Alternative Dispute Resolution (ADR): Arbitration Part V – Mediation as an Alternative to Arbitration

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Is Mediation A Good Alternative To Arbitration?

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Mediation provides an alternative to arbitration utilizing an independent third party to facilitate agreement.

Conciliation may also be considered being similar to mediation but also allowing the third party to propose a solution(s).

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Arbitration represents one method of alternative (non-litigation) dispute resolution (ADR); others include mediation and conciliation. Each also provides a private method of dispute resolution and is consensual in nature.

Mediation provides a means by which to resolve a dispute by utilizing an independent third party to facilitate agreement between the parties. Conciliation is similar but also allows the third party to propose a solution which the parties may accept or reject. The outcomes from both mediation and conciliation must be recorded in a contract to then become binding on the parties.

The benefits of mediation include, like arbitration, flexibility and control over the manner and process in which mediation is conducted.

Mediation can (by agreement) be quite informal, quick and cost effective. A key benefit is the involvement of the parties in the outcome(s). As these will be developed by the parties themselves (with assistance from the third party), the outcome(s) is more likely to be a commercially focussed and more applicable to the situation. The outcome will be mutually agreeable to the parties based on a win-win (albeit with compromises from both parties) rather than win-lose outcome thereby leading to higher compliance by both parties having been negotiated rather than imposed. The process may also lead to alternative outcomes being identified and agreed.

The main disadvantage of mediation is that there is no guarantee that the dispute will be resolved. Agreement and settlement of the dispute between the parties is voluntary and there is potential for the process to be exploited to prolong the dispute and as a means by which to defer arbitration or litigation proceedings.

The decision as to whether to adopt a mediation process will be largely dictated by the nature of the dispute (i.e. is it capable of being resolved through discussion/negotiation) and the parties willingness to actively engage in the process. If neither is apparent then arbitration or litigation may be a more effective means by which to resolve the dispute.

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Alternative Dispute Resolution (ADR): Mediation Part II – The Opportunity for Mediation of Property and Construction Disputes in the UAE

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Is there an opportunity to develop mediation as an Alternative Dispute Resolution (ADR) process for the resolution of property and construction disputes in the United Arab Emirates (UAE)?

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Mediation Part I identified the key elements to the mediation process including both the advantages and disadvantages of this approach to dispute resolution.

Mediation Part II now seeks to identify both the opportunity for and challenges facing the introduction of mediation as an ADR process in the Region.

Although these notes focus on the UAE, many of the issues addressed will be equally applicable to other locations throughout the Middle East.

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To enable the opportunity for mediation of property and construction disputes to be considered, a number of key characteristics of the UAE (and wider Middle East) market need first to be understood. These include culture (including religion), business ownership and custom, legal framework as well as market opportunity.

The UAE, like most countries in the Middle East, is a Muslim country and the majority of business must have regard, either directly or indirectly, to Shari’ah the code of conduct or religious law of Islam. Fortunately, the binding principles of Shari’ah are supportive of mediation as a process. In particular, under Shari’ah Law, parties are required to honour their agreements and to seek amicable, consensual settlement of disputes with outcomes that are fair and just. There is therefore no barrier to mediation under Shari’ah Law. On the contrary, there is support for mediation as a process for resolving disputes. This is important as any conflict with Sharia’h Law would prevent mediation being promoted at either an individual or business level.

In the UAE, business ownership and licensing requires, except in free trade zones (e.g. Dubai International Financial Centre (DIFC)), businesses to comprise at least 51% local Emirati ownership. In some cases, this will take the form of sponsorship, providing little more than a local ‘sleeping partner’. In other cases, the local partner will take an active interest in all business matters and, in particular, key decisions. In addition, there are also a number of key ‘family businesses’ (wholly owned by Emiratis) including those controlled by the extended Royal Family in each Emirate.

At a day to day level, the majority of business in the UAE relies upon an expatriate workforce. However, in most cases, the final decision maker will be local Emirati. Arab nature is generally non confrontational with individuals actively seeking to avoid conflict in both their personal and business lives. Unfortunately, within this culture the avoidance of taking decisions is also prevalent thereby making the pace of business sometimes quite slow.  Often key decisions (including the resolution of disputes) are taken outside the normal Western business area (i.e. the office) between Emiratis in the majlis. Confidentiality and the avoidance of bad publicity are key drivers for this approach and non-Emiratis will generally not be present.

The understanding of this business framework and culture is important when seeking to promote any new business idea or approach in the UAE and particularly relevant to mediation where active involvement of the parties (with authority to settle) is a pre-requisite.

The UAE operates under a civil law jurisdiction. This is important when considering mediation as it is unlikely that the principle of “without prejudice” will apply thereby potentially leaving a party exposed in later proceedings.

The UAE also operates a legal framework comprising a federal court system which applies to five of the seven Emirates (Dubai being a notable exclusion) but which is not fully integrated into the federal judicial system. Each Emirate has its own secular and Islamic courts with all proceedings conducted solely in Arabic.

At a business level, the legal system is therefore considered to be time consuming, costly and unreliable. This provides an opportunity for mediation as an alternative to litigation.

Both Abu Dhabi (Abu Dhabi Commercial Conciliation & Arbitration Centre) and Dubai (Dubai International Arbitration Centre) have established alternative dispute resolution offerings. Currently, these are primarily focussed on arbitration. The Royal Institution of Chartered Surveyors (RICS) and Chartered Institute of Arbitrators (CIArb) – the two key professional bodies in the field of property and construction dispute resolution – are also both well established in the region. The promotion of mediation, as an alternative, will therefore be into a market that already understands the principle of alternative dispute resolution (ADR) mechanisms. See also my earlier post: Arbitrating Property Disputes in the UAE

A major part of the growth in the UAE economy has been driven with the support of real estate, construction and infrastructure projects. The UAE saw a phenomenal growth in the number of such projects prior to the recent and ongoing global economic crisis. Unfortunately, this now leaves the UAE with an increasing number of disputes post crisis as parties scrutinize (often weak) legal contracts for opportunities to protect their position in a significantly weaker economic climate. The market opportunity for mediation as a confidential (this is key) dispute resolution process is immense.

In spite of the rapid growth in the real estate sector, the UAE property (and business) market remains quite immature. All business tends to operate on a two-tier basis – expatriates at one level, Emiratis (including Government) at another level. For any new initiative, separate approaches will be required for each taking into account the business and cultural differences.

So, is there an opportunity? Undoubtedly, yes! The real question is: how can the use of mediation be developed in the Region for the resolution of property and construction disputes?

Let’s see how things unfold …

Alternative Dispute Resolution (ADR): Mediation Part I – The Mediation Process

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Mediation is a voluntary, non-binding, private dispute resolution process.

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Mediation provides a means by which parties may seek to resolve a dispute by utilizing an independent third party to facilitate agreement.

It differs from both litigation and arbitration in that the mediator is not appointed to make a judgement but to assist the parties in reaching a settlement to the dispute that is satisfactory to both/all.

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To be successful, the parties to the dispute must firstly agree to mediate and then participate in the process.

The key factors of:

  • Privacy – as nothing declared within the mediation may be disclosed by the mediator to the other party without consent or by any party to the outside world, and
  • Non-binding nature of the process – by which nothing is agreed unless and until documented in the Settlement Agreement

provide the parties with the freedom to explore opportunities to resolve the dispute without risk. Parties may disclose information, express views and suggest both concessions and potential settlement frameworks to the mediator safe in the knowledge that this will not be declared to the other party unless express consent is given.

Where the doctrine of “without prejudice” (common law jurisdiction) applies, this principle will also apply to the mediation process. This means that if settlement is not reached and the matter is taken to litigation then the parties will not be precluded from arguing a different position in court from that taken during the mediation process.

Mediation offers further benefits to the parties:

  • The process is generally both quicker and cheaper than going to court
  • It enables relationships between the parties to be maintained, and
  • It facilitates settlement based on the needs of the parties rather than their legal and/or contractual rights enabling solutions to be found which would not be available through the courts.

Mediation also has the added benefit of not creating any precedent.

Essentially, the mediation process empowers the parties to a dispute. Unlike litigation (or arbitration) the outcome will not be imposed but agreed by the parties. This ownership and responsibility for settlement means that the outcome is more likely to be accepted by both parties enabling them to ‘move on’ from the dispute.

In many cases, the introduction of the mediator as a neutral third party in itself provides the necessary energy to act as a catalyst for settlement. After each party has presented their case in open forum separate, private discussions between the mediator and each party will identify opportunities for resolution which hopefully lead to an amicable settlement that can be captured in a legally binding Settlement Agreement.

Mediation is not appropriate for all disputes.  For example, if the nature of the dispute relates to a point of law then mediation would not assist the resolution of the matter. Mediation can also be seen as an additional, rather than alternative, dispute resolution procedure – with associated additional costs – where a satisfactory resolution is not achieved and the matter must still be taken to court.  In addition, if a party fails to follow through on their obligations set out in the Settlement Agreement then the other party will need to seek enforcement through the courts.

Mediation, as a commercial dispute resolution process, also requires the right culture and business environment to be successful.