When the Singapore International Mediation Centre (SIMC) was officially launched on 5 November 2014, a new protocol for resolving disputes in conjunction with the Singapore International Arbitration Centre (SIAC) was also launched in parallel. The SIMC-SIAC protocol is designed to encourage the use of mediation for the resolution of disputes which are referred to arbitration in Singapore. In this article we look at how the protocol operates and consider the advantages and disadvantages of incorporating one of Singapore’s newest dispute resolution options into commercial contracts.
How does the SIMC-SIAC protocol work?
The protocol provides for a process known as “Arb-Med-Arb” and the model clause provides as follows:
“All disputes, controversies or differences (“Dispute”) arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC”) for the time being in force.
The parties further agree that following the commencement of arbitration, they will attempt in good faith to resolve the Dispute through mediation at the Singapore International Mediation Centre (“SIMC”), in accordance with the SIAC-SIMC Arb-Med-Arb Protocol for the time being in force. Any settlement reached in the course of the mediation shall be referred to the arbitral tribunal appointed by SIAC and may be made a consent award on agreed terms.”
In practice, the protocol works as follows:
- The parties refer a dispute to SIAC arbitration in Singapore.
- After the Respondent has filed its Response to the Notice of Arbitration and the Tribunal has been constituted, the arbitration is stayed for up to 8 weeks during which a SIMC mediation must take place. In short, having agreed to the model clause, the parties are bound to try mediation.
- If the mediation is unsuccessful, the stay will be lifted and the SIAC arbitration will proceed.
It is possible to conduct the arbitration under the UNCITRAL Arbitration Rules where the parties have agreed – via the appropriate drafting – that SIAC shall administer the arbitration.
What are the advantages of the SIMC-SIAC protocol?
Ease of enforcement: Whilst in practice parties tend to discharge their obligations under settlement agreements, issues can arise - for example, the non-payment of instalments of a settlement sum. Under the SIMC-SIAC protocol, if the mediation results in a settlement, the parties have the option of asking the arbitral tribunal to issue a consent award recording the terms of settlement. This integrated process is probably the biggest benefit of the SIMC-SIAC protocol. It means that the non-defaulting party will not have to commence legal proceedings under any dispute resolution provision in the settlement agreement in the event of counterparty default. This is particularly important in cases where the counterparty has assets in jurisdictions where enforcement of court judgments is difficult. One of the major advantages of arbitration is that arbitral awards (which, depending on their terms, include consent awards) are – subject to local legislation and requirements – enforceable in over 150 countries which are signatories to the New York Convention.
Separate individuals act as arbitrator(s) and mediator: An important part of any mediation is the willingness of the parties to be 100% open with the mediator (albeit that they may not permit the mediator to convey everything shared with them to the opposing party). Parties are likely to find this more difficult in circumstances where – if the mediation is unsuccessful – the mediator becomes the decision maker when the arbitration recommences. Whilst the arbitrator/mediator, as a professional, will do their best to put information learned at a mediation on a without prejudice basis out of their mind, human nature dictates that this will not always be possible. The potential effect of this is that parties may not be as open with the mediator as they would otherwise, and parties who are 100% open with the mediator may be concerned that the arbitrator has decided the case on the basis of information learned in the mediation. The latter scenario could, in the event of an unsuccessful mediation, leave that party dissatisfied and lacking confidence in their decision maker once the arbitration recommences. Neither scenario is attractive and Singapore’s “Arb-Med-Arb” protocol seeks to avoid both of them.
What are the down-sides of the SIMC-SIAC protocol?
Cost: Where parties hold an ad-hoc mediation, they pay the fees of the mediator and sometimes, the costs of a neutral place for the mediation venue (usually on a 50:50 basis). Where SIMC administers mediations, the mediator’s costs must still be covered by the parties but, in addition, “Arb-Med-Arb” attracts a further filing fee of SG $1,000 (on top of the usual SIAC filing fee) and SIMC charges each party administrative fees depending on the amount in dispute. These administrative fees start at SG $3,250 per party where the sum in dispute is SG $500,000 or less, increasing on a sliding scale to SG $15,000 per party where the amount in dispute exceeds SG $50m. These additional costs are relatively small compared with the costs of arbitration, but can be avoided with ad hoc mediation.
Timing: The protocol dictates that the mediation window will commence shortly after the Respondent has filed its Response to the Claimant’s Notice of Arbitration. This is prior to the case timetable being set or detailed statements of case prepared. In many cases, the Notice and Response are not particularly detailed documents and there is a danger that the protocol will force parties to mediate too early, perhaps before they fully appreciate what their respective cases are. More often than not, deciding when to offer to mediate is a highly strategic call. Use of the protocol takes away this strategic flexibility. The protocol does not preclude parties from attempting to mediate again at a later stage. However, if mediation has failed once, parties are significantly less likely to wish to try it again during the same dispute.
Procedure: In an ad hoc mediation, the parties are free to agree their own procedures for conduct of the mediation and often the mediator will have a preferred process that they like to follow. Mediation – much like arbitration - is designed to be a relatively flexible process and ad hoc mediations tend to reflect this intention. Under the SIMC-SIAC protocol, parties are required to follow the requirements of SIMC’s Mediation Rules and the “Arb-Med-Arb” protocol. These contain certain time limits – for example, for provision of documentation and appointment of the mediator – but are designed to allow the parties and the mediator a similar level of flexibility as would be expected in an ad hoc mediation. The SIMC Mediation Rules do not appear to afford the parties, the mediator or the SIMC the power to dispense with written statements and any relevant documents, although it remains to be seen what will happen in practice. The Rules will, at least, minimise scope for procedural argument about how the mediation will be conducted.
Once the parties agree to the protocol, they are bound to mediate. Our experience is that parties who mediate because of a contractual requirement have lower chances of settlement.
How will this affect me?
Mediation enjoys a close relationship with litigation in many jurisdictions and litigators are very familiar with its use. For example, in England, parties are required by the Civil Procedure Rules to consider referring their disputes to mediation or other forms of ADR and can be penalised for not doing so unreasonably.
“Arb-Med-Arb” is not a new concept and similar processes are recognised and supported by the International Chamber of Commerce and the Hong Kong International Arbitration Centre. However, for arbitrations conducted in Asia in particular, mediation is not widely used or understood and is sometimes viewed with suspicion. Its promotion by SIMC and SIAC should see the process, and mediation more generally, become more well-known and widely used in Singapore-seated disputes. It may also encourage further institutions in the region to consider promoting their own versions of “Arb-Med-Arb.”
Mediation can be a very useful tool for resolving disputes relatively quickly and cheaply: it can be used at any time and, if a settlement can be reached which all parties can live with, can save significant costs, particularly when deployed at the right time. Mediation can be proposed at any stage of a dispute and parties do not need to have included an “Arb-Med-Arb” clause in their agreement in order to take advantage of the benefits of mediation.
That said, the SIMC-SIAC protocol has much to commend it. It brings to mediation disputes which might not otherwise see mediation attempted and this itself is a major positive. It should do much to raise awareness about the use of mediation amongst parties doing business in Asia, particularly those choosing to resolve their disputes in Singapore. The integrated mechanism within the protocol for converting a settlement into a consent award which can be enforced under the New York Convention is particularly novel for institutional rules – making the protocol a valuable addition to Singapore’s dispute resolution arsenal.