Can Med-Arb Avoid the Risk that Awards Will Be Annulled?

By: Patrick Van Leynseele, IAM Distinguished Fellow
Email:  pvl@daldewolf.com                                                                                

Mediation followed (if needed) by arbitration – so-called Med-Arb – sounds at first like a good idea: parties know that when they start the process they will end up with a solution, either: (i) the one they work out in the scope of the mediation phase, or failing that (ii) the one that will be imposed upon them in the second phase, when the mediator has changed her hat and becomes an arbitrator who issues an award based on legal principles.

This sounds great for businesses: there is always a solution at the end of the tunnel, unlike in mediation, where, for finality, one can only rely upon the odds of success.

Med-Arb is, however, not devoid of pitfalls. One of them, which is viewed differently in different legal systems, is the following:

What is the risk for an arbitral award to be annulled based upon the idea that the arbitrator, when she was wearing her mediator’s hat and was holding private caucuses, became privy to confidential information that she could not share with the other side? 

In many jurisdictions there is a significant risk of annulment of an award issued in such circumstances. This would be based upon the notion that the principle of “contradictory debates” (fair trial process and the whole concept of “equality of arms” in an adversarial system) was violated. Indeed, the fear is that one could consider that the decision of the arbitrator-ex-mediator may have been influenced by what she learned during a caucus, without the other party being informed about the information provided and having a chance to react and give his point of view.

This risk is significant in Europe in light of the provisions of art. 6 of the European Convention on Human Rights. There is a line of judgments of the European Court of Human Rights to the effect that the parties in a trial (civil or criminal) must always have an opportunity to know each document or comment presented to the judge with a view to influence his or her decision and to discuss it. This principle means that a judge or arbitrator may not receive “secrets”, i.e. information or documents that are not shared with the other side.

Personally, I am of the opinion that too much weight is put upon this “contradictory debates” idea. Party A choosing Med-Arb knows that the mediator (and arbitrator to be) may be told certain “secrets” by Party B that Party A will not be aware of. Should Party A not be regarded as having accepted that risk, knowing that, if not filed or referred to by Party B in the arbitration phase, the arbitrator will not be allowed to base her award upon that “secret”? Should that not be enough to preserve the integrity of the decision making process?

Nevertheless, because of this fear of annulment, Med-Arb is not used as much as its efficiency would otherwise justify, at least in Europe.

Can you share your comments stating how this issue would be viewed in your jurisdiction? How is this solved? What are the conditions required to get around the risk of annulment, if any?

© 2018 Patrick Van Leynseele

Please note that each IAM Blog posting represents the view of its individual author, but not necessarily others associated with IAM. IAM Blog Editor-in-Chief Keith L. Seat may be contacted at kseat@keithseat.com.