John Rundell and Co.
Level 2, Professional Chambers
120 Collins Street
Melbourne, Victoria 3000
Australia
Phone: +613 9660 5701
Fax: +613 9663 6609
Stratica Asia Limited
Company No. 919815
Level 16, The Hong Kong Club Building, 3A Chater Road,
Central, Hong Kong
Phone: +852 2293 2370
Fax: +852 2588 3434
Cell: +61 419 568 506
If you haven’t been through an arbitration before, you may be daunted by the prospect of commencing proceedings. If you simply break it down into steps or stages, you can prepare your relevant documentation and anticipate what is required and when, to help the process run smoothly.
Stages of arbitration:
An arbitrator is appointed: An arbitrator can either be engaged directly by the parties in dispute or appointed by administering bodies such as the Resolution Institute, the Australian Dispute Centre or the International Chamber of Commerce or other appointing bodies.
Terms of Reference: Once appointed, the arbitrator will write to the parties with their Terms of Reference and, once agreed, follow up with a series of procedural orders. This is to confirm the rules and outline the agreed issues in dispute and processes to be followed, including an indicative timetable for submissions and hearing.
Procedural Orders: This document will cover for following areas:
- General provisions
- Procedural timetable
- Procedural requirements for communications / witnesses / written submissions / agreed bundle of documents / oral hearing / orders.
Exchange of documents and submissions: At this point, both parties must supply any documentation relevant to the arbitral hearing.
Preliminary conference: This is the first opportunity for the parties to meet with the arbitrator and discuss the process. If the parties have any amendment requests to the procedural orders, or timetable, this is the opportunity to have an open discussion and ensure both parties are comfortable moving forward.
Hearing: Once submissions have been exchanged, the arbitrator will hear from both parties either in person or via video link (unless the submissions are presented via documents only). This is the opportunity for both parties to present their case to the arbitrator which may include oral submissions, witnesses and cross examination, and to offer their understanding of the legal arguments of the issues in dispute.
Arbitrator will deliberate / determine award: Once the arbitrator has received all submissions and heard the parties oral submissions during the hearing (usually recorded and transcribed), the award will be written, signed, and sent to both parties. This Award should be completed within the agreed timetable.
Enforcement: Once the Award is handed down (issued), the parties must comply. If they do not, the Award can be enforced via the Courts without revisiting the merits of the decision. It is binding on the parties save for very limited grounds for appeal.
Arbitration is often the next step if mediation fails, so as I always say, ‘don’t waste the mediation.’
A fast resolution to a dispute via mediation, that is fair (where both parties wear a bit of pain for the sake of reaching an agreement), is always the best outcome.
When dealing with arbitration, there are three different ways a case can settle, so it is important to understand how each outcome can affect you.
There are no good or bad outcomes, it just all depends on your circumstances and the type of resolution you are seeking. So, by understanding the pros and cons of each outcome, you can go into the process with realistic expectations.
Why arbitration over mediation?
In short, mediation is the process of two parties negotiating an outcome in the interests of the parties, and is not necessarily based upon the legal rights and wrongs of the issues in dispute.
An independent mediator guides the discussions, but is not making a decision on the matter in dispute (which is what occurs in an arbitration).
With mediation, it is up to both parties to come to an agreement and participate in the process, otherwise the mediation will fail.
This will lead to an alternative resolution process needing to commence and protracting the dispute resolution.
On the other hand, arbitration is when the parties engage an independent arbitrator to hear both sides of the matters in dispute and make a decision in an enforceable Award (like a court judgement) that resolves the dispute.
The arbitration process can occur on an ex parte basis, so if one party doesn’t participate, the process can continue forward without their input.
For this reason, arbitration may be required to resolve a matter that has previously experienced a failed mediation.
Settlement Option 1: award settlement.
An award settlement is when the arbitration process continues right through to the Arbitrator providing a reasoned award deciding on the issues in dispute after having heard the arguments from each side in dispute. Once the arbitral award is handed down, this decision is final and binding and enforceable.
This type of settlement is enacted when the parties cannot negotiate to the point of a mutual agreement.
It is the arbitrator’s task to make a decision that is reasoned based upon the submissions of the parties.
Once this award has been issued by an arbitrator, this award becomes enforceable under the New York Convention and can be enforced in any of 169 signatory countries. And so is not limited by jurisdiction in which the parties have conducted the Arbitration.
This decision is more final than a judge ruling in a court of law, as an arbitral award cannot be contested or appealed (except under very limited circumstances) and applies beyond the jurisdiction of a court judgement that usually only applies to a particular country.
Settlement Option 2: award by consent.
When two parties can agree on a settlement, the second option is an award by consent. In this situation, the parties can put forward a proposal to the arbitrator to issue an award setting out their agreed terms.
This decision is still final and binding, but this settlement option gives the parties the option of having an enforceable solution that again is not limited by jurisdiction, and is with their agreed consent.
For this to be possible both parties must be in agreement of the resolution of the issues in dispute as set out in the consent award, as opposed to the third option which is a private settlement, where the arbitrator does not issue an award and vacates the Arbitration.
Settlement Option 3: parties reach a settlement.
The third option is similar to an award by consent in that both parties need to reach an agreement on settlement outcome. However, it is done behind closed doors, between the parties and their lawyers, meaning that the arbitrator is no longer involved in the process (and often is not even privy to the final outcome). The arbitrator brings the arbitration to a close via a final order ending the arbitration based only upon advice from all parties that they have reached a resolution of the dispute.
This situation is preferred in cases involving corporate entities that could potentially face reputational damage as a result of the outcome. The settlement is usually bound by strict confidentiality clauses.
By reaching a private settlement, without an arbitral award being handed down, the parties are able to resolve the matter without the details being known outside of the parties and their lawyers.
When a settlement is reached between the parties, in this circumstance it doesn’t have the standing of an arbitration award.
This means, the settlement can run the risk of potentially being contested at a later date, and the agreed decision not being enforceable.
Arbitration is often the next step if mediation fails, so as I always say, “don’t waste the mediation”.
An expeditious resolution to a dispute, that is fair (where both parties wear a bit of pain for the sake of reaching an agreement), is always the best outcome and this can most likely be achieved by mediation.
If you would like to find out more about mediation, get in touch with me for a no-obligation discussion.
A mediation clause is standard practice in Australian commercial contracts. The purpose of the clause is to create a clear path forward should a dispute arise that cannot be agreed upon between two parties. At that point, an external and impartial mediator is appointed and the process of mediation commences.
I have mediated many matters in my career. Although I always strive to reach an outcome that can be accepted by both parties, allowing them to move forward and put the matter behind them, mediation can still not achieve a resolution of the issues in dispute.
There are many factors that can affect a successful mediation outcome, but from my experience, these are the most common contributing factors that can lead to a breakdown of discussions.
1.) Unrealistic expectations
The corporate representative that has been sent into the mediation negotiations may have been given unrealistic bounds in which to negotiate a resolution, making it virtually impossible for that representative to effectively have room to negotiate a settlement in the mediation.
If a party representative is constrained to limited bounds and is unwilling to move or give some ground, even a little during the mediation sessions working through the issues in dispute, the mediation will almost always fail.
2.) Not outcome driven
If you haven’t been through the dispute resolution process before, you may not be aware of the required time and money that goes into the various escalation stages. It’s common for parties to feel so certain that a potential judgement will fall in their favour, that they just go through the motions of the dispute resolution escalation process, with the aim of going to trial.
As I’ve discussed in previous articles, the total costs management time and delay in achieving a result associated with litigation can be counterproductive to the desired outcome of resolving the dispute. So at this early stage, I always encourage parties to actively seek a reasonable resolution at mediation.
3.) The matter is too emotionally-charged
Business and financial matters can be incredibly stressful, and for a small business there can be a lot of emotion involved in a contract dispute. For a party that doesn’t have the perspective to even entertain a resolution, or will not sit face-to-face (even virtually) with the opposing disputing party in the negotiation process, can make it extremely difficult to find a suitable resolution at the mediation stage. If you can’t get the parties into the same room to work through the issues in dispute, the chances of obtaining a resolution via “shuttle diplomacy” which is going back and forth between the disputing parties for one on one sessions I find just too difficult.
The best outcome for mediation
Dispute resolution is complex and emotionally taxing, so it can be hard to keep an open mind throughout the mediation process.
From my experience working with various parties over the years, the best outcomes I have seen are always when the two parties are able to reach a reasonable resolution that is still in the parties interests. It may not be what either party was hoping to achieve but they can live with it. This allows them both to move on and put the matter in dispute behind them.
It may not be the solution that either party was seeking to achieve, but if you are able to put a dispute to rest, without it having a long-term impact on your business, then that should be considered a successful outcome. You can again focus on running your business as the dispute has gone away becoming a fading memory and no longer a cause of lost sleep.
After all, the next stage is litigation, and unless you have a lot of time and money at your disposal, and are prepared for many more nights of disturbed sleep, you may end up in a more precarious position when the court (sometimes several years later) finally makes its decision often years later.
