Global vantage: Arbitration – Mediation – Arbitration: A new method of ADR

Alternative Dispute Resolution (ADR) methods are important for resolving disputes in construction projects. The Arb-Med-Arb process offers a hybrid dispute resolution process, combining arbitration and mediation in a structured sequence. Arb-Med-Arb has gained traction since its recent promotion in Singapore. The process is designed to blend the strengths of both arbitration and mediation, seeking to provide the benefits of both processes.
Structure

1. Initial arbitration
   Parties submit the dispute to arbitration. Arbitration is paused after the initial procedural and information gathering steps.
2. Mediation
   During the arbitration pause, the case is referred to mediation. A mediator will facilitate negotiation in an attempt for the parties to reach a settlement. If the parties settle, terms are recorded in a settlement agreement.
3. Return to arbitration
   If mediation is successful, then the settlement agreement will be submitted to the arbitrator(s). The arbitrator(s) can issue a consent award, rendering the agreement enforceable. If the mediation fails, then the arbitration will proceed towards a binding award.

Benefits of Arb-Med-Arb

1. Enforceability
   A mediated settlement can be turned into an enforceable arbitral award. This will be enforceable under the New York Convention in all 160 signatory countries.
2. Encourages settlement
   In traditional mediation, parties are sometimes unwilling to settle and/or do not commit to the process because they do not believe a settlement will be reached.
   Knowing that the arbitration will resume if mediation fails may motivate parties to seek a settlement.
3. Saves time and costs
   Successful mediation can resolve disputes early, avoiding full arbitration proceedings. During the mediation period, the arbitration will be stayed, preventing unnecessary costs.
   If the mediation is successful, the parties will have to pay for half of the arbitration proceedings and the mediation.
   However, while successful Arb-Med-Arb may save costs, it can ultimately be more expensive if the mediation is unsuccessful. This is because parties are required to pay for all three stages.
4. Understanding
   A prevalent factor in mediation failure, and in parties not fully committing to mediation, is that mediation often occurs too early in the dispute process. This means that parties arrive at mediation without full understanding of the key issues and each other’s positions. By engaging in arbitration at the first stage, parties are better equipped with the information necessary for an effective mediation. However, they will have incurred the additional costs for the first stage of arbitration.
5. Confidentiality
   Both mediation and arbitration are private processes. If the mediator is independent from the arbitrator, Arb-Med-Arb allows parties to disclose sensitive information, such as bottom line offers, to the mediator without the risk of that information influencing the third stage arbitration due to the preservation of confidentiality. We recommend that the mediator should be a separate individual to the arbitrator.

Contractual requirements
If Arb-Med-Arb is to be used, this must be clearly set out in a multi-tiered dispute resolution clause. This clause should require disputes to be first referred to arbitration, and then for the arbitration to be paused while the parties look to resolve the dispute in good faith via mediation.

Global use of Arb-Med-Arb
Singapore is a leading example of Arb-Med-Arb being used to resolve disputes. The Singapore International Mediation Centre and the Singapore International Arbitration Centre have developed a joint Arb-Med-Arb protocol, available here (the Protocol). The Protocol emphasises the main benefits of Arb-Med-Arb: flexibility, confidentiality, enforceability and finality, and establishes a clear framework for the smooth conduct of the Arb-Med-Arb process. Parties can reference the Protocol in their dispute resolution clauses and amend and adapt to meet the needs of their jurisdiction.

Conclusion
Arb-Med-Arb offers an alternative to the typical ADR process. If mediation is successful, the process offers a potential solution to the high costs of litigation and arbitration. The second arbitration phase offers the security and enforceability that comes with an arbitral award. However, if mediation fails, the costs may ultimately be higher than if the standard mediation or arbitration process was used. Whether the mediation is successful or unsuccessful, there is still the cost of the first stage. Parties should be aware that for the process to be most effective, the full buy-in is required.

If you have any questions about the Arb-Med-Arb process or would like to consider this as an option for your project, please contact the authors or your Beale & Co lawyers.