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8 June 2011 |
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Introduction Welcome to our second ADR e-bulletin of 2011 and the first since the deadline of 21 May passed for implementation of the EU Mediation Directive by Member States. An EU legislative proposal on the use of ADR is expected towards the end of the year. In the meantime, the UK government is consulting on the possibility of extending the reach of the Mediation Directive from cross-border disputes to domestic mediations.
UK ADR legal and practice developments 1. Implementation of the Mediation Directive in England & Wales As previously reported, an EU Directive on mediation in civil and commercial matters was adopted on 23 April 2008 by the European Parliament. The Directive applies to European cross-border disputes and covers five broad areas: (1) promotion of mediator training and the development of and adherence to a voluntary code of conduct; (2) judicial encouragement of mediation; (3) enforceability of settlement agreements; (4) mediation confidentiality; and (5) the suspension of limitation periods during mediation. The Ministry of Justice does not intend to take any action in relation the first two areas, since mediation practice and procedure in England & Wales is already compliant with these requirements. Areas (3) to (5) have been implemented by way of amendments to the Civil Procedure Rules and preparation of secondary legislation. Changes to the Civil Procedure Rules to implement the enforceability of settlement agreements arising out of mediations came into effect on 6 April 2011. A new statutory instrument, the Cross-Border Mediation (EU Directive) Regulations 2011, implementing rules as to the confidentiality of mediation and the suspension of limitation during mediation came into force on 20 May 2011 (see here). Further information as to the implementation of the Directive can be found in our e-bulletin dated 31 January 2011.
2. Ministry of Justice consultation on promoting greater recourse to ADR In our first ADR e-bulletin of this year we reported that the UK government had publicly committed to a greater use of mediation and other forms of ADR in the civil justice system. To coincide with an announcement to Parliament regarding the government's reaction to its consultation on the Jackson recommendations for reform of civil litigation funding and costs, a new consultation on reform of the civil justice system was announced on 29 March 2011. The consultation, entitled "Solving disputes in the county courts: creating a simpler, quicker and more proportionate system", makes the following proposals in relation to ADR:
The proposal to extend the provisions in the Mediation Directive to domestic disputes is novel, given that the Ministry of Justice confirmed when announcing measures to implement the Mediation Directive in England and Wales that it did not intend to do so. The Directive expressly states that it is intended to apply only to cross-border mediations, but that Member States may choose to extend the application of the Directive to domestic mediations. Some Member States chose to do so when putting in place measures to implement the Directive, including Italy and Germany. It will be interesting to monitor the outcome of the consultation and the ultimate approach of the Ministry of Justice. The consultation documents can be viewed on the Ministry of Justice website. The deadline for responses to the consultation is 30 June 2011.
3. Government publishes research on judicial mediation in Employment Tribunals The Ministry of Justice has published the results of an evaluation of the judicial mediation service piloted in three regions of England by the Employment Tribunal Service. The pilot was for discrimination cases in the Employment Tribunals between June 2006 and March 2007. The evaluation found that there was no statistically significant effect of judicial mediation on the rates of cases settled; the rate of resolution that avoided a hearing; or the overall levels of satisfaction of claimants or employers. Judicial mediation was an expensive process to administer and was not offset by the estimated benefits of the process. Therefore, it was not recommended that the service be rolled out in its current form to other areas of the Employment Tribunal Service. However, judicial mediation was well received and generated positive feedback. The study therefore suggests as a possibility charging employers for the use of a judicial mediation service. The research findings can be viewed on the Ministry of Justice website.
4. Court of Appeal imposes costs sanctions for unreasonable refusal to mediate In Rolf v De Guerin [2011] EWCA Civ 78, the Court of Appeal considered an appeal from a successful claimant about liability for the costs of a small building dispute, in circumstances where the defendant had refused several offers to mediate until the eve of trial. The Court of Appeal allowed the appeal and exercised its discretion to make no order as to costs. It held that refusing to participate in settlement negotiations or mediation was unreasonable and ought to bear materially on the exercise of the court's discretion. This case is another warning to parties, even where they are partially successful, of the potential adverse costs consequences of refusing to mediate. Indeed, in the opening line of the judgment, Rix LJ described the matter as "a sad case about lost opportunities for mediation". He also said it demonstrated how, in certain disputes, such as the small building dispute in this case, litigation can be "wasteful and destructive" and a trial should be regarded as a solution of last resort. The judgment is another strong reminder (if one was needed) that litigants and their lawyers must now routinely consider whether their dispute is suitable for ADR. Click here for our e-bulletin reporting on the case in more detail.
International ADR legal and practice developments 5. EU consultation and legislative proposal on the use of ADR as a means of resolving commercial disputes The Directorate General for Health and Consumers has launched a consultation on the use of ADR as a means of resolving commercial disputes in the EU. The consultation paper, which can be viewed here, recognises that ADR "can provide cheap, simple and quick solutions to consumer disputes" and "offers the advantages of a tailored and targeted approach to a dispute". The consultation sought views on overcoming a number of existing difficulties:
The deadline for responses was 15 March 2011. The EU Commission has published a summary of the responses, which can be viewed here. The responses themselves can be viewed here. A total of 219 responses were received, from a wide range of stakeholders including EU and trade organisations, public ADR schemes, legal practitioners, public authorities, academics and consumer associations. The summary of responses noted that respondents from all categories showed a strong support for ADR schemes as an efficient alternative to in-court proceedings for consumer disputes and that most Member States and stakeholders welcomed EU level action to enhance the functioning of ADR schemes. Respondents generally stressed the importance of maintaining the flexibility and voluntary nature of ADR schemes and noted that a fundamental condition to improve the use of ADR schemes is to raise awareness of consumers and businesses. Most responses underlined that ADR schemes should be guided by certain common principles including independence, impartiality, transparency and effectiveness, and all respondents agreed that ADR should be free of charge or low cost or for the consumer. Many contributions also supported the improvement of online dispute resolution schemes for e-commerce transactions and respondents generally highlighted the importance that national authorities, NGOs and the European Consumer Centres Network play in raising consumer and business awareness of ADR. The EU Commission has committed to producing a legislative proposal on ADR in November 2011.
6. Other EU action on promoting the use of ADR Together with the consultation on the use of ADR and the resulting legislative proposal (see item 5 above), the European Commission is undertaking the following initiatives:
7. Application of "lawyers-as-mediators" programme in Singapore is expanded to Small Claims Tribunal A programme which allows lawyers to become "Associated Mediators" through the Singapore Mediation Centre has continued to grow in Singapore. Under this programme, a lawyer with three years of legal experience can undergo specific mediation training so that he/she can be added to the Singapore Mediation Centre's "Associated Mediator" panel. As a member of this panel, lawyers are able to volunteer to act as mediators in disputes arising in the Subordinate Courts. This programme began in 2009, and its success has led to the Subordinate Courts recently expanding the programme's reach to allow Associate Mediators to mediate cases in the Small Claims Tribunal as well.
8. Changes to the Industrial Relations Act in Singapore allow employees to pursue mediation On 1 February 2011 amendments to the Industrial Relations Act were brought into force in Singapore. Among the amendments is the establishment of a new scheme for the mediation of certain disputes involving employees who are employed in "professional, managerial or executive positions" and their employers. These employees (provided they fall within the salary cap for bringing such claims) may elect to refer disputes to mediation conducted by a conciliation officer, appointed by the Commissioner of Labour, as long as the dispute relates to:
These amendments will provide the relevant employees with an additional dispute resolution mechanism. Previously, the only alternative to trying to settle a dispute privately was to commence litigation proceedings in the courts.
9. Singapore Court Rules amended to support mediation The Singapore Rules of Court have been amended to include the possibly of adverse cost consequences regarding a party's conduct in relation to mediation or ADR. Order 59 Rule 5(c) of the Rules of Court provides that when the Court is exercising its discretion as to costs, it shall take into account "the parties' conduct in relation to any attempt at resolving the cause or matter by mediation or any other means of dispute resolution." There has not been established case law examining the impact of this amendment as of yet, but this amendment seems to suggest that there may now be a push in Singapore to encourage ADR, particularly mediation.
10. Introduction of a Mediation Bill in Hong Kong In an effort to provide a legal framework for conducting mediation in Hong Kong, the Mediation Task Force has recently announced that it aims to introduce the Mediation Bill into the Legislative Council towards the end of 2011. The Bill will primarily define the meaning of mediation and will cover important issues such as confidentiality and privilege in mediation. The Mediation Task Force was set up by the Department of Justice in late 2010 to advise on and implement the recommendations put forward in a report by the Working Group on Mediation after a three-month public consultation which began in February 2010. The recommendations cover three main areas, namely: (1) the promulgation of a Mediation Ordinance to strengthen certain essential features of the mediation procedure; (2) public education and publicity of mediation within the business and commercial areas; and (3) the establishment of a single accreditation body to train and accredit mediators. In relation to the other two areas in focus i.e., public education and accreditation, the Mediation Task Force: (1) is deliberating on the terms and conditions of a non-statutory industry-led single accreditation body; and (2) plans to hold the second Mediation in Hong Kong Conference in early 2012 (following the first conference held in 2007) and an 'Announcement in Public Interest' to further promote mediation.
11. Hong Kong courts consider the mediation-arbitration procedure In Gao Hai Yan v Keeneye Holdings Ltd [2011] HKEC 514, the enforcement in Hong Kong of a mainland arbitral award that was rendered (in China) following failed settlement efforts in a mediator-arbitrator ('med-arb') process was challenged on public policy grounds. A med-arb is a process where a tribunal acts as both an arbitrator and a mediator in relation to the same dispute. Reyes J refused to enforce the award on the basis that certain facts and circumstances that occurred during the 'med-arb' process would cause a fair-minded observer to apprehend a real risk of bias on the part of the tribunal and that, as a matter of justice, it would be wrong to uphold an award tainted by an appearance of bias. Of particular interest were the court's comments in relation to the med-arb process. Reyes J held that, in principle, there is nothing wrong with med-arb and noted that the new Hong Kong Arbitration Ordinance Cap. 609 (as to which see below) expressly allows med-arb with the parties' agreement, subject to certain safeguards. However, from the point of view of 'impartiality', the med-arb process runs into self-evident difficulties, particularly because of important differences between the two processes. An example given was that a mediator typically meets individually with the parties to explore their concerns and possible settlement plans. An arbitrator, on the other hand, must avoid unilateral dealings with the parties. Reyes J held that the problems inherent in med-arb result, in practice, in many arbitrators declining to engage in the process since they view the risk of apparent bias as an insurmountable difficulty. The new Hong Kong Arbitration Ordinance (Cap. 609) adopts a unitary regime for 'international' and 'domestic' arbitrations, based on the UNCITRAL Model Law. Further information as to the Ordinance can be found here. The provisions allowing for med-arbs are generating a great deal of debate and have received a mixed reception from users of arbitration. Those accustomed to common law traditions have voiced apprehension at the combination of the functions of arbitrator and mediator – particularly in light of the obligations placed on arbitrators to disclose all confidential information material to the arbitration and learned during mediation, to all of the parties to the dispute. However, there are advantages where arbitrators seek to facilitate settlement of disputes, primarily the efficiency of disposing of disputes amicably. Since an arbitrator will already be familiar with the case (as well as with the parties and their counsel), he should be well-placed and well-equipped with the sensitivity required to help settle the matters in dispute – including helping the parties to choose the most appropriate time at which mediation may be attempted. Avoiding the significant legal fees incurred in substantive hearings by reaching early settlement is an obvious attraction. Finally, a settlement reached during arbitral proceedings may be recorded in the form of a consent award – which may benefit from the enforcement regime under the New York Convention.
12. Herbert Smith webinar on recent ADR developments On 5 April 2011, Herbert Smith held a webinar to update clients and contacts from a range of industry sectors on ADR developments. The webinar was presented by Alexander Oddy, partner in the Litigation and Arbitration division and head of the firm's ADR practice, Ian Gatt QC, partner in the Advocacy Unit and David Phillips, senior associate in the firm's core ADR team. All three speakers are accredited mediators. Topics included significant recent cases on mediation confidentiality and privilege, the implementation of the Mediation Directive in the UK and its impact on mediation practice, and changes to the way mediation is being used in commercial disputes. Notable points for debate included implementation of the Mediation Directive in England and Wales (see item 1 above), and contractual agreements to mediate. The webinar is available to download here.
13. Herbert Smith gains another accredited mediator In January 2011, David Phillips, a senior associate at Herbert Smith, became the firm's latest CEDR accredited mediator. David has advised clients on a number of mediations, notably in the energy sector, usually in respect of international disputes and often involving multiple parties. A list of Herbert Smith's accredited mediators, all of whom bring valuable insight and experience to lawyers and clients preparing for mediations, is set out below.
The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication. Herbert Smith LLP, Gleiss Lutz and Stibbe are three independent firms which have a formal alliance. © Herbert Smith LLP 2011
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