Multi-tiered dispute resolution clauses - also referred to as ‘hybrid clauses’ - typically combine adjudicative and non-adjudicative processes such as arbitration or litigation with mediation or conciliation. A multi-tiered dispute resolution process such as a ‘med-arb' gives parties the opportunity to go to mediation, but if the dispute remains unresolved they can move on to arbitration.
Non-adjudicative processes such as negotiation or mediation can also be woven into arbitration processes, for example. This can occur through arb-med-arb clauses, but is increasingly entered into on a voluntary ad hoc basis.
Using a combination of methods could help to bridge the gap between international arbitration and mediation at the commercial level - providing the benefits of both processes. As non-adjudicative processes gain ground in the commercial world, including mediation or conciliation in these multi-tiered clauses exposes commercial parties to using these mechanisms in complex disputes.
How a combined ADR process works
Parties using med-arb will first attempt to come to a collaborative agreement through mediation, working with a mediator or ‘med-arbiter’, a neutral third party trained in the hybrid process. However if the dispute remains unresolved matter would then be arbitrated.
Then, if the parties agree to move to arbitration, the med-arbiter may handle the whole process, in which s/he assumes the role of arbitrator and renders a binding decision based on her judgments about the case. (It is worth here that the prospect of a mediator in receipt of confidential information subsequently rendering an award as an arbitrator remains anathema to common law practitioners. Civil lawyers, with certain exceptions, take a different view.)
If parties have already reached an agreement on some issues at mediation, the med-arbiter would only rule on the issues that remained at the arbitration process.
In certain circumstances, the reverse procedure - arb-med - is more acceptable. In that scenario, the arbitrator writes an award which remains sealed while mediation is attempted. In the event that no mediated agreement is reached, the written award is handed down. Anecdotally, instances of where parties have failed to agree at mediation and gone on to "open" the award are few and far between.
Hybrid clauses could help overcome cultural issues with mediation
In Asia, where mediation is not yet widely used understood and may be viewed with suspicion, hybrid clauses could be a way of sparking a cultural change in the dispute resolution community. In 2014, the Singapore International Mediation Centre (SIMC) and the Singapore International Arbitration Centre (SIAC) launched a new protocol for resolving disputes in conjunction with one another.
Under the SIMC-SIAC protocol, if parties are able to resolve their dispute through mediation, their mediated settlement may be recorded as a consent award - which is generally accepted as an arbitral award making it generally enforceable under the New York Convention, subject to local legislation and/or requirements. Parties that are unable to settle their dispute through mediation may continue with the arbitration proceedings resulting in an final and binding arbitral award.
On an international level, the inclusion of multi-tiered clauses is becoming more popular, giving parties more flexibility and a form of back-up plan where no agreement has been reached in the non-adjudicative process. It also allows parties to tailor the process to suit their specific situation while enjoying the benefits of different forms of ADR with less perceived risk than a single attempt may bring. The results from the Global Pound Conference (GPC) highlighted the increased use of combined processes, with the majority stakeholders favouring a mixture of different dispute resolutions methods both adjudicative and non-adjudicative.
Neutrality and cost
However, the hybrid process also raises a few issues - especially in regards to the neutrality of the med-arbiter and the behaviour of the parties in the initial stage. The threat of having a third party render a decision in a binding arbitration can urge disputants to make a huge effort during the mediation to come to an agreement. In a workplace dispute, med-arb can be especially effective especially when you need to work with the other party in the future. In addition, if you hire one person to act as both a mediator and arbitrator, you can save time and money by eliminating the need to start arbitration from square one should the mediation fail.
Another issue is money. Multi-tier clauses can also add an extra cost if the dispute goes to the final stage process - therefore being less financial predictable. A hybrid clause is particularly effective at a cross-border level, because it can allow a mediated settlement agreement to result in the rendering of an arbitral award which is more easily enforced under the New York Convention - to which most countries are signatories. This can also provide further assurance for parties. Enforcement of mediation agreements remains a hot topic, with inconsistencies in national courts still causing some concerns.
Nevertheless, the GPC results indicate an widespread recognition of multi-tiered procedures and their effectiveness, but it is also important that there is a more uniform judicial approach to enforcement globally.