How to Choose a Dispute Resolution Mechanism? Part (1): A Pro Med/Arb Approach

When a commercial dispute arises, parties are usually intimidated by the dispute resolution process itself as much as they are intimated by the prospects of such a process. This brings parties and their counsels back to discussing which dispute resolution mechanism they should use under their agreements in the first place. In this regard, disputing parties are always searching for a cost-effective dispute resolution mechanism that allows to settle the dispute promptly. This is a reflection of the essential business principle, namely, the time value of money. In the current fast-paced commercial landscape, we see the Med/Arb as offering parties the ability to obtain a definite resolution of a particular dispute, with a reduced cost, efficient process, and flexibility to pursue consensual settlement prior to or during a binding arbitral process. This of course depends on the type of the contractual relationship and the surrounding circumstances as we will demonstrate in section (IV): Conclusion.

To comprehend the potential of Med/Arb, we must first understand its anatomy. In essence, the Med/Arb mechanism is the combination of a mediation process and an arbitral proceeding in order to negotiate the right circumstances and grounds that the parties long to have them reflected under their settlement through the mediation process, then give it a binding nature through having the settlement agreement embodied in a binding arbitral award (i.e., a consent arbitral award). In this respect, the Med/Arb mechanism combines the characteristics of two internationally recognized and well-relied-upon mechanisms of dispute resolution around the world.

1. The Drivers behind Med/Arb? The Intersection between Mediation &Arbitration Mechanisms:

Med/Arb finds its practical roots in diverging from the common grounds of its constituent processes. In mediation, the negotiation process includes the disclosure of more information in order to encourage parties to find the root of their disputes and the actual risks, in order to agree upon a more satisfying settlement agreement for the dispute. This settlement is then embodied in an agreement between the parties, however, it lacks the legally binding effect of an arbitral award or a court ruling. Hence, the ground of Med/Arb is combining the two aspects of both mediation and arbitration processes. In this regard, there would be no costly and burdensome proceedings, and the settlements reached in negotiations are given a final and binding effect through an arbitral award that addresses the negotiated grounds. This arbitral award is often termed as a “consent award.”

Naturally, arbitration and mediation are distinct dispute resolution mechanisms with different purposes. On one hand, arbitration results in a decision rendered by a sole authority (i.e. the arbitral tribunal) based on the legal arguments and factual evidence advanced by the arbitrating parties. On the other hand, mediation grants the parties the absolute freedom necessary to agree on a proper settlement agreement to resolve their dispute.

Nevertheless, the intersection between both processes lies in the diverse methods and approaches to both dispute resolution mechanisms. For example, mediation has different approaches such as directive, evaluative, or transformative mediation. In this regard, the evaluative approach in mediation simply evaluates the legal aspects of the dispute in order to allow the parties to better understand their legal stance with respect to the dispute. This approach opens the door to legal argumentation rather than exploration of interest which is almost identical to the purpose of arbitral proceedings. Arguably, an arbitration conducted under ex aequo et bono rules ­– which requires an express agreement in advance by the parties in most MENA jurisdictions including Egypt – is more likely to explore the interests of the parties in order to stand on grounds of what constitutes a ‘just’ decision. In any case, the two aforementioned approaches to mediation and arbitration indicate that both processes are not entirely locked to their perspective purposes and could be tweaked as the landscape of dispute resolution evolves. Hence, Med/Arb finds its drivers in this grey area whereby the parties’ interest must be preserved and a binding enforceable instrument is acutely needed.

“In this regard, there would be no costly and burdensome proceedings, and the settlements reached in negotiations are given a final and binding effect through an arbitral award that address the negotiated grounds. This arbitral award is often termed as a consent award”

“Hence, Med/Arb finds its drivers in this grey area whereby the parties’ interest must be preserved and a binding enforceable instrument is acutely needed.”

2. Advantages of the Med/Arb Mechanism:

The advantages of any Alternative Dispute Resolution “ADR” process is based upon its parties’ awareness of their stances and the evaluation of their goals. Accordingly, Med/Arb process could be the best of both worlds when the circumstances are right, meaning that Med/Arb selectively chooses the points of strength of mediation and arbitration and diminishes the areas whereby any of them might prove impractical. Accordingly, one of the advantages of Med/Arb is the finality of the arbitral consent awards that are rendered. This is the essential attribution that the process inherits from arbitration, in opposition to mediation which does not offer this virtue, at least before the Singapore Convention becomes widely adopted worldwide.

Moreover, Med/Arb is practically more efficient in terms of costs and the “fail-safe mechanisms” it offers than any of the two processes when used separately. On one hand, Med-Arb is based on negotiations which eliminates the extra costs of document production and the excess number of attorneys that could be needed(i.e. attorneys are usually limited to advisory roles in this process). Moreover, Med-Arb also helps avoid the costs and hassle that could arise from disputes with respect to settlement agreements rendered in mediation and their enforcement in later stages.

“Med/Arb selectively chooses the points of strength of mediation and arbitration and diminishes the areas whereby any of them might prove impractical.”


“Med/Arb is practically more efficient in terms of costs and the “fail-safe mechanisms” it offers than any of the two processes when used separately.”


“Moreover, Med-Arb also helps avoid the costs and hassle that could arise from disputes with respect to settlement agreements rendered in mediation and their enforcement in later stages.”

3. The Enforceability of the Med/Arab Mechanism in Egypt:

Our Egyptian Legal System is familiar with Med/Arb mechanism as a form of ADR as it is common to some extent to have recourse to Med/Arb in contractual relationships in Egypt. In this regard, the Egyptian legal system allows for the enforcement of arbitral awards that are rendered in accordance with Med/Arb mechanism. This is because consent arbitral awards are perfectly enforceable under article (41) of the Egyptian Arbitration Act No. 27 for the year 1994.

In our opinion, having recourse to the Med/Arb process in a commercial matter requires careful drafting in order to refer a dispute accurately to such a Med/Arb mechanism. There are no many model clauses available but we could take a look at the Singapore International Arbitration Centre model Arb-Med-Arb (AMA) Protocol and its model clause. This model clause draws a good painting of the technicality of the Med/Arb mechanism. More importantly, examining the second paragraph of this model clause which reads as follows: “[…] The parties further agree that following the commencement of arbitration, they will attempt in good faith to resolve the Dispute through mediation at the Singapore International Mediation Centre (“SIMC”), in accordance with the SIAC-SIMC Arb-Med-Arb Protocol for the time being in force. Any settlement reached in the course of the mediation shall be referred to the arbitral tribunal appointed by SIAC and may be made a consent award on agreed terms” indicates that the arbitral tribunal, when there is a seamless settlement is reached via the mediation process, should give such a settlement agreement a more solid form for its ease of enforcement, that is in the form of an arbitral award (i.e. a consent arbitral award).

“In this regard, the Egyptian legal system allows for the enforcement of arbitral awards that are rendered in accordance with Med/Arb mechanism.”


“having recourse to the Med/Arb process in a commercial matter requires careful drafting in order to refer a dispute accurately to such a Med/Arb mechanism”


“… the arbitral tribunal, when there is a seamless settlement is reached via the mediation process, should give such a settlement agreement a more solid form for its ease of enforcement, that is in the form of an arbitral award (i.e. a consent arbitral award).”

 

4. Conclusion: When Parties Should Choose the Med/Arb Mechanism?

The potential which the Med/Arb mechanism holds in terms of its advantages whereby it offers a swift, flexible and easy process, we usually advise parties to incorporate a Med/Arb clause in the following circumstances:

  1. Contracts which have sensitive backgrounds;
  2. Contracts whereby time is of the essence; or
  3. Contracts whereby the parties have a long-standing relationship and therefore might be more open to conducting settlement negotiations.

These guiding principles should apply equally whether the potential contract negotiation occurs in Egypt or elsewhere in the MENA Region.

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