next hearing, even though the arbitration seems to be going well for your client?  If you decide not to press the issue, and an award issues against your client, may you ethically raise the undisclosed conflict in a motion to vacate?

Readers of this blog know that this is a scenario about which I have concerns.  Expert Stan Sklar noted that the ADR providers (AAA, CPR, JAMS, etc.) have developed new rules concerning ongoing disclosure requirements by arbitrators, but the audience seemed to agree that the disclosure requirements of counsel who has learned of a possible conflict are not so clearly regulated.  Nor do doctrines of waiver or laches dispose of the problem.  The group left this one puzzled and uncertain.

The parties have come to an agreement in mediation, the lender taking a steep discount in light of the borrower’s persistent assertions of inability to pay.  While the lender and his counsel are outside the room preparing copies of the MOU, the debtor (who has represented himself) shows the mediator photos of the McMansion he is building on the lakefront. The mediator concludes that the deal – predicated on the debtor’s indigence — is unfair at best, fraudulent at worst.  Does the mediator have any ethical duty to act?  Does the answer change if the debtor is represented by counsel?  Does the answer change again if the mediator is a member of the bar in a jurisdiction imposing a reporting duty?

The experts agreed that the variation in which the party is represented imposes on that attorney a requirement to withdraw in the event of fraud.  But a surprising number of the audience also advocated that the mediator should also withdraw, despite the fact that the withdrawal would necessarily be pretty “noisy.”  Expert Wald stated what was on my mind:  How does the mediator know it’s fraudulent?  How does the mediator know who built it with whose money and what entity owns it and what entity is the debtor and how it is encumbered and on and on and on.  Moreover, whose job is it to run an asset search on the debtor before agreeing to forgive a debt? Is the mediator there to prevent the consequences of sloppy lawyering?  And who says it’s sloppy?  Maybe they ran the asset search and know perfectly well what they’re doing.  Who knows how important it is for the lender to get the default off its books?  A minority (and count me in) felt strongly that mediators are not enforcers of either the law, or ethics, or morality, but rather facilitators of consensual — even if unwise — agreements between parties who make decisions — even if unwise — on their own accord and for their own reasons.

Collaborative Law Approaches to M&A Disputes

Sat, 2014-09-13 12:55

John Levitske of Duff & Phelps, who serves as Vice-Chair of the ABA Business Law Section’s Dispute Resolution Committee, assembled a provocative panel in Chicago on the topic: “Whether Collaborative Law Can be Used to Effectively and Efficiently Resolve Post-Merger and Acquisition Disputes.”  He described it as an effort to articulate the intersection between a little-known technology and a felt business need. 

Paul Faxon of Massachusetts posed some introductory questions.  Who should be the “sovereign” of the dispute resolution process — the client, the neutral or the attorney?  When in the life of the dispute should it occur?  Should your attorney’s interests be aligned with yours?  Should the neutral be a subject expert?  Are key relationships and reputation valuable as pertains to this particular deal?  Are clients aware of the breadth of ADR options available?

Anne Shuttee explained that Collaborative Law is a tested method, first used in American family law but now accepted in many jurisdictions.  The International Academy of Collaborative Professionals noted that 86% of matters using the technique were settled, and more than 80% were satisfied with the costs and the process.  It is a joint problem-solving process (and so many business issues are joint problems) that is voluntary in which lawyers are committed to find a resolution, and are not only not retained to prepare for litigation, but are contractually disqualified from pursuing litigation in the event that settlement effort fail.  Thus the interests of lawyer and client are both aligned towards early resolution and resources are committed to settlement as a primary goal, rather than a tangential detour of a litigation effort.

Meetings involve clients directly.  They are conducted pursuant to agenda, prepared, off-the-record, and confidential.  There may or may not be a facilitator at the meetings.  Concerns and goals are identified and articulated; relevant information is gathered, including from jointly engaged experts whose reports are not prepared for use in litigation; settlement options are developed and assessed for viability; and a selection is made.  If the process fails, clients can engage trial lawyers and negotiate the utility of any of the information gained.

Paul Faxon used this process in business disputes, successfully.  He said that the use of a joint expert alone can advance the problem-solving effort and substantially reduce costs.  Parties can include certain of these steps as provisions of a deal agreement, anticipatorily, rather than waiting for a dispute to arise.

Christian Fabian of Mayer Brown is an M&A attorney who came to the concept of collaborative processes in that context.  Fabian identified five buckets of private M&A disputes:  Breaches of reps and warranties; purchase price adjustment disputes; disputes arising from expected earn-outs indicated prior to the deal; breaches of obligations post-closing (such as non-competes); and claims of intentional nondisclosure/misrepresentation (fraud).  Some of these are susceptible to collaborative problem-solving but others (such as breach of a non-compete or fraud) are not, in Fabian’s view.  Issues such as technical compliance with GAAP might be amenable.  Purchase price disputes could well be better resolved through collaboration than adversarial arbitration.  Dissolution of joint ventures seem highly suitable – they involve, at heart, a business divorce.  Fabian did have hesitations about the concept of disqualification of counsel from trial work, or ethical considerations that may be needed distinct from those that now exist.  He also doesn’t assume that the parties will always act in good faith, and wondered what the consequences may be from failure to do so.

The consequences of disqualification were pursued by the audience.  How does it work that an M&A firm can act as a collaborative lawyer, knowing that his firm would have to withdraw?  Or should a different firm be brought in to do the collaborative process, with the firm retained as M&A and also as litigator.

Christine Castellano, General Counsel of Ingredion Incorporated, noted that her company doesn’t necessarily choose her deal lawyer’s firm as litigators, and would likely retain a collaborative specialist to collaborate.  Her company has grown almost exclusively through acquisitions.  Without realizing it, she already engages in these practices.  Litigation is a loss and arbitration not much more attractive.  The company was already building “executive resolution” into its protocols, because the company relies on relationships.  Joint experts are often used outside the United States, often appointed by the court, so its use was also familiar to Castellano.

Anthony C.S. Pagano of Royal Bank of Canada echoed this experience.  His company seldom enters ripe post-merger disputes because executive negotiation is by far the most effective means to resolve business issues.  By contrast, non-competes or restrictive covenants tend not to be negotiated because of a lack of shared interest or trust.  Questions of future pay-outs and joint ventures are critical to negotiate because the relationship going forward is so important.  The disqualification procedures of collaborative law do raise an issue for Pagano, increasing cost of bringing another firm on board in the event of failure of the negotiating process.

Melissa K. Bjella of CF Industries Holdings agreed that there are concepts of collaborative law that are almost intuitively observed and practiced – using a “time out” for business people directly to work on terms of resolution, or the informal use of joint experts.  Disqualification posed problems and inefficiencies for her, too.  For one thing, collaborative lawyers’ interests are not so aligned as one would think; the collaborative lawyer has a high incentive to settle on any terms and the client wants a settlement only on acceptable terms.  The panel discussed why the disqualification principle needed to be “hard-wired” for the process to be successful.  Ms. Shuttee said that, at least in the case of family law, disqualification poses an obstacle for parties to leave the table and go to court.  By contrast, a company wants to control its business, not to achieve wins, and sitting with a collaborative counselor is often more promising than sitting with a litigator.

There may be a conceptual boundary to the applicability of collaborative law to business deals.  Disputants in family law have shared interests that can almost always be satisfied without litigation as a fallback.  By contrast, business disputes ought to be able to be settle by skilled negotiating and counseling lawyers, without the added burden and cost of a quadripartite agreement disqualifying counselors and adding costs and settlement pressures.

Project Finance and ADR: The Dispute Review Board

Fri, 2014-09-12 16:30

The second offering of the three-part Symposium on ADR and Commercial Finance at the ABA Business Law Section Annual Meeting addressed disputes arising in long-term, high-budget, tightly-scheduled, deeply interdependent projects — like building an airport — where “divorce is not an option.”  According to Deborah Mastin, the issue is how clients manage unplanned adverse events that occur during projects, mitigate their impact and resolve the issues they present.

Was the unplanned event discussed with experienced people prior to the project’s beginning?  Was there an agreement on how unanticipated events will be handled with a minimum of time?  Delay in a construction project like an airport can cost hundreds of thousands of dollars a day, so the response to problems that threaten delay in the work must be timely and the solution must be accepted by everyone. 

The Dispute Board is the appropriate engine to facilitate both dispute avoidance and dispute mitigation.  Designees to serve on a Dispute Board must know both the industry and the particular project.  Lawyers bring less to the table than industry veterans to.  So well-recognized are the benefits of a Board that some players won’t bid on a project that doesn’t have a DRB.  World Bank has required a DRB since 1995.

Success depends upon the people and the process.  People need to be neutral trained, available, authoritative, and respected.  The heart of the process is two contracts – one between parties and the other between parties and neutrals.  The first sets forth both formal and informal expectations.  In regular informal periodic meetings, all discussions should be considered confidential settlement negotiations, with no minutes taken, in order to allow frank discussion of problems.  The Board facilitates a team approach to addressing the unexpected occurrence.  The team meets with each other weekly, and meets with the DRB monthly.

Members of the team buy into a solution quickly; the added cost of the cure usually is substantially less than the added cost of both cure and argument and delay.  In its meetings, the Board is free to raise issues that the parties haven’t raised, if addressing them will save money.  The meetings are not restricted to contractually bound parties: Lenders, engineers, tenants, and other stakeholders should be invited to participate in meetings because they are impacted by delay and added costs that may flow from the problem.

Mastin emphasized that this is not a claims adjudication process; it’s a way for critical players in the project to get informal guidance — or formal decisions – needed to keep the project on track.  The Board can also conduct formal arbitrations, but does so without sworn presentations or cross examinations, and seldom attorney engagement.  A binding or nonbinding decision may ensue, depending on what the parties seek. DRBs present a project management process, not an adjudicative process.

The tantalizing question was then raised by Tom Walsh, of Brown & Walsh in Haverhill, MA:  May this approach have application for commercial finance, including real estate finance?  Indeed, is this perhaps a model for managing disputes that arise from all sorts of interdependent, long-term enterprises subject to project management, in which all parties will do well as long as the project is not diverted by prolonged adjudication of unanticipated contingencies?

ADR and Commercial Finance: Life Among the Deal Lawyers

Fri, 2014-09-12 15:32

The ABA Business Law Section has turned its back on the August Annual Meeting of the Association and is now convening its own Annual Meeting in Chicago a month later.  It is a resounding success by any measure, but certainly from the perspective of the Business Law Section:  Over 1,500 attendees, 500 of whom are first-timers.

One of the many ambitious and rewarding CLE offerings at the Section Meeting was a three-part Symposium on ADR in Commercial Finance.  It was an extraordinary example of collaboration among three committees in a usually highly silo-ed organization:  Commercial Finance, Project Finance and Development, and Dispute Resolution.

The first program addressed “Dispute Resolution in Commercial Finance: Protecting the Value of the Deal.”  Each speaker addressed a particular aspect of a transaction and the challenges of problem-solving.

Pamela Corrie, Head of Global Litigation for GE Capital, addressed the front end of the deal.  She reported that, when negotiating a dispute clause, the case for arbitration is by no means clear.  Her company monitored 25 cases on an arbitration track and 25 similar cases on a conventional litigation track, and the results were hardly conclusive: arbitration was no cheaper, no faster, and sometimes actually slower.  However, in arbitration she could select own neutral, and that has substantial value.  On the other hand, the absence of appeal of a wrongly analyzed award has risk.

So the choice of adjudicative process is a function of the nature of the risk/reward analysis that is particular to the deal.  For example, in matters where a commercial client of longstanding is involved, preserving the relationship is easier through ADR – when it is done right.  Ms. Corrie has 12 businesses to serve, and drafts arbitration clauses specifically to meet needs of each and the nature of the interests of the counterparties involved.

The culture of the client also influences the level of risk aversion and the attitude towards conflict management.  Outside counsel can create opportunities by offering education and training on ADR and assisting transactional lawyers to analyze and draft clauses.  Nevertheless, one approach will not fit all needs.  The solution needs to be appropriate to deal size, client, counterparty, etc.  Competent drafting can avoid pitfalls, but the drafter must understand what that particular client has, wants and needs.

Judith Miller, of Jaffe Raitt Heur & Weiss, addressed what happens when the deal, now underway, starts to crater.  By this time the lender has a history with a borrower and the lender wants some assurances before entering into a forbearance agreement.  Arbitration or mediation both have a place but, again, individual assessment of needs and interests is critical to the process.  Confidential dispute resolution such as arbitration can be good if there is sensitivity to the risk of publicity, or concern about lender liability.  Arbitration may, but is not necessarily, be less costly; sometimes is more costly because those in control of the dispute process want a robust procedure yielding a reliable outcome, because it can’t be appealed.  There is always uncertainty on the merits, whether issued by a judge or an arbitrator; but you have certainty on the process, including the qualifications of the adjudicator, and that is why many prefer arbitration.

If troubled loan ends up in Chapter 11, the viability of an arbitration clause is subject to bankruptcy court’s determination whether it is a core issue.  Even if an arbitration is alreadyb in process at the time of bankruptcy filing, there is no assurance that it will continue.  By operation of Bankruptcy Rule 9019 it can continue, but other creditors may be prejudiced and may object, particularly if it will impact on the disposition of entire debtor’s assets.  By contrast, mediation has been proven very effective in bankruptcy proceedings, most recently in Chapter 9 municipal filings.

Stuart Widman, of Miller Shakman & Beem, addressed how to select a neutral, and how to get the most out of a neutral.  If the idea is to protect the value of the deal, then mediation is preferred.  Arbitration tends to tear the parties apart; it yields a binary outcome; and it’s not good for solving business issues.  Particularly if there is an intention to go forward with the deal, then the agreement can be modified through mediation rather than enforced through arbitration.

Key characteristics of good neutral are authority, management skills and a willingness to make the call.  Two most important things in assuring useful and practical ADR processes are the selection of the neutral and the drafting of the clause, so transactional lawyers must have skills in papering in anticipation of the deal’s going sour.

Widman agreed that not every arbitration is quicker and less expensive.  But he believed that whether it is depends on the parties and their counsel.  If the parties insist upon a 3-person tribunals, full discovery, and so on, then the process will be designed for what the parties wanted.  And it can be tweaked once the process starts, and costs are getting out of hand.  Indeed, every aspect of arbitration can be modified or created; Widman reported an arbitration agreement providing that rulings of law that are made by the sole arbitrator can be reviewed by a second “appellate” arbitrator, but findings of fact could not.

Widman closed the session with a welcome reframing of the familiar acronym:  ADR = Appropriate Deployment of Resources.  Whether in arbitration or mediation, the neutral must respect the parties’ decision how to deploy their own resources.

Stipanowich on ADR in Construction

Tue, 2014-09-02 11:50

Tom Stipanowich has posted a new article, “Managing Construction Conflict: Unfinished Revolution, Continuing Evolution,” at the Pepperdine Law Library’s Legal Studies Research Paper Series.  Stipanowich is a trained architect, an experienced construction lawyer,  and a very experienced construction arbitrator, and his article speaks authoritatively on the past 20 years of change in construction dispute practices.

He concludes that the promise of innovation that so dominated the field 20 years ago — DRBs, statutory “adjudication” in the UK, collaborative contractual platforms, real-time on-site conflict resolution — has failed to take hold in a way that has fundamentally altered the way disputes are handled.  In the past five-year period, mediation is down and arbitration is way down.  And the cause?  The industry has “lawyered-up,” concludes Stipanowich, and it’s the dispute professionals, not the parties themselves, that drive the dispute resolution processes and derive the main benefit from them.

Twenty years ago, says Stipanowich, construction professionals were partnering, collaborating, DRB-ing and creating “integrated project delivery systems.”  Mediation was fast becoming an inescapable feature of construction disputes, and construction arbitration processes were being revised with an eye to cost and efficiency.  But, he notes,

…we underestimated the grip and staying power of the litigation-oriented legal culture, and the “gravitational pull” it exerts on everything it touches, especially mediation and arbitration.  The legal profession inhabits and dominates these vast swathes of the commercial conflict management landscape and is the primary determinant of its contours.  Within these realms lawyers largely control the shape and timing of dispute resolution processes, who gets in, and who runs or facilitates the process (usually lawyers); the shadow of litigation and the litigation model hangs heavy over the scene.

He acknowledges that programs anchored on the jobsite and conducted in “real time” persist.  Collaborative platforms can be found.  “In the “layered” domains of mediation and arbitration, however, the irresistible force of the revolution in conflict resolution collided with the immovable object of the legal culture and its litigation orientation.”

Many construction practitioners regard mediation as unavoidable, but merely as a “whistle-stop on the litigation line.”  Construction mediation has become dominated by construction lawyers, both as advocates and as neutrals, resulting in “hegemony, a takeover of the mediation work and a slow but steady disenfranchisement of non-lawyers.”  Similarly, in construction arbitration, there is a “drift” toward a litigation model and what Stipanowich calls the “demise” of the multi-disciplinary tribunal.

Some may regard this as a step towards — or perhaps a reflection of — the professionalization of the dispute resolution field.  But the consequence is a diminution of party control, a lack of professional diversity, and arbitrations involving parties who are construction professionals, appearing before a tribunal with no construction professional on board — only lawyers.  Says Stipanowich, “As an arbitrator alongside two other lawyers, I occasionally feel like I am in a boat with all the oars on a single side: in some respects our collective expertise is redundant, and in other respects insufficient.”

Stipanowich identifies five “transformative trends” that may disrupt this landscape: technology (including its promise of efficiency in communication during dispute resolution processes), globalization (and its call for cross-cultural ADR processes); insights through behavioral science (such as the developing field of heuristics and cognitive barriers); longer productive lives and the anticipated entry of older lawyers into the dispute resolution arena; and professional credentialing.

Just how these “disruptions” might answer the challenge of the development of ADR processes that are not client-driven, and whose benefits are not client-directed, Stipanowich does not reveal.

Report from World Mediation Organization

Sat, 2014-08-23 11:39

Mediator Mallory Stevens sends the provocative summary of a recent meeting of the World Mediation Organization, via Maria Volpe’s ListServe (reproduced with Ms. Stevens’ permission):

In early July, I was fortunate enough to attend the World Mediation Organization’s inaugural World Mediation Summit and thought some of my fellow listserv members might be interested in having a flavor of the event. The conference was held July 1 – 4, 2014, in Madrid at the Escuela Técnica Superior de Ingenieros Industriales (Industrial Engineering School) of the Universidad Politécnica de Madrid. The next scheduled, and newly renamed, “WMO Symposia” are to take place later this year in Hong Kong, Dallas and Manila, with a June 2015 WMO Symposium to be held in Berlin.

The dream of Daniel Erdmann, Ph.D., of Berlin, director general and founder of the World Mediation Organization (WMO) and professor and director of the School of Mediation at Euclid University, the concept of these symposia was designed to gather ADR professionals from around the world to connect, share their expertise and discuss topics related to conflicts of cross-border and international interest. The initial conference drew more than 100 mediators, attorneys, barristers, judges, scholars and diplomats from 18 different countries, representing Europe, North America, South America, Asia, Australia, the Middle East and the Caribbean. The four days were replete with informative presentations, panel discussions and training sessions – as well as plenty of enlightening and invigorating networking.

It appears that only relatively recently has mediation begun to be understood as “important and necessary” in Europe and other areas. Supportive legislation has even been enacted within the last few years. Here are but a few succinct, country-related highlights from some of the presentations.

•           Romania: Pursuant to a 2006 law, mediation began to be organized as a profession. A 2008 European Union mediation directive has helped regulate services, quality of training, equal treatment, etc.; nonetheless, in the words of the representative from the Romanian Mediation Council, the only mediation regulatory agency in that country, “Romania is still fighting for mediation.” According to the representative, the country has 9,000 mediators, only a third of which are actually working. They’re still in the process of promoting mediation everywhere, especially in mass media. The government is said to be uninterested in mediation, though the courts are more receptive. Currently, it’s not considered constitutional to require mediation.

•           Spain:  Here too, the courts are beginning to appreciate the importance of mediation. A July 2012 regulation “made mediation a reality” for civil and commercial disputes. Our conference host, the Escuela Técnica Superior de Ingenieros Industriales, has formed an organization of mediation-trained engineers (Institución de Mediación de Ingenieros); thus far, 350 have been trained, all with at least 150 hours of training.  Elsewhere, since 2006, there have been localized, restorative mediation activities for criminal cases. Valencia, a city of more than 815,000 inhabitants, has instituted a successful police mediation program; it’s been catapulted into a “Proyecto Europeo” (European Project), so as to share the model with other European countries, and has been working well in Italy and Greece, though not as well in Bulgaria.

•           Greece: Although mediation has been practiced in Crete since the 13th century, Minoan era, efforts to institute mediation in Greece commenced only in 2007; 350 mediators have now been trained.

•           Eastern Caribbean (9 states): As long as a lawsuit is filed, case management or a high court judge will refer cases to mediation; it’s not compulsory, but if the court refers you, compliance is obligatory.

•           Italy: There was no real mediation until 2009, when it became compulsory, and in 2010 the Italian Ministry of Justice adopted an executive regulation that called for easy access for all professionals; it involved a “low-intensity,” 50-hour training course and minimal requirements for mediator trainers. A “chaotic” situation ensued, with lawyers divided: While some have seen this as a new professional opportunity, the majority has considered mediation as a “calamity” for their own businesses; they immediately boycotted it, even going on strike. Many other professionals expressed interest in mediation, seeing it as a way to supplement their earnings. Judges were initially confused and suspicious: “Only judges make justice. Mediators do something completely different that is not giving justice to people.” In time, they changed their minds. An October 2012 law overturned a July 2012 law that had mandated mediation, due to the government’s lack of power to impose it. Ultimately, in May 2013, the UE Commission gave its support to mediation and in August of that year enacted a new law that simply required parties to be informed about mediation prior to their initiating a claim. There is said to be poor quality of training, and increased demands from mediation with few resulting mediations.

Some other interesting presentations and workshops included (presenters’ countries indicated parenthetically):

•           Mediating complex large group conflicts (Canada): Highlighted was a very challenging, client-services group conflict that involved forty employees, four managers and twenty-nine different ethnicities

•           Cross-border divorce mediation and the “two-day attorney-assisted model” (USA): 98% of cases are resolved within two days

•           Online dispute resolution (ODR) for mediation (India and UK): Challenges and benefits; new software and processes (ODR was frequently highlighted during the conference)

•           Challenges experienced in restructuring complex programs with local governments in war zone environments (Afghanistan)

•           Indigenous communities in India (Amnesty International) and other areas (Philippines and Myanmar): Circumstances, conflicts, protections

•           Strategies for providing the non-violent resolution of international conflicts (Mediators without Borders): Capacity-building projects that build local organizational and peace-building skills, advocacy projects that promote the appropriate use of mediation worldwide, facilitating dialogue

•           Applying psychology to conflict resolution (UK)

•           The process and theory of mediation (Spain and Italy)

•           Mediating complex cases for international corporations and nations (USA): Fortune 500 companies could take 4 – 9 months

•           Missing children of Europe – Family mediation involving transporting children beyond borders (Belgium): Of 700+ cases studied, 47% solved through amicable solutions; must be co-mediated

•           Israeli-Palestinian conflict (Egypt and Palestinian Territories)

•           Brains matter: The art and science of using the mind in conflict resolution — Neuroplasticity (USA): Every time you learn something new, it changes your brain! (Admittedly, this session was one of my personal favorites!)

For more information about this valuable conference as well as upcoming WMO Symposia, you might wish to contact Dr. Erdmann directly at mail@worldmediation.org or visit http://worldmediation.org/symposia/.

All the best,

 

Mallory J. Stevens

Mallory Stevens LLC

Conflict Resolution Services

mstevens@msconflictres.com

www.msconflictres.com

917-716-6654

Mediation Communications Admissible

Mon, 2014-08-18 15:50

The Ninth Circuit, and California courts in particular, have been very strict in maintaining the confidentiality and inadmissibility of statements made during mediation.  Two recent cases have allowed such statements to be admitted, on interesting grounds.  An Arizona District Court decision allowing mediation statements was affirmed by the Ninth Circuit on grounds of both federal law of evidence and theory of waiver.  And a California District Court permitted evidence of mediation statements to be presented to a jury on notions not only of waiver, but of due process.

(Tip of the hat to Clinton Burke, Jacob Glasser and J.D. Hoyle, whose summaries of these and other cases appear in the Summer 2014 issue of Dispute Resolution Magazine.)

In Wilcox v. Arpaio (9th Cir. June 2, 2014), the District Court issued an order enforcing a settlement agreement of a Section 1985=3 case that had been reached during mediation.  The parties relied on the memorialization of the agreement that was found in several emails between the mediator and counsel for the settling parties.  One of the issues raised was whether, in examining the enforceability of a contract extinguishing both state and federal claims, state or federal privilege law should be applied by a federal court.  That question was answered by the court’s finding that, where claims sound both in state and federal law, the court is not limited only to state rules of privilege.

More intriguingly, the court found that the protesting defendant had waived any challenge to the admissibility of the mediation communications by failing to contemporaneously object to their introduction at trial.  Assuming that state law prevailed, it failed to argue that the evidence was inadmissible under federal law, and thus failed to preserve the issue.

In Milhouse v. Travelers Commercial Insurance Company (C.D. Cal. Nov. 5, 2013), the claimant sought payment pursuant to a policy of insurance when his residence burned for a total loss.  Efforts to settle were unavailing and the insured brought suit not only for the loss but also for damages resulting from alleged bad faith, as well as attorney fees and punitive damages.  The compensatory claim succeeded but the bad faith claim and punitive award failed.  Both parties filed post-trial motions.

The insurer’s motion for JNOV was denied on the ground that substantial evidence supported the conclusion that it breached its contract of insurance.  It granted the insurer’s motion for remittitur of damages or, in the alternative, a new trial on that question.

The claimants argued that they were prejudiced in their efforts to prove bad faith by the introduction of statements and positions taken during a mediation.  The court found that, while the evidence supported Travelers’ breach of contract, it did not support Travelers’ having acted with undue delay or in bad faith.  In particular, it was the claimant who delayed in responding to the insurer’s persistent efforts to settle the claim.  And, most interesting to our concern, it was the claimant who demanded, in mediation, that it receive $7,000,000 on a policy limited to $519,400, and that their attorney — who had the file for about six weeks — be paid an additional $800,000 – $1,000,000.  Again, two grounds were cited in denying the post-trial relief.

The first was waiver — that the claimants had failed to object to the introduction of the testimony both prior to the trial or during the trial itself.  An objection first heard post-trial is untimely and ineffective.

But the court went a step further, saying that if objection had been made in a timely manner, it nevertheless would have been overruled.  Throughout the trial, claimants’ counsel repeated the basis for the bad faith claim  - that Travelers refused to enter into negotiations, refused to send someone with authority to discussions, refused to cooperate in good faith.  In fact, the claimants’ demands during mediation were several millions over the policy limits; and at trial claimants’ counsel continued to seek such sums, saying  not only that bad faith damages of $8,325,860 should be awarded, but that, in addition, “Travelers’ conduct was so reprehensible, punitive damages were required: ‘The very least you can award thus company for punitive damages… is $9,079,182.’”

Travelers’ efforts to settle the claim were thus the very issue in contest, and the court permitted evidence to be introduced to the jury supporting the conclusion that settlement was not reached, not due to Travelers’ acting fraudulently or in bad faith, but rather due to the claimants’ excessive demands.  “To exclude this crucial evidence would have been to deny Travelers of its due process right to present a defense.”

Proposal to Require ADR Notice in Letters of Engagement

Fri, 2014-07-18 10:43

The Unified Court System of the State of New York is considering a modification to its Rules that would require attorneys to include in their letters of engagement reference to the ADR options and resources available at the courts’ web site.

The proposal (available here) is subject to public comment until September 8 at rulecomments@nycourts.gov.  The suggestion may be a unique one.

I know that Colorado has an ethical requirement that its attorneys advise clients of alternatives to litigation, and of course many states have court-annexed programs either encouraging or requiring mediation of litigated cases.  But I am unaware of a Court Rule requiring attorneys to give notice of the availability of ADR in the course of their being engaged.

Anyone else?

Arbitration Panel Held Insufficiently Biased

Fri, 2014-07-18 10:30

From Liz Kramer’s Arbitration Nation (via Paul Lurie) comes notice of a delightful ruling from the Texas Supreme Court vacating an arbitration award because the panel was insufficiently prejudiced.

In Americo Life, Inc. v. Myerthe Texas Supreme Court was confronted with an arbitration agreement  providing that disputes were to be brought before a three-person panel, with each party naming a panelist and the third selected by the first two.  It also provided that (with modifications irrelevant to this case) the panel was to conduct the proceeding using AAA Rules.

At the time the agreement was entered into, AAA Rules did not require that party-appointed arbitrators be neutral.  By the time the dispute arose they did.  Americo’s first choice of arbitrator was objected to as partial, and so was its second choice.  The AAA struck the appointed panelist in each case.  Myer didn’t challenge Americo’s third choice and the case went forward. But when Myer tried to confirm the final award, Americo successfully argued that the AAA’s striking its choice of panelist was in derogation of the parties’ arbitration agreement.  The trial court vacated the award, the appellate court reversed the trial court, the Supreme Court reversed the appellate court and remanded, the trial court again vacated, the appellate court again reversed, and the Supreme Court again reversed and confirmed the vacating of the award — almost 10 years after the arbitration had begun.

The Supreme Court observed that an arbitration panel derives its authority from the agreement of the parties, and by obverse deduction an arbitration panel that was selected by a method in derogation of the agreement lacks jurisdiction.  The practice of party-appointed arbitrators’ advocating with a neutral chair was “commonplace” when the parties agreed to this process, held the court.

(Indeed, I remember that when I joined CPR in 1998, one of the distinctions in its Arbitration Rules was a requirement that all arbitrators be neutral.  It even had a provision by which a party could appoint an arbitrator without the arbitrator knowing which party appointed her.)

And, held the court, where the arbitration agreement indicates a term at variance with the AAA Rules, then the terms of the agreement must prevail.  In light of the contemporaneous provisions of the Rules — allowing party-appointed arbitrators to be advocates — and the absence of any requirement of neutrality in the agreement, the refusal to allow Americo to appoint an arbitrator of its choice robbed it of the benefit of its agreement, and robbed the panel of its jurisdiction.

Update on UNCITRAL Proceedings

Fri, 2014-07-18 09:57

Prof. Stacie Strong of the University of Missouri sends this notice:

As some of you may know, the United Nations Commission on International Trade Law (UNCITRAL) has been holding its forty-seventh session in New York these last two weeks.  During the meeting, the U.S. Department of State presented a proposal (click here) suggesting that UNCITRAL Working Group II begin work on a convention on the enforcement of settlement agreements that arise out of conciliation/mediation and that involve international commercial disputes.  The Commission decided to have the Working Group consider the proposal at its spring 2015 session and report back to the forty-eighth session of the Commission regarding the feasibility of the project and what form any instrument should take.

The U.S. Department of State will be holding a public meeting of the Advisory Committee on Private International Law (ACPIL) on July 31, 2014, to discuss this project.  Interested parties may attend in person or by conference call.  More details about the ACPIL meeting, including details on how to RSVP, can be found in the Federal Register notice (click here).

The State Department is keen to hear from various stakeholders, so I encourage you to join into the conversation.

Deborah Masucci, Chair of IMI, has also reported on these proceedings and encouraged the ADR community to monitor them or engage itself.

ADR in Bankruptcy: Expanding Opportunities

Wed, 2014-07-02 19:11

Andrew Olejnik of Jenner & Block and Olivier André of the CPR Institute have co-authored an article that appears in Bankruptcy Law Reporter on the growing use of ADR tools in bankruptcy.  Dating the trend from a 2009 conference convened by the American Bankruptcy Institute Law Review, the authors conclude that “many large, complex cases increasingly have turned to ADR tools as a means to resolve disputes.”  The full article appears here.

In some cases the ADR phase is statutorily required.  For example, the city of Stockton, California underwent a state-required “neutral evaluation process” before being eligible to file for bankruptcy in 2012.  Some were quasi-contractual. It is understood that “the bankruptcy court generally does not have discretion to deny enforcement of a valid prepetition arbitration provision.”  And some are aimed at judicial economy. Lehman Brothers requested and obtained ADR procedures to streamline the process of capturing the value of certain “in the money” derivatives contracts.   And the court ordered mediation of certain tax disputes in the Ambac Financial Group Chapter 11 proceeding.

Along with precatory mediation plans in many federal bankruptcy courts, and the new presumptive mediation plan in the District of New Jersey, we can expect, as the authors observe, increased ADR activity in this field, which so centrally relies upon negotiated outcomes.

 

New Pepperdine Survey of Dispute Resolution Professionals

Wed, 2014-07-02 18:50

Straus Institute Academic Director Thomas Stipanowich reports:

The Straus Institute recently conducted two major surveys of dispute resolution professionals: a survey of experienced arbitrators with the cooperation of the College of Commercial Arbitrators, and a survey of experienced mediators with the cooperation of the International  Academy of Mediators.   These studies produced a wide array of new information on arbitrator and mediator practices and perspectives that we hope will contribute to debate and discussion on many current professional issues.  We are presently writing these up.

The first fruit of these studies is the just-completed article Commercial Arbitration and Settlement: Empirical Insights into the Roles Arbitrators Play, which leads off the new Penn State Yearbook on Arbitration and Mediation.   The role of arbitrators in setting the stage for settlement has received relatively little attention despite the fact that, as our survey shows, the rate of pre-award and pre-hearing settlement is increasing.  Moreover, different arbitrators are experiencing very different rates of settlement and have different attitudes toward their roles in settlement.  However, the survey shows that many arbitrators are engaged in activities that have an impact on settlement.

The survey may be download here.

Mediator Disclosure Standards: Same as Judge??

Thu, 2014-06-26 09:34

The Court of Appeals for the Federal Circuit has held that “mediators have disclosure obligations which are similar to the recusal requirements imposed on judges.”  This is so despite the acknowledgement that mediators have no authority whatsoever over the parties they are assisting, and despite the fact that a bad mediator can cause very little harm.

The dispute giving rise to this peculiar result is Ceats, Inc., v. Continental Airlines Inc., a patent dispute brought before the District Court for the Eastern District of Texas and appealed to the Federal Circuit.   The claimant sought review of a denial of its motion pursuant to F.R.C.P. 60(b) for relief from a judgment that its patents were invalid.  The basis for that motion had been that the court-appointed mediator had failed to disclose his close business and professional relationship with counsel for the defendants.  This nondisclosure was also the basis for a state court’s vacating an arbitration award issued by the same neutral (in an unrelated proceeding) in which he had failed to disclose that same relationship.

The Court of Appeals “recognize[d] that mediators perform different functions than judges and arbitrators,” but also noted that “mediators still serve a vital role in our litigation process.”

Because parties arguably have a more intimate relationship with mediators than with judges, it is critical that potential mediators not project any reasonable hint of bias or partiality.  Indeed, all mediation standards require the mediator to disclose any facts or circumstances that even reasonably create a presumption of bias.

Reviewing the ABA Model Standards, the court noted a similarity with the recusal requirements imposed on judges pursuant to 28 U.S.C. 455(a).  It then reasoned that “parties must have absolute trust that their confidential disclosures [in mediation] will be preserved.”  Partiality, reasoned the court, eroded that trust and mediators’ disclosure requirements were therefore similar to judges’ recusal requirements.

A good-old Texas mediator of my acquaintance, Jeff Abrams, always says that “the worst thing that can happen in a mediation is that you have a bad day.”  The very prospect that mediators share any professional attribute to judges is difficult to entertain.  Yes, of course mediators should disclose relationships before accepting an engagement.  But different from judges, mediators are often sought out because they have relationships with the parties.  Franchisees may seek a mediator who has worked with the franchisor.  A Chinese friend once explained that an arbitrator who was the cousin of a party is often chosen by the adversary because he has guanxi with her.  Certainly the intentional disclosure of confidential information is disreputable, but seems to have no logical connection with partiality.

What would happen if a partial mediator slipped into the process?  Would she try to persuade the other side that it has no case?  That there were no damages?  That it is likely they will lose summary judgment?  So what?  A competent attorney in mediation makes her own assessments and agrees only to agreeable options.  It really is quite difficult to imagine what harm even the most biased mediator could do.  The same could hardly be said for a biased judge.

Disclosure requirements for mediators are found where they belong — in bar association “standards” and mediator provider organization “rules.”  To enshrine them in the law seems to reflect an inaccurate understanding of how mediations really work, and why litigants settle.

Global Enforceability of Mediated Settlement Agreements

Mon, 2014-06-16 14:00

Deborah Masucci, Chair of the International Mediation Institute, has sent around a forceful message asking the international mediation community to support initiatives to ensure that agreements reached during mediation have the status of enforceable contracts, in all jurisdictions around the world.

The initiative resembles the effort 60 years ago to make arbitration awards enforceable globally, by the New York and Panama Conventions.

Writes Masucci:

I write to ask that you lend your support to a proposal now pending within the UNCITRAL Commission for Working Group II (Arbitration and Conciliation) to initiate work on a multilateral convention on the enforceability of international commercial settlement agreements reached through mediation. IMI supports this effort and asks that you contact your country’s delegate to this Working Group to encourage them to support adding this task to its work. IMI believes this proposal makes eminent sense in the increasingly complex commercial world in which we operate.

She points out, quite correctly, that an agreement to resolve litigation may need to be enforced in a jurisdiction where a party who breached that agreement has assets.  It is a situation with which international businesses (and international arbitrators) are familiar, and it should not require an expensive and antagonistic arbitration to get a piece of paper that someone can enforce.

The proposal will be presented by the United States and considered by the UNCITRAL Commission at its 47th Session in July in New York. I hope that we can count on your support to encourage your delegate’s agreement to add the proposal to the Working Group’s Agenda. I will be attending the Session on behalf of IMI and the Joint IBA-IMI Taskforce to support the proposal. The IMI Board and executive team are available to discuss the reasons we believe the proposed convention is ideally suited to the way business is conducted in today’s world.

The full text of the proposal is below.  More information on the upcoming 47th Session of the UNCITRAL Commission is here.  This looks like an issue worth pursuing, and we look forward to its progress as the work unfolds.

Proposal by the United States: Future Work for Working Group II

As the draft Convention on Transparency in Treaty-Based Investor-State Arbitration[1] will be considered by the UNCITRAL Commission at its 47th Session, Working Group II (Arbitration and Conciliation) has completed the transparency-related projects within its mandate. The Commission now needs to decide what future projects, if any, might merit the use of Working Group resources. The United States proposes that the Working Group address the enforceability of settlement agreements resulting from international commercial conciliation.

Background: The U.N. General Assembly has recognized that the use of conciliation “results in significant benefits, such as reducing the instances where a dispute leads to the termination of a commercial relationship, facilitating the administration of international transactions by commercial parties and producing savings in the administration of justice by States.”[2] Because promoting the use of conciliation may help achieve these benefits, UNCITRAL has previously developed two important instruments aimed at increasing its usage: the Conciliation Rules (1980) and the Model Law on International Commercial Conciliation (2002). (In this paper, as in the Model Law, the term “conciliation” is used to refer to “a process, whether referred to by the expression conciliation, mediation or an expression of similar import, whereby parties request a third person or perso ns (‘the conciliator’) to assist them in their attempt to reach an amicable settlement of their dispute arising out of or relating to a contractual or other legal relationship. The conciliator does not have the authority to impose upon the parties a solution to the dispute.” [3] Thus, this paper does not intend to differentiate conciliation from mediation.)

When UNCITRAL completed this earlier work, it was already recognized that “[c]onciliation is being increasingly used in dispute settlement practice in various parts of the world,” and that it is “becoming a dispute resolution option preferred and promoted by courts and government agencies,” in part because of its high success rate.[4] Since then, conciliation’s acceptance and use have continued to grow. For example, in 2008, the European Union issued a directive on mediation, requiring that its member states implement a set of rules designed to encourage the use of mediation in cross-border disputes within the EU.[5] Increased use of conciliation can be expected as parties continue to seek options that reduce costs and provide faster resolutions.

One obstacle to greater use of conciliation, however, is that settlement agreements reached through conciliation may be more difficult to enforce than arbitral awards, if a party that agrees to a settlement later fails to comply. In general, settlement agreements reached through conciliation are already enforceable as contracts between the parties.[6] However, enforcement under contract law may be burdensome and time-consuming. Thus, if even a successful conciliation simply results in a second contract that is as difficult to enforce as the underlying contract that gave rise to the dispute, engaging in conciliation to address a contractual dispute may be less attractive. Moreover, unlike arbitration, which generally provides a definitive resolution to a dispute, conciliation does not guarantee that the parties will reach an agreement, and even a party that agrees to a resolution may later fail to comply. Thus, in deciding whether to invest their time and resources in the process of conciliation, parties may want greater certainty that, if they do reach a settlement, enforcement will be effective and not costly. “Many practitioners have put forward the view that the attractiveness of conciliation would be increased if a settlement reached during a conciliation would enjoy a regime of expedited enforcement or would, for the purposes of enforcement, be treated as or similarly to an arbitral award.”[7] Thus, the Commission has supported “the general policy that easy and fast enforcement of settlement agreements should be promoted.”[8] Bolstering enforceability across borders also helps promote finality in settlement of cross-border disputes, as it reduces the possibility of parties pursuing duplicative litigation in other jurisdictions. For these reasons, i nitial consultations with the private sector have indicated strong support for further efforts by UNCITRAL to facilitate the enforceability of conciliated settlement agreements.

Proposed Convention: To further these goals, the United States proposes that Working Group II develop a multilateral convention on the enforceability of international commercial settlement agreements reached through conciliation, with the goal of encouraging conciliation in the same way that the New York Convention facilitated the growth of arbitration. Just as the New York Convention has been successful in part due to its relative brevity and simplicity, an analogous convention on conciliation should also avoid unnecessary complexity.

With respect to the scope of a convention, the United States proposes that the Working Group address the following issues, among others:

  • Providing that the convention applies to “international” settlement agreements, such as when the parties have their principal places of business in different states;
  • Ensuring that the convention applies to settlement agreements resolving “commercial” disputes, not other types of disputes (such as employment law or family law matters);
  • Excluding agreements involving consumers from the scope of the convention;
  • Providing certainty regarding the form of covered settlement agreements, for example, agreements in writing, signed by the parties and the conciliator; and
  • Providing flexibility for each party to the convention to declare to what extent the convention would apply to settlement agreements involving a government.

The convention could then provide that settlement agreements falling within its scope are binding and enforceable (similar to Article III of the New York Convention), subject to certain limited exceptions (similar to Article V of the New York Convention).

Such an approach would build on existing law. To encourage use of conciliation, many legislative frameworks and sets of rules make some conciliated settlement agreements easier to enforce by treating them in the same manner as arbitral awards. For example, the UNCITRAL Model Law on International Commercial Arbitration (adopted in many jurisdictions around the world) provides in Article 30 that if parties settle a dispute during arbitral proceedings, the tribunal can make an award on agreed terms, with the same status and effect as any other award on the merits of a case. The result relies on a legal fiction: although the parties resolve the dispute themselves, rather than waiting for a neutral third-party decision-maker to impose a resolution, the settlement is still categorized as an award. This fiction gives the parties the same benefits in terms of finality and ease of enforcement that a normal award would have provided.

Other jurisdictions have gone further by treating conciliated settlement agreements equivalently to arbitral awards even if arbitral proceedings have not yet commenced. These jurisdictions thus provide parties with an incentive to settle disputes at earlier stages. For example, UNCITRAL has noted that India and Bermuda provide for settlement agreements reached through conciliation to be treated as arbitral awards.[9] A number of U.S. states, including California and Texas, have statutes on international commercial conciliation that provide for settlement agreements to have the same legal effect as arbitral awards.[10] Various sets of arbitration rules around the world take a similar approach. The Korean Commercial Arbitration Board’s Domestic Arbitration Rules provide that, if conciliation succeeds in settling a dispute before arbitration commences, &ldqu o;the conciliator shall be deemed to be the arbitrator appointed under the agreement of the parties, and the result of the conciliation shall … have the same effect” as an award on agreed terms.[11] The Mediation Rules of the Arbitration Institute of the Stockholm Chamber of Commerce similarly provide that the parties can appoint the mediator as an arbitrator for the purpose of confirming a settlement agreement as an arbitral award.[12]

A convention for conciliation modeled on the New York Convention would draw upon the approach taken by these jurisdictions, but would address the enforceability of settlement agreements directly, rather than relying on the legal fiction of deeming them to be arbitral awards. This approach would also eliminate the need to initiate an arbitration process (with the attendant time and costs) simply to incorporate a settlement agreement into an award.

Any convention along these lines would, of course, need to include a limited set of exceptions similar, but not identical, to those provided in Article V of the New York Convention. For example, an analog to Article V(1)(d) (regarding the composition of the arbitral authority or the arbitral procedure) may not be necessary. By contrast, the Working Group could consider whether to allow a party to a settlement agreement to prevent enforcement if it can demonstrate that it was coerced into signing that settlement agreement.

The Working Group could also consider several possible structural limitations on enforcement under the convention:

  • Whether to provide that other courts could give effect to an originating jurisdiction’s determination that a settlement agreement is not enforceable (similar to the New York Convention’s treatment of set-aside proceedings);
  • How to avoid duplicative litigation caused by simultaneous attempts to enforce a settlement under the convention as well as under contract (or other) law; and
  • How to ensure respect for restrictions on enforcement chosen by the parties to a settlement (e.g., settlements containing forum selection clauses or other limitations on remedies).

Moreover, settlement agreements can contain long-term obligations regarding the parties’ conduct years into the future, and might address such issues more commonly than arbitral awards would. The Working Group should consider whether limits on enforcement under the convention would be appropriate in such cases. For example, enforcement under the convention could be made available only for a limited period of time, after which other mechanisms—such as domestic contract law—might be more appropriate (e.g., to deal with issues such as changed circumstances). Other methods of limiting the convention’s application to non-monetary elements of settlements could also be considered.

During the development of the Model Law on International Commercial Conciliation, it was noted that drafting uniform legislation regarding enforcement would be difficult because the methods for achieving expedited enforcement of settlement agreements varied greatly between legal systems and depended on domestic procedural law.[13] However, the Working Group could minimize these difficulties by addressing enforcement via a convention that, like the New York Convention, sets forth the result that states would need to provide through their domestic legal systems (in this case, enforcement of conciliated settlement agreements) without trying to harmonize the specific procedure for reaching that goal.[14]

Similarly, efforts to develop a convention should not seek to develop harmonized rules for the conciliation process itself, just as the New York Convention does not set forth mandatory rules for conducting arbitral proceedings. However, the Working Group could consider whether additional topics, such as the confidential nature of conciliation discussions, could be addressed through further projects after completion of an initial convention.

Next Steps: In view of the potential benefits of such a convention, as well as the background work already done by the Secretariat in the context of the development of the Model Law, the United States urges the Commission to assign this project the highest priority within the Working Group, including at its next session in September 2014. While other efforts under consideration by the Working Group (such as updating the Notes on Organizing Arbitral Proceedings) should continue, they should not delay work on this project.

 

[1] A/CN.9/812 (2014).
[2] A/Res/57/18 (2003).
[3] Model Law on International Commercial Conciliation, art. 1.3.
[4] Guide to Enactment of the Model Law on International Commercial Conciliation (“Guide to Enactment”), para. 8.
[5] Directive 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on Certain Aspects of Mediation in Civil and Commercial Matters, 2008 O.J. (L 136).
[6] Guide to Enactment, supra note 4, at para. 89.
[7] Id. para. 87.
[8] Id. para. 88.
[9] Id. para. 91 (citing Bermuda, Arbitration Ac t 1986; and India, Arbitration and Conciliation Ordinance, 1996, art. 73-74).
[10] E.g., Cal. Civ. Pro. § 1297.401; Tex. Civ. Prac. & Rem. Code Ann. § 172.211.
[11] Korean Commercial Arbitration Board, Domestic Arbitration Rules 18.3 (2011).
[12] Arbitration Institute of the Stockholm Chamber of Commerce, Mediation Rules 14 (2014).
[13] Guide to Enactment, supra note 4, at para. 88.
[14] Similarly, although this convention would provide for enforcement of settlement agreements, it would not address matters related to the attachment or execution of assets, just as the New York Convention did not do so.