October 24, 1997, Geneva, Switzerland
Mediation: The Parallel Process
Mr. Richard W. Page
Page & Busch
(San Diego, California, United States of America)
Mediation is a technique of alternative dispute resolution (ADR) (1) which is enjoying increased use for the resolution of international disputes. Mediation use is increasing because it has proven effective in settling commercial disputes of all sizes with settlement rates of accomplished mediators reaching 80 to 90%. Even in court-annexed projects in which the parties are compelled to use mediation, the settlement rates reach 50%. The most important characteristic of mediation is the consistently high satisfaction of the parties.
In this paper, the mediation process is reviewed with a description of the customary five stages. Summary survey data are presented documenting the growing use of mediation in the international context. Special treatment is given to a report by the NAFTA Article 2022 Committee describing the use of mediation in North America. The issue of enforceability of a mediated settlement is analyzed. Particular attention is paid to the concern of Mexican attorneys that civil law jurisdictions may be less willing to enforce mediated settlements as consent decrees in arbitration and the possible need for a model law. Finally, mediation is described as a process to be used in parallel with arbitration and litigation.
2. The Mediation Process
Mediation or conciliation (2) is the process of dispute resolution through the use of a neutral third party facilitator. The process is not binding, so that the mediator does not have the power to make findings of fact, resolve legal issues, order actions by the parties or enter awards or judgments. Resolution is achieved only if the parties agree to mutually acceptable terms and conditions. Any resolution is generally reduced to a writing, often entitled a "Memorandum of Agreement" containing the principal terms or "deal points" of the accord. The Memorandum of Agreement or a more detailed, formal writing between the parties, customarily drafted after the mediation, is generally enforceable as a contract or may be entered as a consent award in an arbitration.
The mediation process is traditionally begun because the parties have included a mediation provision in a dispute resolution clause in a contract. If no clause is contained in the operative contract, the parties can agree to submit the dispute to mediation after a problem has arisen. Another alternative is that the parties are ordered by a court to engage in good faith mediation prior to proceeding with litigation.
The established international providers of alternative dispute resolution services include the American Arbitration Association (AAA), the Commercial Arbitration and Mediation Center of the Americas (CAMCA), the International Chamber of Commerce (ICC) and the World Intellectual Property Organization (WIPO). Each of these organizations has mediation rules in addition to its arbitration rules (3). The administrators at any of these organizations are able to explain the mediation process, can propose qualified mediators and administer the mediation process.
When made in a mediation, the statements of the mediator, the parties and their counsel are confidential. Any disclosures made in the course of a mediation are not admissible in a civil action or subject to discovery (4) by an adverse party.
The first stage of the mediation is a joint meeting of all parties and their counsel with the mediator, usually including an introduction of those in attendance and a statement by each of the parties outlining their respective positions in the dispute. It is common for the mediator to have received mediation briefs from the parties. Even though the mediator may be familiar with the issues, it is important that the attorneys for each party and, if possible, the parties themselves, describe their positions in front of the adverse party.
In the second stage of mediation, the mediator meets with each party separately to develop in further detail the underlying principles behind the positions being taken. These separate meetings are referred to as "caucuses," and any disclosures made in caucus are confidential from the adverse party. To disclose the information gathered in the caucus, the mediator must seek the permission of the party making the disclosure.
The mediation usually takes place in the offices of the administering agencies or in the offices of the mediator. The number of conference rooms is important so that each party can meet separately with the mediator in private. The mediation can take place anywhere in the world which is convenient to the parties and the mediator. The laws of the situs concerning mediation may be important if an issue arises during the mediation. More important, however, is the legal infrastructure in the likely location(s) for enforcement of the Memorandum of Agreement.
The third phase of the mediation process involves the mediator conducting "shuttle diplomacy" between the separate conference rooms in which the parties are conducting their private caucuses with the mediator. The shuttle diplomacy continues until the mediator has achieved the agreement of the parties on as many issues as possible.
The fourth phase is a reconvening of the parties into a joint session. In the joint session, the mediator reviews the agreements which have been reached. If an additional day(s) of mediation would be useful to achieve further resolution of issues, a mutually acceptable date is chosen for the mediation to continue. If the parties have resolved the dispute, the mediator orally reviews the terms of the agreement.
In the fifth phase, the attorneys for the parties draft a Memorandum of Agreement containing the deal points of the understanding. The parties may draft a more detailed and comprehensive written contract based upon the Memorandum of Understanding.
The signing of the Memorandum of Understanding marks the termination of the involvement of the mediator. If a problem arises with compliance under the Memorandum of Agreement, the parties may retain jurisdiction to return to mediation or may seek enforcement of the Memorandum of Agreement or of the detailed and comprehensive written contract before a court.
3. International Mediation
The use of mediation as an ADR technique in the international context is not as prevalent as the use of arbitration. However, mediation is seen by many professionals in the ADR field as an indispensable tool which is destined to grow dramatically in the next century. The AAAs Dispute Resolution Journal, Spring 1997, was dedicated to the "Art of Mediation." In his introductory statement, the AAAs president, William K. Slate II, made the bold statement that rather than discussing the future of mediation, we should realize that "The future IS mediation."(5)
Statistics published by the AAA (6) show a total number of mediations during 1993 of 3,075, with 644 cases pending, 1136 settled, 151 terminated without settlement, 293 cases withdrawn for other reasons and 851 cases in some other status at years end. Removing the pending, withdrawn for other reasons and other status categories leaves 1,136 cases out of 1,287 settled for a settlement rate of 88%.
The ICC as well is showing significant mediation, or conciliation, activity. The then Secretary General of the ICC, Eric A. Schwartz presented several findings in his article entitled "The Resolution of International Commercial Disputes Under the Auspices of the ICC International Court of Arbitrators," 18 Hastings International and Comparative Law Review 719 (1995). The study reports that during the seven-year period between January 1, 1988, when the current version of the ICC Conciliation Rules entered into force, and December 31, 1994, the ICC received 60 requests for conciliation and out of that relatively small number, an agreement to attempt conciliation was reach in 17 cases. Of those, only 11 actually moved forward and five resulted in settlement. This represents a settlement rate of 11 out of 17 or 45% in sophisticated international commercial disputes, demonstrating the applicability of mediation as a valid ADR technique in the international arena.
The prediction of Mr. Slate is rapidly proving itself to be true. Two jurisdictions which are now requiring parties to utilize the process of mediation are: (1) the urban counties of Los Angeles and San Diego in the State of California in the United States, and (2) the province of Buenos Aires, Argentina. The initial results of these projects have only recently been reported. The "California Civil Action Mediation Act Legislative Report," November 1996, reported settlement rates of 41% in San Diego County and 32% in Los Angeles County. The overall satisfaction reported by the parties was 94% (7).
The "Suplemento de Resolución de Conflictos," Buenos Aires, April 11, 1997 Estadisticas de la Camara Nacional de Apelaciones en Lo Civil de la Capital Federal, at pages 34-39, reports that of 13,868 cases referred to mediation, 2,240 have resulted in judgment. This represents a 14% settlement rate. These data underestimate the effectiveness of mediation because the pending and withdrawn cases have not been excluded. The experiment with mediation in Buenos Aires should yield sufficient data in the near future to provide a model for the use of mediation in a civil law jurisdiction.
The challenge for any entity seeking to collect and analyze international data on commercial mediation will be the rationalization of the data so that comparisons are valid. The categories used by the AAA in reporting data provide a practical model. From the total mediations filed, all pending cases are subtracted. In addition, cases which have been withdrawn for other reasons are removed.
4. NAFTA Mediation
Further evidence of the growing international interest in mediation can be seen is the implementation of NAFTA (8). Article 2022 of NAFTA contains an admonition to private parties settling disputes through the use of alternative dispute resolution.
The North American Free Trade Agreement (NAFTA) which is also known in Mexico as El Tratado de Libre Comercio (TLC) admonishes the governments of Canada, Mexico and the United States to support the use of arbitration and other means of alternative dispute resolution in private commercial disputes. Article 2022(1) states:
"Each Party shall, to the maximum extent possible, encourage and facilitate the use of arbitration and other means of alternative dispute resolution for the settlement of international commercial disputes between private parties in the free trade area."
The language of Article 2022(1) is a broad statement of intent to support the use of ADR. Nothing in Article 2022 or in the other provisions of NAFTA requires parties to use ADR for general commercial dispute resolution. To invoke the use of ADR, the parties should employ an ADR clause or agree to a written "submission" after the dispute has arisen.
Articles 2022(2) and 2022(3) go on to require the governments of Canada, Mexico and the United States to assure that their respective federal laws provide a required minimum level of support for the enforcement of international arbitral awards:
"To this end, each Party shall provide appropriate procedures to ensure observance of agreements to arbitrate and for the recognition and enforcement of arbitral awards in such disputes."
"A Party shall be deemed to be in compliance with paragraph 2 if it is a party to and is in compliance with the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards [the New York Convention] or the 1975 Inter-American Convention on International Commercial Arbitration [the Panama Convention]."
These provisions have already been met and parties to commercial disputes will find a favorable climate in each of the North American countries encouraging the use of ADR and the enforcement of arbitral awards or mediated settlements.
Pursuant to Article 2022, a committee was established to advise the NAFTA Commission about means of encouraging the use of ADR in North America. The Committee consists of governmental representatives from Canada, Mexico and the United States. In addition, 10 private attorneys from each country participate on the Committee. A special Subcommittee V was created to report on the use of mediation in North America and internationally.
The Committee met most recently on September 18 and 19, 1997, in Montreal, Quebec, Canada. Subcommittee V presented a report which addressed the issues related to mediation:
a) enforceability of an agreement to mediate,
b) enforceability of a mediated settlement, and
c) studies on the use of mediation.
Reports were submitted by the delegates from each of the member nations and the report will be made available by the author of this paper to any participants in the conference that make a request. The responses to each of these inquiries differs for Canada, Mexico and the United States. The studies conducted by Subcommittee V are instructive as to the use of mediation domestically in Canada, Mexico and the United States, and in the international context.
5. Enforceability of Mediated Settlements
One of the questions addressed by Subcommittee V was the enforceability of the mediated settlement agreement. The following is a summary of the conclusions:
a) There is no international convention for the enforcement of a mediated settlement.
b) An agreement or compromise reached as a result of mediation should be regarded as a binding settlement. Such a conclusion is supported by common law in the United States, by the civil law and the common law in Canada, and by the civil law in Mexico. In some jurisdictions, there is legislation to this effect.
c) There are a number of different ways that arbitral proceedings may be used to enforce a mediated settlement:
i) The Mexican delegation reports that a mediated settlement cannot be entered as an arbitral award unless it arose out of an arbitral proceeding. Parties should either enter into an agreement to arbitrate under the UNCITRAL model rules, or commence mediation after having already begun arbitral proceedings. The arbitrator and the mediator must be different people. If an agreement is reached, the settlement can be recorded as an arbitral award.
ii) The Canadian delegation refers to an approach whereby arbitral proceedings may be used for the purpose of enforcing the mediated settlement, whether the mediation occurs before or during arbitral proceedings. The mediation settlement may then be enforceable as an arbitral award under the New York Convention.
iii) In the United States, three international arbitration statutes provide that a mediated settlement may be treated as an arbitral award, bringing the mediated settlement under the enforcement regime for arbitral awards.
The Mexican delegation was particularly concerned with the conversion of a mediated settlement into a consent award when no arbitration proceeding has been commenced. The validity of the arbitration could be challenged because no dispute exists.
Three states in the United States - California, Florida and Texas - have adopted special rules for the arbitration of international disputes. A mediated settlement is deemed to have the force of an arbitral award (9). This may be a useful model for Mexico and other civil law jurisdictions.
6. Parallel Process
Many of the contract clauses and court-annexed programs required that the mediation process begin and be declared terminated prior to proceeding with arbitration or litigation. This approach considers mediation to be a serial process to be used as a precursor to other ADR techniques or litigation.
During the mediation process the parties analysis of their positions invariably changes over time. The exchange of information in the mediation session allows initial evaluation of the respective positions. This information can be supplemented by an exchange of documents and potential witnesses during the restricted discovery of arbitration or the full discovery of litigation.
Follow-up mediation sessions or conference calls with the mediator often assist in moving the parties closer to resolution. The process of mediation should commence early in the dispute and should continue up to, during and even after an arbitration or litigation has occurred. In this way mediation can be used as a parallel process continuing during the course of the dispute. To accomplish a full utilization of the power of the mediator, the parties to a contract should not put a time limitation on the mediation process. When a dispute arises, the parties should enlist the services of a qualified mediator to narrow the issues which separate them and attempt overall resolution of the dispute. The mediator should be allowed ample time to satisfy the needs of each party and achieve a written consensus.
Use of the mediation process will continue to grow in the international context. The emergence of a group of skilled international mediators, trained and offered through the established providers of international dispute resolution services such as the AAA, CAMCA, ICC and WIPO, will accelerate the use of mediation with settlement rates reaching 80 to 90%. The driving factor will be the satisfaction of the clients with mediation, a feeling which seldom accompanies a resolution dictated by an arbitrator or judge.
Meaningful data are being offered by the international providers as well as the court annexed programs in California and Buenos Aires. These data will provide empirical guidance in developing mediation programs.
As the experience of the international community increases with mediation, it will be viewed as an invaluable parallel process to arbitration and litigation.
1. The original reference of the acronym "ADR" was to "Alternative" Dispute Resolution which meant procedures providing alternatives to formal litigation. With the acceptance and development of these procedures, the phrase ADR is being redefined to mean "Appropriate" Dispute Resolution. The use of the word "appropriate" indicates that these procedures are of equal dignity with or often preferable to traditional litigation and should be used in conjunction with the inherent and constitutional powers of the several national judicial systems which may be relevant to resolution of an international dispute.
This change in the definition of ADR is evidenced by the cooperative attitude of the judiciary toward ADR. An original suspicion of ADR and hesitance to enforce arbitral awards has given way to an appreciation that the judicial system and ADR can and do work well together. For the courts, civil cases are moved to completion without consuming inordinate amounts of judicial resources. For the parties, dispute resolution is quicker, cheaper and more predictable.
See New York Law Journal, May 14, 1995, "Appropriate Dispute Resolution in North America," by Richard W. Page.
2. The terms "mediation" and "conciliation" are used interchangeably in this paper. A distinction is sometimes drawn between "mediation" as a process in which the neutral third party facilitator offers value judgments on positions taken by the parties, i.e., the likelihood of an argument ultimately prevailing in an arbitration or litigation. "Conciliation" is conducted by a neutral third party facilitator who refrains from offering opinions or value judgments on the parties positions. Many mediators begin the process by withholding their personal opinions, until the parties request such input or until an impasse is reached.
The mandatory mediation law currently in effect in the province of Buenos Aires, Argentina separately defines "mediation" as "conciliation," thus the distinction goes beyond custom and practice.
4. The term "discovery" refers to the American common law procedures through which the parties gather and produce information concerning the pending litigation. The techniques of discovery include requests for admissions, interrogatories, requests for the production of documents and depositions. Failure of a party to respond to discovery may subject the non-complying party to sanction by the court. Such sanctions may include monetary payments, the preclusion of evidence, the preclusion of issues and dismissal of a claim.
The process of discovery exists under most arbitration regulations, but to a reduced extent. The parties to an arbitration generally exchange documents upon which they intend to rely at the hearing and lists containing the identity of witnesses.
7. Report of Various State Surveys on Effectiveness and Results of Mediation. "Mediation-USA," by Peter S. Chantilis, 26 U. Memphis L. Rev. 1031 (1996). In this comprehensive 50-state survey of mediation, the author reports a strong trend toward the use of mediation throughout the United States. Approximately half of the 50 states have partial or total court-ordered mediation programs in effect. In each state the author asked the state bar authorities for any empirical data available on success rates for mediations. Most results were from surveys of court-referred domestic mediations, only a portion of which were commercial disputes. Among the results reported were the following:
- Arizona: In 1992 Conciliation Services mediated 3,798 cases with "a success ratio of 72%."
- Colorado: In 1995 the Office of Dispute Resolution handled 2,000 cases with a success ratio of 70%.
- Massachusetts: Massachusetts Office of Dispute Resolution reports a compiled a settlement ratio of 75%. (About 700 cases go to mediation each year.)
- Montana: The state court systems small claims program has a settlement ratio of "60% or better."
- Nebraska: The State Supreme Court Office of Dispute Resolution reports a mediation success ratio of 67%.
- New Hampshire: Reports indicate the state has a 54% success rate.
- New York: In 1994-95, the Office of Court Administration Community Dispute Resolution Program mediated (or arbitrated) 24,603 disputes resulting in voluntary agreements 76% of the time.
- South Carolina: This state conducts "settlement week programs" during which courts are encouraged to refer cases to mediation; the cumulative success rate is 56%.
- Texas: Statistics kept by "several court administrators" show over 60,000 cases mediated with a settlement rate "in excess of 80%" from the time of the adoption of the Texas Alternative Dispute Resolution Act in 1987 through 1995.
- Virginia: Statistics gathered from mediations of court-referred cases indicate a "high level of user satisfaction" with 80% of the cases concluding in settlement agreements on some or all issues.
- Wisconsin: The Dane County Case Mediation Program reported in 1994 that 38% of its cases were completely resolved by mediation; 15% to 20% were partly resolved and 31% were settled or tried without mediation occurring.
- Puerto Rico: A conflict mediation service offered in five judicial regions reported that from February 1983 to December 1993, 4,725 cases were sent to mediation with a success ratio of 84%.
The conciliation proceedings may be terminated as to all parties by any of the following:
a) A written declaration of the conciliator or conciliators, after consultation with the parties, to the effect that further efforts are no longer justified, on the date of the declaration.
b) A written declaration of the parties addressed to the conciliator or conciliators to the effect that the conciliation proceedings are terminated, on the date of the declaration.
c) The signing of a settlement agreement by all of the parties, on the date of the agreement.
1297.392 Termination of Conciliation ProceedingsParticular Parties
The conciliation proceedings may be terminated as to particular parties by either of the following:
a) A written declaration of a party to the other party and the conciliator or conciliators, if appointed, to the effect that the conciliation proceedings shall be terminated.
b) The signing of settlement agreement by some of the parties, on the date of the agreement.
1297.393 Appointment of a Conciliator as Arbitrator
No person who has served as conciliator may be appointed as an arbitrator for, or take part in any arbitral or judicial proceedings in, the same dispute unless all parties manifest their consent to such participation or the rules adopted for conciliation or arbitration otherwise provide.
1297.394 Nonwaiver of Rights
By submitting to conciliation, no party shall be deemed to have waived any rights or remedies which that party would have had if conciliation had not been initiated, other than those set forth in any settlement agreement which results from conciliation.
ARTICLE 7 Enforceability of Decree
1297.401 Enforcement of Written Conciliation Agreement
If the conciliation succeeds in settling the dispute, and the result of conciliation is reduced to writing and signed by the conciliator or conciliators and the parties or their representatives, the written agreement shall be treated as an arbitral award rendered by an arbitral tribunal duly constituted in and pursuant to the laws of this state, and shall have the same force and effect as a final award in arbitration.