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Article
9 of the Prague Rules contains three clauses which aim to regulate the whole
settlement
facilitation
process
during the
arbitration
proceedings. The wording of the
article
has left a considerable amount of the
settlement
facilitation
relations unregulated and by doing so, in my opinion, the Working Group intended to maintain those ambiguities under the discretion of Arbitral Tribunal in
order
to increase its proactive
role
in
dispute
settlement
. If we analyze each clause separately, in
Article
9.1 Prague Rules define that “unless
one
of the parties’ objects, the arbitral tribunal may assist the parties in reaching an amicable
settlement
of the
dispute
at any stage of the
arbitration
”. From the wording it is clear that the
article
intended to formulate general rule for the
assistance
of Arbitral Tribunal in
settlement
facilitation
.
However
, the same
article
carries some harmful ambiguities which will be addressed by following paragraphs of
this
memorandum accompanied by respective potential practical problems caused by them. Articles 9.2 and 9.3 regulate, respectively, the
use
of
mediation
during the
arbitration
proceedings as
settlement
facilitation
method
and the
procedure
for the continuance of mediating
arbitrator
’s mandate after unsuccessful
mediation
process
.
Article
9.2 states that “upon the prior written
consent
of all parties, any
member
of the arbitral tribunal may
also
act
as a
mediator
to assist in the amicable
settlement
of the
case
” and, according to the
Article
9.3, the same
arbitrator
may continue to
act
as
arbitrator
only subject to
further
written
consent
from all parties if the
mediation
does not
result
in
settlement
.
One
of the main uncertainties is the reason why the Prague Rules have defined “prior written
consent
of all parties” requirement for
mediation
on the
one
hand
, while confining itself to the “unless
one
of the parties’ objects” criteria for other
facilitation
methods under
Article
9.1
on the other
hand
. The potential problematic issues arising out of Articles 9.2 and 9.3 are mostly related to reducing the
efficiency
of arbitral proceedings and endangering the
enforceability
of the final arbitral
award
, especially by not regulating the conflict between the main principles of
arbitration
and
mediation
methods. 3. THE POTENTIAL PRACTICAL PROBLEMS 3.1. Potential problems affecting the
enforceability
of final
award
Article
9 of the Prague Rules which is designated to stimulate hybrid
procedure
,
in particular
arbitration
-
mediation
, does not define any restriction on any
technique
which may have adverse effect on the final
award
. The most problematic
technique
is “caucusing” which is the main tool for the success of whole
mediation
process
. During caucusing the parties could in ex parte meetings divulge secrets that they would not have disclosed during the normal
course
of the
arbitration
to the
arbitrator
-turned-
mediator
and to the other parties.
Use
of caucusing
technique
, which is not prohibited under the Prague Rules, may
result
with the challenge of final
award
on the grounds of: i) the partiality of mediating
arbitrator
and ii) the breach of the due
process
.
Moreover
, under
Article
9 of the Prague Rules, there is a lack of some “safeguards” (for ensuring the
enforceability
of final
award
) which can
also
has significant potential for risking the
enforceability
of final
award
. 3.1.1. Caucusing as a
technique
leading to the refusal of
enforcement
and
recognition
of final
award
on the “partiality of mediating
arbitrator
ground
In
fact
, United Nation Convention on the
Recognition
and
Enforcement
of Foreign Arbitral Awards (hereinafter “New York Convention”) does not explicitly set the “partiality of
arbitrator
” as a
ground
for the refusal of
recognition
and
enforcement
of final arbitral
award
under its
Article
V.
However
, it is generally accepted that lack of impartiality on the part of the tribunal is a
ground
for refusing
enforcement
on
ground
of public policy under
Article
V.2.(b) of the New York Convention. The question is, how the caucusing
technique
may
result
in the bias of
arbitrator
? There is the
risk
of contamination of the
arbitrator
’s mind (bias) because of the
information
relating to the positions taken and evidence disclosed by parties for the
purpose
of
mediation
without prejudice, and using the same neutral as
arbitrator
who was the
mediator
may mean that their understanding of the
case
is tainted by what they learned during the without prejudice proceedings. So, it may be difficult for a
mediator
-
arbitrator
not to be influenced by the private communications he
/
she hears where a “caucusing”
technique
is adopted. Especially within the frame of
article
9.3 of Prague Rules, if the
mediation
fails and the
arbitration
proceedings continue, the mediating
arbitrator
will probably lose his
/
her objectivity and impartiality on the account of the
information
he
/
she became familiar during the ex parte
mediation
sessions which are not part of the record. There are
also
some cases in which
this
exact danger has been focused on.
One
of the most famous cases in
this
regard is the Gao Haiyan v Keenye
case
(hereinafter “Gao Haiyan”),
in particular
the analyze of Court of
First
Instance of Hong Kong (hereinafter “CFI”) in the
enforcement
procedure
of its final
award
. The CFI in Gao Haiyan
case
specifically pointed out the significant
risk
connected with the caucusing
technique
when used by mediating
arbitrator
: “the
mediator
who acts as
arbitrator
obtains confidential
information
in the
course
of
one
-on-
one
meetings with a
party
. That
information
may consciously or sub-consciously influence the
mediator
when sitting as
arbitrator
. It would be unfair on the other
party
for the media-tor turned
arbitrator
to
act
upon the confidential
information
without
first
disclosing the same and affording that other
party
a
chance
to comment on any prejudicial impact of the confidential
information
”. Even though CFI’s decision on non-
enforcement
of the arbitral
award
was reversed by the Court of Appeal, the CFI’s analyze is particularly important within the light of other abovementioned arguments about the
risk
of apparent bias resulting from caucusing.
Additionally
, in the US Duke Group
case
, as well as in the UK Glencot v Barrett
case
, it was upheld that just the
fact
of organizing private caucuses in the
mediation
phase can be interpreted as suggesting a bias in the med-
arbitrator
. 3.1.2. Caucusing as a
technique
leading to the refusal of
enforcement
and
recognition
of final
award
on the “breach of due
process
ground
Article
5. 1. (b) of New York Convention defines that the
recognition
and
enforcement
of the
award
may be refused on the
ground
that the
party
against whom the
award
is invoked was not given proper notice of the appointment of the
arbitrator
or of the
arbitration
proceedings or was
otherwise
unable to present his
case
.
However
, the main thrust of
this
provision of the Convention is directed at ensuring that the requirements of “due
process
” are observed and that the parties are given a fair hearing. Obviously, parties’ right to be heard is of particular concern in regard to caucusing. If the Arbitral Tribunal holds private sessions and listens to what
one
party
has to say in the absence of the other, that
party
may reveal facts to the members of the tribunal the other
party
is unable to rebut.
Such
an ex parte conversation is a textbook example for a violation of the right to be heard and usually constitutes a
ground
to vacate the
award
.
Nevertheless
, there is
also
one
strong contra-argument which is against the abovementioned “right to be heard” principle when the mediating
arbitrator
uses caucusing
technique
. The argument is “confidentiality of
information
gained through caucusing” principle. During caucusing
party
is able to provide the
mediator
with confidential
information
that is
not shared with the other
party
and
mediator
’s possession of
such
confidential
information
from both parties usually allows the
mediator
to guide the parties to an amicable
settlement
. In
order
to avoid from the conflict of mentioned principles,
for example
, Centre for Effective
Dispute
Resolution Rules for the
Facilitation
of
Settlement
in International
Arbitration
(hereinafter “
CEDR
Settlement
Rules”), in its
Article
3 (General principles) states that: “4. Nothing said or done by any
Party
or its counsel in the
course
of any
settlement
discussions, or in the
course
of any other steps taken by the Arbitral Tribunal to facilitate
settlement
, shall be used against a
Party
in the event that the
arbitration
resumes (save as regards the allocation of costs in accordance with
Article
[6] of these Rules). 5. The tribunal shall not take into account for the
purpose
of making an
Award
, any substantive matters discussed in
settlement
meetings or communications, unless
such
matter has already been introduced in the
arbitration
”. Unfortunately, while the Prague Rules do not prohibit the
use
of caucusing during the hybrid
process
of
mediation
during
arbitration
and have not formulated any general principles
such
as in
CEDR
Settlement
Rules, the basic principles “right to be heard in
arbitration
” and “confidentiality of
information
obtained in
mediation
” are more likely to collide and
risk
the final
award
under the “due
process
ground
. 3.1.3. Lack of “safeguards” as
ground
risking the
enforceability
of final
award
The abovementioned potential problems regarding to the challenge of final
award
could be prevented by including some safeguards into the
Article
9 of the Prague Rules, while it is evident from the wording of the same
article
that the Working Group did not have any intention or concern for eliminating those risks.
One
of the most efficient ways for avoiding these risks is to obtain the appropriate waivers from the disputing parties.
For instance
,
this
safeguard is already to be found in the International Bar Association Guidelines on Conflicts of Interest, General standard 4(d) which indicates that “an
arbitrator
may assist the parties in reaching a
settlement
of the
dispute
, through
conciliation
,
mediation
or
otherwise
, at any stage of the proceedings.
However
, before doing so, the
arbitrator
should receive an express
agreement
by the parties that acting in
such
a manner shall not disqualify the
arbitrator
from continuing to serve as
arbitrator
.
Such
express
agreement
shall be considered to be an effective waiver of any potential conflict of interest that may arise from the
arbitrator
’s participation in
such
a
process
, or from
information
that the
arbitrator
may learn in the
process
. If the
assistance
by the
arbitrator
does not lead to the final
settlement
of the
case
, the parties remain bound by their waiver”.
CEDR
Settlement
Rules
also
define
this
safeguard in its
Article
3(3) as “the Parties agree that the Arbitral Tribunal’s
facilitation
of
settlement
in accordance with these Rules will not be asserted by any
Party
as grounds for disqualifying the Arbitral Tribunal (or any
member
of it) or for challenging any
award
rendered by the Arbitral Tribunal”.
Therefore
, silence of the
Article
9 regarding the waiver instrument
also
increases the possibility of challenge
procedure
against the final
award
made under the Prague Rules.
Additionally
,
Article
9 of the Prague Rules do not give a
chance
to
arbitrator
to resign if
arbitrator
has doubts to his
/
her ability to remain impartial or independent in the
future
stages of the
arbitration
proceedings.
Article
9.1 which refers to the other
settlement
facilitation
methods does not even consider any possibility for termination of
arbitrator
’s mandate after unsuccessful
facilitation
process
and,
therefore
, has not developed any
procedure
for
this
purpose
. According to the
Article
9.3 of the Prague Rules, if the
mediation
does not
result
in a
settlement
within an agreed period of
time
the mediating
arbitrator
can terminate his
/
her mandate only when he
/
she cannot obtain written
consent
of the parties regarding his
/
her continuance as
arbitrator
.
However
, International Bar Association Guidelines on Conflict of Interest in General standard 4(d) give
this
chance
to
arbitrator
by stating that “
however
, consistent with General Standard 2(a) and notwithstanding
such
agreement
, the
arbitrator
shall resign if, 11 as a consequence of his or her involvement in the
settlement
process
, the
arbitrator
develops doubts as to his or her ability to remain impartial or independent in the
future
course
of the
arbitration
” and
CEDR
Settlement
Rules in
Article
7
also
take the same approach with almost the same wording.
Therefore
, in the absence of
this
safeguard, the Prague Rules have again lost another
chance
to ensure the
enforceability
of final arbitral
award
by eliminating the risks of hybrid
procedure
.
Consequently
, in my view, by not incorporating any restrictions, especially regarding the
use
of caucusing
technique
, into the wording of
Article
9 in
order
to maintain the impartiality, due
process
and confidentiality principles undamaged and,
also
, by not including discussed safeguards into the content of the same
article
, the Prague Rules have risked the
enforceability
of final
award
and even diverged from its own object of “increasing the
efficiency
of arbitral proceedings”. 3.2. Potential problems affecting practical
efficiency
of
arbitration
proceedings 3.2.1. From the “
time
and cost
efficiency
perspective
Assistance
of Arbitral Tribunal for
settlement
through
mediation
can cause procedural delays and additional expenses. Possibility of risking
time
and cost
efficiency
of the
arbitration
process
is, probably, higher when the mediating
arbitrator
is not accepted as continuing
arbitrator
by disputing parties after the unsuccessful
mediation
session(s). In
fact
, it would take
time
to appoint a new
arbitrator
(during which
time
the Tribunal is unlikely to be able to provide directions or deal with any interlocutory applications) and, practically, there will be additional costs for getting a new
arbitrator
up to speed.
Therefore
, mentioned presumable circumstance proves that the
use
of hybrid
method
under the Prague Rules may have “hazardous” effect on the
time
and cost efficient nature of
arbitration
method
. 3.2.2. From the “
party
autonomy”
perspective
: coercing parties to
settlement
and “
facilitation
in the shadow of a possible
future
award
Article
9.1 of the Prague Rules indicates that “Unless
one
of the parties objects, the arbitral tribunal may assist the parties in reaching an amicable
settlement
of the
dispute
at any stage of the
arbitration
”. It is evident that, by defining “unless
one
of the parties objects” criteria, the clause again promotes the proactive
role
of arbitral tribunal rather than the parties explicit
agreement
and
consent
.
However
, in practice
this
proactivity may have undesirable effect on parties’ willingness to resolve the
dispute
, especially through hybrid
arbitration
-concliation proceedings which is possible under the
Article
9.1 of the Prague Rules. On the
one
hand
parties may feel coerced into
settlement
as an undesirable
result
of mutually agreed
arbitration
method
which is based on the
party
autonomy principle and,
on the other
hand
, the very
fact
that the
conciliation
is conducted by the person who will adjudicate the
dispute
in the event of failure of the
settlement
may put pressure on the parties which can
also
be called as
conciliation
“in the shadow of a possible
future
award
”. Even most sincere
mediation
efforts in a combined, med-arb
procedure
might easily fail if the parties abstain from full participation and disclosure of relevant facts in an open and informal
mediation
procedure
, while being aware that
this
information
can be
further
used against them in the following
arbitration
part.
As a
result
, tribunal’s
assistance
to parties as a facilitator would, probably, be ineffective while parties would reasonably feel coerced to settle the
dispute
and be reluctant to have unreserved conversations with
future
decision-maker (assuming that the
mediation
was unsuccessful and the mediating
arbitrator
was retained as a
member
of the Arbitral Tribunal). 3.2.3. From the “qualification of the arbitrators for
mediation
perspective
Another practical problem with
such
a hybrid approach seems to be that of competence while successful resolution of even numerous international commercial disputes through
arbitration
does not necessarily make an
arbitrator
similarly
qualified to undertake the
role
of a
mediator
. Primarily, the skills of arbitrators, which are mostly concentrated on the decision making rather than “bringing parties to the same page” in most cases, can be considered as a
ground
confirming that the arbitrators cannot always conduct
facilitation
process
as a qualified mediators.
Moreover
, another exercise of skills required from an
arbitrator
,
in particular
an ability to provide a neutrality of the
procedure
, including keeping a professional distance from the parties, might turn out to be disturbed if the same person is expected to get directly involved in seeking the final solution together with the parties as a
mediator
/
facilitator.
Therefore
, in my opinion, mixing different alternative
dispute
resolution methods (
arbitration
and
mediation
) within
one
proceeding and handing over the control to the non-qualified
mediator
in most cases can lead to the both ineffective
facilitation
sessions and relatedly delayed arbitral proceedings which is against to the “increasing
efficiency
of arbitral proceedings”
purpose
of the Prague Rules. 3.2.4. From the “
procedure
for nomination of mediating
arbitrator
perspective
The Prague Rules in
article
9.2 define that “......., any
member
of the arbitral tribunal may
also
act
as a
mediator
to assist in the amicable
settlement
of the
case
”. The problem of the clause is uncertainty regarding the explicit
procedure
for the choice of that
member
of Arbitral Tribunal who will conduct
mediation
.
For instance
, in cases before a three-person Tribunal where each
party
has nominated an
arbitrator
and the chairperson has been appointed by an institution or by the
party
-nominated arbitrators, the most logical potential
mediator
would be the chairperson,
however
,
Article
9.2 is silent on
this
point as stated above, and there may very well be reasons why another
member
of the Tribunal would be better suited for the
role
(because,
for example
, they are a
CEDR
qualified mediators).
As a
result
, mentioned uncertain “
mediator
appointment”
procedure
would probably cause additional
dispute
between parties and undesirable delay of arbitral proceedings. 4. CONCLUSION It is evident that, the Prague Rules bring a new
perspective
in providing parties, counsel, arbitrators and institutions in international
arbitration
with a new set of rules that grant broader and more proactive powers to arbitral tribunals, making them more comfortable in the “driving seat”.
However
, specifically regarding the
Article
9 of the Prague Rules, the comments are likely to be vice versa. In my opinion,
assistance
of Arbitral Tribunal in amicable
settlement
under the Prague Rules could be regulated in more accurate and detailed manner in
order
to eliminate “toxic ambiguities” by having benefited from alternative instruments,
such
as IBA and
CEDR
Rules regulating the same issues.
Therefore
, despite the
fact
that incorporating “
assistance
of Arbitral Tribunal in amicable
settlement
” in the content of the Rules may have some procedural profits,
such
as avoiding from the involvement of a separate neutral person for the
purpose
of conducting a
mediation
or
conciliation
before, during or in parallel with the
arbitration
which means duplicating the work, incurring additional costs and
also
possibly losing
time
, in my view, the above-discussed potential problems arising out of the ambiguity and insufficiency of that
article
outweigh its advantages.
Submitted by zalovagunel1 on

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