Med-Arb: A Viable Substitute for International Arbitration

By Norman Solovay and Tanya Paula de Sousa

You have a dispute involving international parties or you are afraid that your deal will devolve into one.  And if you are the aggrieved party, you need to end up with an arbitration award in your favor that you can enforce almost anywhere under the New York Convention.  But you have heard some terrifying stories about protracted international arbitrations that have devoured, rather than helped, the disputing parties.

There is a quick and economic shortcut to that arbitration award called Med-Arb, which is a hybrid dispute resolution process combining mediation and arbitration. In Med-Arb, both parties to the dispute sign up with a mediator who, in the event of an impasse, is authorized by their agreement to put on an arbitrator’s hat and resolve any remaining issues that the mediation failed to dispose of.  In a Med-Arb proceeding, the parties’ “informed consent” is required before an arbitration award rendered in it can be insulated from attack under normal rules applicable to ex parte dealings with arbitrators.

Although the name Med-Arb was coined in the 1970’s in the U.S., the process is hardly a new one: it dates back to the ancient Greeks and in addition to the U.S., is used in many countries such as China, India, and Italy.  Despite being regularly used, it came under attack by many mediators who felt it inhibited frank interchanges and fell out of favor for a number of years.  Now, however, as arbitration has come to be called the “new litigation” because of its increasing length and cost, Med-Arb has had a dramatic rise in popularity.  In fact, many of its U.S. proponents refer to it as encompassing “the best of both worlds” because it combines so many of the benefits of mediation and arbitration. As viewed by its now growing number of users, this amalgamation capitalizes on the advantages of both processes, while simultaneously eliminating many of their individual disadvantages. The combined proceeding aims to resolve disputes faster, more efficiently and more economically.

Med-Arb’s biggest advantage is that you know when you sign up that your dispute is going to be resolved.  Moreover, you can also be sure that if you select a good Med-Arbiter you will at least start off with a sympathetic mediated hearing that saves time, energy, and also conserves relationships. Another certainty is that the proceeding will take a fraction of the time and cost of typical long-running commercial (and particularly international) arbitrations with excellent odds that a real arbitration will never be needed. Even in those very infrequent cases where a party, having disregarded the Med-Arbiter’s suggested resolutions causes an impasse, the arbitration portion need only deal with the remaining issue or issues that the mediator couldn’t resolve.

There used to be doubts about whether a Med-Arb proceeding could be assured of generating an arbitration award enforceable under the New York Convention.  But Med-Arb’s ability to do so has now become far more certain.  See, in this regard, a particularly well-done article on the subject by Edna Sussman entitled “The New York Convention Through a Mediation Prism,” 15 Dispute Resolution Magazine #4, which cites the U.S. cases in which agreements arrived at in a Med-Arb proceeding were enforced, and goes on to describe methods for obtaining similar enforcement  under the New York Convention.

Med-Arb is not for everyone, especially those with strongly held views as to the importance of being able to walk away from an unsatisfactory mediation. But it can be the right choice for many parties needing closure in a dispute and/or wanting to avoid the cost and strain of drawn out expensive arbitration proceedings, both international and domestic.

Norman Solovay is Partner & Chair of the Alternative Dispute Resolution Department of McLaughlin & Stern, LLP.  He can be contacted at nsolovay@mclaughlinstern.com

Tanya Paula de Sousa is an Associate of the Alternative Dispute Resolution and Corporate Departments of McLaughlin & Stern, LLP.  She can be contacted at tdesousa@mclaughlinstern.com.

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