Nothing is Permanent: Mediation of International Commercial Disputes

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Nothing is permanent

By: Donald L Swanson

HISTORY: “Prior to World War II, most international commercial disputes were resolved through consensual procedures such as mediation”—mediation was viewed by many as “an inclusive and effective cross-cultural approach to problem solving.”

RECENT TIMES: Mediation is infrequently used in international commercial disputes—mediation is viewed by many as “a futile and potentially expensive course of action that yields little in return.” [Fn. 1]

How can such a thing happen?

It is unclear why mediation fell into disuse after the War.

One hypothesis is that no international mechanism existed after the War to enforce mediated settlement agreements. By contrast, arbitration awards could be enforced under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which was ratified by 156 states and is considered the most successful commercial treaty in the world.

A turning tide?

However, international arbitration is now disfavored for many commercial disputes. Here’s why:

  • Costs can be astronomical in arbitration. Administrative and arbitrator fees in commercial cases can be $400,000 for a $10 million dispute or $1 million for a $300 million dispute, with attorney fees added on top of that;
  • Legal fees can also be astronomical in arbitration. Fees in a commercial case are often in the $1 million to $2 million range. Additionally, international arbitration frequently involves fee-shifting provisions: it’s one thing to spend a million dollars for one’s own lawyer but another to get stuck with that fee, plus the entirety of the tribunal’s costs, and the opponent’s legal fees too; and
  • Time delays in arbitration are troubling. Cross-border commercial arbitrations require one to two years to conclude. Such delays (i) extend periods of commercial uncertainty, and (ii) increase interest accruals on defaults, which can be phenomenally, even catastrophically, high.

The result is that many parties are seeking more cost- and time-effective means of resolving cross-border business disputes.

Mediation—the most likely alternative

Mediation is the most likely alternative, since litigation is in even greater disfavor than arbitration. And initiatives designed to facilitate international mediation in commercial contexts are being pursued by a variety of public entities (e.g., the World Bank, the International Finance Corporation and the European Commission) and private organizations (e.g., the ICC, International Institute for Conflict Prevention & Resolution and International Mediation Institute).

But challenges remain.  Some people believe international disputes are inherently difficult to settle, so any dispute should go through a suitability screening before a mediation begins. Others say that mediation succeeds in all types of international commercial disputes, just like it succeeds everywhere else.

UPDATE

Progress is being made on mediation of international disputes.  A recent promulgation of the Singapore Convention on Mediation, for example, obtained signatures from 46 countries on the opening day (August 7, 2019).

EDITORIAL COMMENT

All of this is fascinating.

It’s like the development of mediation in any context: from total rejection of mediation to mediation becoming a predominant resolution tool. In any context where mediation has grown from nothing to predominance, its history goes something like this:

  • In the beginning, there is resistance, opposition, and disuse;
  • Then, mediation gains traction with some, but most still doubt its amenability to their own case, if they think about it at all;
  • Then, mediation finds success among a broader range of professionals, but many who haven’t used it remain doubtful about its effectiveness;
  • Then, even the doubters start using mediation and become its champions; and
  • Mediation finally becomes a predominant force and a standard resolution procedure.

The shocking thing about mediation of international commercial disputes is this: mediation once was the predominant resolution tool—but it fell into disuse and disfavor and insignificance.

The lesson: nothing is permanent . . . not even mediation in its heyday.

——————————–

Footnote 1.  S.I. Strong, Realizing Rationality: An Empirical Assessment of International Commercial Mediation, 73 Wash. & Lee L. Rev. 1973, 1980 & 1985 (2016). Its author, S.I. Strong, is admitted to practice as an attorney in New York, Illinois, and Missouri and as a solicitor in England and Wales, is the Manley O. Hudson Professor of Law at the University of Missouri and Senior Fellow at the Center for the Study of Dispute Resolution. All information above is from Prof. Strong’s article (usually in her own words) unless otherwise noted.

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