1. Contents
page 90 General Editor’s note
Richard Weinstein SC 8TH FLOOR SELBORNE
CHAMBERS and UNIVERSITY OF NEW SOUTH
WALES
page 92 The combination of arbitration and mediation
practice in China
Stephanie Sun HOGAN LOVELLS and Dr Mingchao
Fan SHANGHAI UNIVERSITY OF POLITICAL
SCIENCE AND LAW
page 97 Mediation meets arbitration — the experience of
med-arb in Mainland China and Hong Kong
Fei Ning Hui Zhong Law Firm and Joe Liu HKIAC
page 101 The history and practice of the International
Centre for Settlement of Investment Disputes
Meg Kinnear and Monty Taylor INTERNATIONAL
CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
page 106 Expert determination — a multi-purpose tool
Kirsten Dow FINLAYSONS
General Editor
Richard Weinstein SC Barrister
8th Floor Selborne Chambers and
University of New South Wales
Editorial Panel
Peter Ambrose QC 18 Inns of Court,
Brisbane
John K Arthur Barrister,
List S, Owen Dixon Chambers,
Melbourne
Kirsten Dow Partner, Finlaysons,
Adelaide
Michael Hollingdale Partner, Allens,
Perth
Kerry Hogan-Ross Solicitor and
mediator, KHR Legal & Kerry
Hogan-Ross Mediations
Miiko Kumar Barrister and Senior
Lecturer, Jack Shand Chambers,
Faculty of Law, University of Sydney
Michael Legg Associate Professor,
Faculty of Law, University of New
South Wales
Deborah Lockhart Chief Executive
Offıcer, Australian International
Disputes Centre and ACDC
Andrea Martignoni Partner, Allens
Mary Walker Barrister, 9 Wentworth
Chambers
2014 . Vol 1 No 5
Information contained in this newsletter is current as at October 2014
2. General Editor’s note
Richard Weinstein SC 8TH FLOOR SELBORNE CHAMBERS and UNIVERSITY OF NEW SOUTH
WALES
This issue of the Australian Alternative Dispute
Resolution Bulletin continues, in part, the theme of the
last issue: hybrid processes of dispute resolution proce-
dures. All our contributors, bar none, are not only guests,
but practice internationally. It is a privilege to have such
a high level of involvement. I am grateful to each of our
authors for their respective contributions which signifi-
cantly add to our body of learning.
Before turning to each of the articles contained in the
Bulletin, I thought that I would explain to readers the
method in which we approach sourcing contributions.
The Editorial Panel meets monthly to discuss ideas for
material that might be useful and valuable to practitio-
ners, academics and students. Suitable authors are then
approached and draft articles are received. The General
Editor reviews the article in the first instance. The
review is based on several stringent criteria, from
language and grammar to relevance and value of the
content and, ultimately, the article’s contribution to the
Bulletin as a whole. Upon completion of the review, if
the article is approved, it is then sent to an anonymous
independent expert academic or practitioner in the field
of alternate dispute resolution for peer review. After peer
review, the General Editor will perform a final review
and determine whether or not the article will be pub-
lished.
The first article is authored by Dr Mingchao Fan,
Associate Professor of Law at Shanghai University of
Political Science and Law and Bin “Stephanie” Sun,
Junior Associate at Hogan Lovells. The authors acknowl-
edge that the combination of arbitration and mediation
(either as arb/med or med/arb) as a form of alternate
dispute resolution is generally viewed with suspicion by
practitioners educated in the common law tradition, for
reasons they convincingly articulate. However, they
point out that this particular process, which originated in
the People’s Republic of China more than 50 years ago,
is a mature practice in that country. Indeed, judges and
arbitrators are used to changing their role to that of
mediator in order to facilitate settlement of a dispute. As
the authors aptly point out, the arb/med, med/arb model
also suits the Chinese commercial culture, which favours
negotiated solutions to legal problems. As business
opportunities with China increase, foreign parties will
thus have to prepare for and engage in alternate dispute
procedures with which they have little familiarity.
Our second article, by Fei Ning, Managing Partner of
Beijing Hui Zhong Law Firm and Council Member of
the Hong Kong International Arbitration Centre and Joe
Liu, assistant Managing Counsel of the Hong Kong
International Arbitration Centre, takes up many of the
themes of the first article. The authors critically contrast
the use of the arb/med, med/arb model in Hong Kong, as
opposed to the rest of the People’s Republic of China,
and analyse its use in the context of the Hong Kong
courts’ decisions in the case of Gao Haiyan v Keeneye
Holdings Ltd. They, like the authors of the first article,
anticipate that because of the boom in trade between
China and the world (and Australia in particular) parties
will have to learn to engage with alternate dispute
resolution practices with which they are both unfamiliar
and unenthusiastic.
Third, we have an article entitled The history and
practice of the International Centre for Settlement of
Investment Disputes (ICSID) by Meg Kinnear, Secretary-
General of ICSID and Monty Taylor, Legal Counsel at
ICSID, which is one of the five organisations that make
up the World Bank Group. ICSID was established in
1966 under the ICSID Convention, and provides an
independent and impartial forum (and facilities) for the
resolution of international investment disputes. It is
available to the 150 states who have signed and ratified
the ICSID Convention. The paper notes a recent surge in
cases registered at ICSID, which the authors attribute to
a worldwide increase in foreign direct investment and
the proliferation of international investment agreements
such as bilateral investment treaties and multilateral
investment agreements. Arbitration, conciliation and
mediation are some of the forms of alternate dispute
resolution practiced at ICSID.
Our final contribution is a rare article about expert
determination by Panel Member Kirsten Dow, who is a
Partner at Finlaysons in Adelaide. The article provides
an overview of this lesser-known form of alternate
australian alternative dispute resolution bulletin October 201490
3. dispute resolution which, Kirsten points out, is inevita-
bly part of a contractual process, and which has several
distinct advantages when a contentious matter involves
specialised knowledge and expertise. Clearly, it is a
quick, simple and inexpensive approach to resolving
disputes, in particular when parties to a dispute are
generally desirous of continuing their contractual rela-
tionship. The article also briefly explores analogous
models with which litigators are becoming increasingly
familiar, including the conferences of experts prior to the
giving of concurrent expert evidence in curial proceed-
ings.
I trust that readers will find this issue of interest, and
of use in their general practice.
Richard Weinstein SC
Barrister
8th Floor Selborne Chambers and
Adjunct Associate Professor
Faculty of Law
University of New South Wales
australian alternative dispute resolution bulletin October 2014 91
4. The combination of arbitration and mediation
practice in China1
Stephanie Sun HOGAN LOVELLS and Dr Mingchao Fan SHANGHAI UNIVERSITY OF
POLITICAL SCIENCE AND LAW
The arbitration-mediation dispute resolution process
started in China in the 1950s.2
The arbitration system in
China was established without a sound legal system.
Arbitration-mediation was created when arbitration insti-
tutions drew on the experience of the litigation system
and transplanted the litigation-mediation process into
arbitration. Presently, the arbitration-mediation process
has proven to be very efficient, and has been widely
embraced and conducted by PRC domestic arbitration
institutions (ie CIETAC, BAC, SHIAC)3
and is gradu-
ally gaining acceptance in and being adapted by more
and more countries.
In this article, we will introduce the arb-med and
med-arb system, analyse the advantages and disadvan-
tages, illustrate its practice in China and put forward
some guidelines for the conduct of arb-med system.
General introduction to arb-med and med-
arb system in China
The practice of combining mediation with arbitration
processes is known as both “arb-med” and “med-arb”,
depending on which process is initiated first.4
Arb-med
is a method of dispute resolution whereby a case is
conducted by the same person acting both as:
• mediator in the pursuit of facilitating a settlement
between the parties; and
• arbitrator to determine the disputed issues and
render a final and binding award.
The arb-med model has been well provided for under
the arbitration rules of domestic arbitrations institutions,
for example, CIETAC, BAC and SHIAC Arbitration
Rules.
The med-arb system is based on the mediation rules
of certain domestic mediation institutions. However, this
does not necessarily guarantee that the mediator will
subsequently serve as arbitrator for the same dispute.
Examples can be found in Art 30 of Mediation Rules
(2012) of CCPIT/CCOIC5
Mediation Center and Article
25 and 26 of BAC6
Mediation Rules (2011).
Advantages and disadvantages of arb-med
The main advantages of combining mediation and
arbitration include:
1. Maximising the opportunity for settlement —
An arbitrator, already familiar with the back-
ground, the facts, the parties and their counsel,
may be best placed to identify the most appropri-
ate time in the proceedings for settlement discus-
sions and raise questions pertinent for the parties’
consideration.
2. An efficient way of dispute resolution — It is
open to parties to choose mediation, with the
intention of reaching a mutually acceptable solu-
tion, or alternatively choose to conclude the dis-
pute by seeking a binding award.
3. Enforcement guarantee — A settlement agree-
ment reached during the arb-med process of an
international arbitration can subsequently take the
form of a final award by the tribunal. The final
award would be enforceable under the New York
Convention.
4. Business relationship maintenance — It facili-
tates a negotiated and settled outcome and pro-
vides parties to a dispute the chance to preserve an
on-goingfriendlyandco-operativebusinessrelationship.
Although arb-med is clearly more efficient than the
separate operations of arbitration and mediation respec-
tively, traditionally this method of dispute resolution has
not been as widely embraced in common law and
western jurisdictions. Many believe the role of an
arbitrator and a mediator to be incompatible. There are a
number of potential disadvantages put forward by such
dissention:
1. There is a risk that an arbitrator’s impartiality may
be influenced by the observing mediation, where
one-on-one meetings are allowable and encour-
aged because this poses the question that: would
the mediator, who is bound not to disclose any
private and confidential information, given during
the course of mediation, to the other party, be able
to maintain independence, in the light of such
disclosure or proposals, when he goes on to act as
arbitrator in the arbitration?
australian alternative dispute resolution bulletin October 201492
5. 2. A party may feel reluctant to discuss its position
and proposal openly with the mediator because it
may be concerned that the information provided
may be relied on by the mediator when the
mediator serves as an arbitrator in the same
proceeding of a dispute. This could undermine the
effectiveness and efficiency of the mediation seg-
ment of arb-med.
3. The parties feel that the arb-med method brings
uncertainty, in that any action or expression of the
mediator which may be perceived by the parties as
pressure to take or reject a particular offer during
the mediation may also be construed as exerting
pressure in a particular direction for the purpose of
the arbitration phase.
4. In a mediation which does not lead to a settlement,
the parties may use the mediation to test their
evidence and observe how the mediator, who is
will be be the arbitrator in the subsequent proceed-
ings, treats the evidence.
RecentChineseexperiencein“hybrid”forms
of ADR (arb-med)
Contrary to arb-med in common law jurisdictions
where the practice is viewed with apprehension, arb-
med in China is a relatively established practice. In
China, both judges and arbitrators are used to taking on
the role of mediator to facilitate the settlement between
the parties during the respective court or arbitration
proceedings. Despite parties in China initiating arbitra-
tion proceedings at the beginning of a dispute, they are
also often willing to accept informal or formal mediation
processes. This can be attributed to a commercial culture
of favoring a negotiated settlement.
The arb-med model is a process where the proceed-
ings begin with the appointment of the arbitrator. After
the appointment, if the parties have also requested to
pursue mediation, and before any arbitral award is
handed down, the arbitrator may be allowed to act as a
mediator in the same proceeding to assist them to
resolve the dispute. Once the mediation has begun, if a
settlement is reached, the parties may agree that it forms
part of a consent award. If mediation is pursued and
parties do not reach a settlement, the parties may then
return to arbitration.
This hybrid form is well established under the PRC
Arbitration Law7
and arbitration rules of the main
arbitration institutions:8
Statistics from various academic reports show that there is
a steady increase in the success rate of arb-med cases.
Arbitrations with CIETAC, which subsequently settled
during mediations, increased from around 20% in the 1990s
to around 30% in recent years. In 2002, SHIAC only had 6
out 175 arbitration cases concluded in conciliation agree-
ments. This number has since grown to 63 out of 514 in
2012.9
This trend reflects parties’ increasing favorability to
dispute resolution by the arb-med method, in PRC.
The arb-med process in practice: how
mediation relates to arbitration
Launch of mediation under the arb-med model
The PRC arbitration rules entitle a party to propose
mediation during the arbitration process. However, the
parties do not often exercise this right to suggest
mediation to the tribunal. Instead, mediation is often
proposed by the tribunal to the parties, a proposal
motivated by previous attempts by parties to negotiate
settlements of their own volition, albeit unsuccessful. In
these circumstances, parties tend to be reluctant to
propose or initiate mediation during the arbitration, as
this may be regarded as a sign of compromise or
weakness in their position.
Progress of mediation by arbitral tribunal
In order to progress the mediation smoothly, the
mediator seeks to create a friendly atmosphere.10
To this
effect, the mediator may begin by declaring rules such as
no meeting minutes in the mediation and the adoption of
the principle that compromise will not be deemed as
confession. Upon the confirmation of both parties on the
mediation process, the mediator will proceed to discuss
the parties’ respective liabilities and/or defaults on the
disputed issues.
The mediator may hold separate meetings with each
party and encourage a focus on the commercial issues at
stake, such as a costs versus benefits analysis of their
respective claims, and in particular the commercial
outcome they would like to achieve, and lastly to
consider possible areas of compromise.
Sometimes a mediator will also point out the relative
strengths and weaknesses of each party’s legal position
indicating, if necessary, how the mediator thinks the
arbitral tribunal is likely to decide the case, and in the
same breath make suggestions as to suitable settlement
positions.
This approach encourages the parties to settle and
reconsider their original bottom line, and is similar to the
operation of neutral evaluation in the US. It has to be
noted that this might be the most controversial part in
the practice because the mediator will usually act as
arbitrator in the following process, should the mediation
fail. Recently, more mediators tend to avoid this prac-
tice, as they acknowledge that it may be risky to share
such views with the parties during the mediation, espe-
cially in circumstances when they would subsequently
act as arbitrator.
australian alternative dispute resolution bulletin October 2014 93
6. End of mediation under the arb-med model
Under the arb-med model, if the mediation fails, the
dispute automatically proceeds to arbitration and the
mediator will resume the role as arbitrator in the
arbitration proceeding, which was suspended before
mediation was attempted.
If parties reach a settlement agreement by mediation,
the tribunal, upon the request of both parties, can render
an arbitral award or mediation decision in accordance
with the settlement agreement, which would be enforce-
able in domestic and foreign jurisdictions.
The risks of arb-med practice
Since the theory and practice of arb-med is well-
recognised in China, PRC courts have demonstrated a
favorable attitude to the process. Wang Jie, director of
CIETAC’s international case department, pointed out
that arb-med was frequently used in CIETAC arbitration
proceedings, and to date, no CIETAC award had been
set aside due to actual or perceived bias.11
Arb-med has not been as easily adopted or adapted in
common law jurisdictions, due, in part to the structure of
international arbitration rules (such as the International
Chamber of Commerce (ICC) rules and Stockholm
Chamber of Commerce (SCC) rules), insofar as media-
tion should be kept entirely separate from arbitration
proceedings for the purpose of maintaining fairness and
neutrality.
A well-known case indicating the potential risk of
arb-med is Gao Haiyan v Keeneye Holdings Ltd.12
This
case sparked debate over whether combining mediation
with arbitration under a same procedure is an acceptable
practice. The dispute between the parties was resolved
and culminated in an award in favor of the claimant in
Xian Arbitration Commission. The proceeding adopted a
mixed arb-med procedure. The respondent then sought
to have the award set aside by the Xian Intermediate
People’s Court of Shaanxi (Xian Court). The Xian Court
rejected the respondent’s application, finding that there
was insufficient evidence to show that the award had
been manipulated. The applicant sought to enforce the
award in Hong Kong and the respondent, relying on
s 40E(3) of the Hong Kong Arbitration Ordinance of
2000 (Ch 341) (the “Ordinance”) (mirroring Article V(2)
of the New York Convention), argued that the enforce-
ment of the award would be contrary to the public policy
of Hong Kong.13
The Hong Kong Court of First Instance
found in the respondent’s favor, granting a stay of the
award’s enforcement and held that an apparent bias
arose from the mediation and that made enforcement of
the award contrary to public policy in Hong Kong.
In reversing the decision of the Hong Kong Court of
First Instance, the Court of Appeal indicated that future
arbitral awards achieved through an arb-med process
may be enforceable in Hong Kong. The Court of Appeal,
in reaching this decision, further emphasised the fact
that a particular arb-med process might cause an appear-
ance of bias if adopted in Hong Kong. It did not
necessarily mean that the resulting arbitral award should
be refused enforcement in Hong Kong, particularly
when the award was rendered in a jurisdiction (and, in
this case, upheld by the courts in that jurisdiction) where
the arb-med procedure was a common practice.
Despite the Hong Kong Court of Appeal upholding
the arb-med practice, it is still unknown whether other
common law and western jurisdictions may do so when
reviewing the arbitral award, in instances when arb-med
practice is adopted. Although some arbitration laws in
common law jurisdictions have started to provide an
option for parties to take med-arb and/or arb-med
systems,14
such provisions are rarely being adopted in
practice, especially when parties are both from a com-
mon law background. The great concern arises from the
uneasy tension between the formal judicial function of
an arbitrator and the informal role of a mediator. This is
perceived to have the potential to jeopardise the success-
ful enforcement of an award where arb-med is under-
taken. It seems this perception is hard to overlook.
Guidelines for arb-med practice
Common law and western jurisdiction may have
some reservations regarding arb-med practice, which
may be due, in part, to different cultural and legal
backgrounds. China faces such risks of impartiality and
the disadvantages mentioned above and there are still
many issues in practice to be considered and much room
for improvement.
With increasing opportunities to conduct business in
China, foreign parties will, more often than not, be
required to enter into an arbitration agreement providing
for China being the seat of the arbitration or the
arbitration proceedings to take place in accordance with
certain PRC arbitration rules. In considering this, what
measures can be put in place to maximise the interests of
the parties?
We consider it important for the parties to reach an
agreement (either at the initial contractual stage, or at the
outset of a dispute) on the precise format of the
mediation, under arb-med practice. This may safeguard
the effectiveness of the process and reduce subsequent
challenges by a dissatisfied party. In determining the
format, the following things should be kept in mind:
1. The time line for the mediation should be stipu-
lated (including the time for mediation to occur
and the expiry deadline, after which the mediation
will expire unless extended by the agreement of
the parties).
australian alternative dispute resolution bulletin October 201494
7. 2. The disclosure status of the privileged and/or
confidential information in the course of a media-
tion should be stipulated.
3. An agreement on the waiver of challenges arising
out of the procedure should be provided (both to
the arbitrator-mediator and to be set out in the final
award).
4. Other aspects of the mediation procedure should
be stipulated (ie, whether the arbitrators have the
power to indicate the possible outcome of a formal
proceeding).
The above guidelines aim to ensure that parties have
an agreed process of arb-med and which decrease the
risk that the conduct and contents of the mediation will
undermine the outcome of the arbitration.
Conclusion
Looking back to the arb-med practice in China, we
are of the view that arb-med, carried out appropriately,
can be a useful tool for dispute resolution. Meanwhile,
we recognise that arb-med is taboo among most arbitra-
tion practitioners from the common law tradition. It is
hoped that this article may assist readers in understand-
ing the process of arb-med practice and further establish
more awareness of how to cope with this arb-med model
in the future.
Bin “Stephanie” Sun
Junior Associate
Hogan Lovells
stephanie.sun@hoganlovells.com
Dr Mingchao Fan
Associate Professor of Law
Shanghai University of Political Science
and Law
mingchao.fan@fulbrightmail.org
Footnotes
1. China herein refers to mainland China.
2. Wang Shengchang Study of the Combination System of Arbi-
tration and Mediation Dissertation of Juris Doctor (2001) at 1.
3. CIETAC stands for China International Economic and Trade
Arbitration Commission. BAC stands for Beijing Arbitration
Commission. SHIAC stands for Shanghai International Arbi-
tration Centre, the former China International Economic and
Trade Arbitration Commission Shanghai Sub Commission.
4. JA Cohen, N Kaplan CBE, Professor Peter Malanczuk Arbi-
tration in China: A Practical Guide Thomson/Sweet & Max-
well Asia 2004 Volume 1 at 270, para 12–94.
5. CCPIT stands for China Council for the Promotion of Interna-
tional Trade and CCOIC stands for China Chamber of Inter-
national Commerce. Mediation Rules are available at http://
adr.ccpit.org/upload/downloadfile/
Mediation%20Rules(2012).English%20Version.pdf.
6. Beijing Arbitration Commission Mediation Center Mediation
Rules (2011) are available at http://arbitrator.bjac.org.cn.
7. Article 51, PRC Arbitration Law
8. Article 45(2), CIETAC Arbitration Rules 2012; Art 39, BAC
Arbitration Rules 2008; Art 41(2) and (3), SHIAC Arbitration
Rules 2014.
9. Statistical data of alternatives of case-conclusion in SHIAC
from 2002 to 2012, www.cietac-sh.org.
10. To establish a friendly atmosphere for negotiation, mediation
sometimes will be held in the conference room of a hotel.
11. M Townsend and J Rogers “Beijing: Arbitral procedure and
med-arb from English and Chinese eyes” (2011) 1(7) Global
Arbitration Review.
12. Hong Kong Court of First Instance, HCCT 41/2010; Hong
Kong Court of Appeal, CACV 79/2011. Judgments are avail-
able at http://legalref.judiciary.gov.hk/lrs/common/ju/
judgment.jsp.
13. See case summary at www.newyorkconvention1958.org.
14. Hong Kong Arbitration Ordinance (Ch 609) (2013), arts 1, 3
and 4 of s 33,; Singapore International Arbitration Act, art 17.
australian alternative dispute resolution bulletin October 2014 95
9. Mediation meets arbitration — the experience
of med-arb in Mainland China and Hong Kong
Fei Ning Hui Zhong Law Firm and Joe Liu HKIAC
As Australia’s economic engagement with Asia grows,
Australian parties should begin to recognise the dispute
resolution mechanisms commonly adopted by their Asian
counterparts. One of these mechanisms is med-arb or
arb-med (collectively, med-arb).
Med-arb combines mediation and arbitration into a
single and hybrid dispute resolution process. This prac-
tice typically involves the same person acting both (1) as
a mediator in facilitating a settlement between the
parties, and (2) as an arbitrator to determine the dispute
and renders a final and binding award.
Various forms of med-arb have long been practiced in
certain parts of the world. It is a relatively familiar
practice in civil law jurisdictions such as Mainland
China, Japan and Germany, while the practice is viewed
with great suspicion in common law jurisdictions such
as the US.1
If a foreign party is doing business in Asia,
it may come across med-arb in disputes with some of its
Asian counterparties,2
partly because many Asian juris-
dictions have strong preference for mediation as part of
their legal tradition and the concept of med-arb ties in
with rules of many arbitral institutions in the region.3
While med-arb is perceived by some as an effective
means of dispute resolution, it is not without pitfalls for
the unwary. The key benefits of this process can be
summarised below:
• Effectiveness: the mediation process can help
narrow down the issues in dispute and lead to
predictable and acceptable solutions. If mediation
fails, arbitration provides a clear end point within
a reasonable time frame.
• Efficiency: an arbitrator is often best placed to
conduct med-arb efficiently, because he/she is
already familiar with the case.
• Enforceability: any settlement reached during a
pending arbitration can subsequently be recorded
in the form of an arbitral award, which would
benefit from the enforcement regime under the
New York Convention or any other applicable
arrangement.
However there are some potential pitfalls associated
with med-arb, which include the following:
• Arbitrator’s use of confidential information
obtained in mediation: an arbitrator’s impartial-
ity may be affected by overseeing a mediation of
the same dispute. It may be difficult for an
arbitrator not to be influenced by disclosure or
inadmissible information acquired during the media-
tion, which are supposedly “without prejudice”.
• Parties’ reluctance to disclose: A party may be
reluctant to discuss its position openly with a
mediator if that mediator may issue a final award
against that party’s interest which are influenced
by earlier mediation discussions.
• Manipulation of the mediation process: If the
parties know that a mediator will become an
arbitrator when mediation fails, it is possible that
the parties may use mediation to introduce mate-
rials and say things strictly with a view to influ-
encing the arbitrator’s final decision.
• Parties’ use of mediator’s comments to improve
their case: In an unsuccessful mediation, there is
a risk that the parties may use the mediator’s
comments to improve their arguments and to
submit additional evidence, and thereby gaining
an advantage they would not otherwise have had.
The following sections discuss the use of med-arb in
Mainland China and Hong Kong. The practices in these
two places are particularly relevant to Australian parties.
China is now Australia’s largest two-way trading partner
in goods and services, and the two countries are con-
cluding a free trade agreement which is a top trade
policy priority for Australia at the moment.4
As to Hong
Kong, it is commonly regarded as the preferred venue to
resolve disputes between Australian and Chinese parties.
The use of med-arb in Mainland China
Deeply rooted in the Chinese legal culture and
tradition, the use of med-arb has long been favoured by
Chinese parties as a dispute resolution practice that is in
conformity with the core values that dominate the
political philosophy and social life in China, such as
harmony and disdain for conflict. These philosophical
and social norms result in the wide use of med-arb for
australian alternative dispute resolution bulletin October 2014 97
10. China-related disputes. According to the PRC State
Council’s statistics, out of 104,257 arbitration cases
accepted by 225 PRC arbitration commissions in 2013,
60,112 cases were concluded by med-arb (representing
57.8% of the overall arbitration cases that year).5
The predominance of med-arb in China has led China
International Economic and Trade Arbitration Commis-
sion (CIETAC) to incorporate the practice of med-arb
into various versions of its arbitration rules issued in
1989, 1994, 1995, 1998, 2000, 2005 and 2012. All these
versions include provisions that allow an arbitrator to
mediate a dispute with the parties’ consent. This practice
has achieved remarkable success in CIETAC arbitra-
tion.6
In Mainland China, med-arb operates under the
framework of the PRC Arbitration Law. Article 51 of the
Law provides that the arbitral tribunal may conduct
mediation before issuing an arbitral award. It also
provides that, if mediation is not successful, the tribunal
shall make an award promptly; if mediation is success-
ful, the tribunal shall make a mediation statement or
arbitral award based on the terms of the settlement
agreement.
The finality and enforceability of an award on the
terms of a settlement agreement is reinforced by Art 28
of the Interpretation of the Supreme People’s Court
Concerning Several Issues on the Application of the
PRC Arbitration Law (the SPC Interpretation).7
Article
28 provides that the Chinese courts shall not entertain
any request for non-enforcement of a mediation state-
ment made during arbitration or an arbitral award
rendered based on a settlement agreement.
With such a supportive legal framework in place, a
number of PRC arbitration commissions have issued
relatively detailed rules regarding the conduct of med-
arb. A notable example is Art 45 of the 2012 CIETAC
Rules, which includes the following features:8
• Parties’ consent: The use of med-arb must be
based on all parties’ consent, which is to be
obtained before the mediation process begins.9
• Conduct of med-arb: The arbitral tribunal may
mediate the dispute in a manner it considers
appropriate.10
In practice, the tribunal may adopt
the facilitative or evaluative approach to assist the
parties to resolve disputes in an amicable manner
based on the principles of objectiveness, fairness
and reasonableness. The tribunal may meet with
the parties collectively or privately.
• Resumption of arbitration: The arbitral tribunal
will resume its role as the arbitrator(s) if mediation
has no real prospect of success.11
This mechanism
is to avoid any attempts to disrupt or delay the
arbitral proceedings by protracting the mediation
process.
• Prohibition of use of confidential information:
A party is prohibited from invoking any views,
opinions, proposals or positions expressed by any
party or the tribunal at the mediation phase in the
subsequent arbitral proceedings.12
• Consent award: If the parties have reached a
settlement agreement during the arbitration, the
parties may request the arbitral tribunal to issue an
awardbasedonthetermsofthesettlementagreement.13
There are divergent views on med-arb. Common
criticisms of the practice are summarised in the preced-
ing section. However some commentators take the view
that the concerns about med-arb are less serious in
Mainland China. The main criticism of med-arb appears
to focus on the ability of the arbitral tribunal to perform
the dual roles in a fair and impartial manner. To address
this, many Chinese arbitration commissions regularly
organise training for their arbitrators on the proper
conduct of med-arb. Another way to address the con-
cerns is to enhance users’ familiarity with the process,
which again can be achieved through training.
A number of Chinese arbitral institutions have sought
to address concerns of med-arb by introducing innova-
tive mechanisms in their respective rules. For example,
the 2012 CIETAC Rules allow CIETAC to mediate with
the parties’ consent, in circumstances where the parties
have discomfort with mediation and arbitration being
conducted by the same person.14
Article 50 of the
Shanghai International Arbitration Centre (SHIAC)’s
China (Shanghai) Pilot Free Trade Zone Arbitration
Rules introduces a mechanism permitting pre-tribunal
mediation. Under the mechanism, the Chairman of
SHIAC will appoint a mediator within 3 days upon the
parties’ request and the mediator will not act as an
arbitrator in the subsequent proceedings unless the
parties agree otherwise.
The use of med-arb in Hong Kong
Med-arb is used less frequently in Hong Kong than in
Mainland China. Despite this, Hong Kong is one of the
few common law jurisdictions that have introduced
express provisions in its national law to regulate the
practice of med-arb. Sections 32 and 33 of the Arbitra-
tion Ordinance (Ch 609) provide a statutory framework
for the conduct of med-arb in Hong Kong. Section 32
provides for rules applicable to med-arb and s 33 sets out
rules for arb-med. These provisions are intended to
encourage the use of alternative dispute resolution
mechanisms, such as med-arb, in Hong Kong.15
Under s 32(3), where the parties have agreed to
submit their dispute to med-arb, they will first attempt to
mediate. If mediation fails, the parties will refer the
dispute to arbitration and the mediator will become the
australian alternative dispute resolution bulletin October 201498
11. arbitrator. Subject to the written consent of all parties,
s 33 contemplates a process whereby the arbitrator stays
the arbitral proceedings and transforms his/her role to
one of mediator to assist the parties to reach a settle-
ment. If mediation fails, the mediator will resume the
role of arbitrator and must disclose to all parties any
confidential information acquired from the mediation
which the arbitrator considers to be material to the
arbitration. Both ss 32 and 33 bar any objections to the
arbitrator’s conduct of the arbitration solely on the basis
that he/she had acted previously as the mediator in
connection with the same dispute.
Despite the statutory recognition of med-arb, Hong
Kong arbitrators rarely exercise such a dual role. While
the Hong Kong International Arbitration Centre (HKIAC)
maintains one of the largest arbitration caseloads in the
Asia-Pacific region, parties have resorted to mediation
only in a small portion of these cases. In such instances,
parties to arbitrations sometimes prefer to mediate
before a mediator who is not a member of the arbitral
tribunal. To this end, HKIAC can assist parties with
appointing a separate mediator to mediate their dispute
in ongoing HKIAC arbitral proceedings. HKIAC can
promptly transfer files between the mediator and the
arbitral tribunal depending on the outcome of the media-
tion. As part of its one-stop-shop services, HKIAC also
has a dedicated team to provide services to mediation
proceedings under the HKIAC Mediation Rules.16
The lack of enthusiasm towards med-arb in Hong
Kong is probably attributed to the importance Hong
Kong places on ensuring the independence and impar-
tiality of arbitrators, which forms a cornerstone of the
territory’s public policy.17
This is reflected to some
extent in the spectrum of views held by Hong Kong
judges in the 2011 case of Gao Haiyan v Keeneye
Holdings Ltd18
(Gao Haiyan). In that case, the courts
grappled with an application to refuse enforcement of a
PRC award issued under an arb-med procedure on the
basis that the procedure had tainted the award with
apparent bias.
The Gao Haiyan case centred on the conduct of an
arb-med procedure, in which one of the arbitrators and
the Secretary General of the Xi’an Arbitration Commis-
sion discussed a settlement proposal with a “friend” of
the respondents over dinner at the Xi’an Shangri-La
Hotel. During the dinner, the arbitrator and the Secretary
General put a settlement proposal of CNY 250 million to
the friend of the respondents and asked him to “work
on” the respondents, who later rejected the proposal. The
arbitral tribunal eventually ruled in favour of the claim-
ant.
At first instance, Reyes J had serious reservations
regarding the manner in which the arb-med procedure
was conducted. He held that the conduct of the media-
tion would cause a fair-minded observer to apprehend a
real risk of bias and that, as a result, enforcing the award
would be contrary to the public policy of Hong Kong.19
Reyes J’s decision was later reversed by the Hong Kong
Court of Appeal, which enforced the award. In the
judgment, Tang VP gave due weight to the arb-med
practice in Mainland China and said whether an offshore
mediation would give rise to an apprehension of bias
“may depend also on an understanding of how media-
tion is normally conducted in the place where it was
conducted”.20
Based on this ground and other findings, the Court of
Appeal concluded that the arb-med procedure did not
cause sufficient concerns of bias, such as to lead the
Court to refuse enforcement on the public policy ground.
The case shows that, while the Hong Kong courts may
remain skeptical of med-arb, the courts will consider the
cultural expectations and general practice of mediation
at the seat of the arbitration. Although the Gao Haiyan
case does not provide guidance on the proper conduct of
med-arb in Hong Kong, it can be reasonably expected
that the Hong Kong courts will likely scrutinise such
procedure under s 32 or 33 of the Arbitration Ordinance
rigorously.
Conclusions
With the booming cross-border trade and investments
between Australia and China parties, it is likely that
med-arb will be increasingly used in disputes arising out
of these activities. Against this background, in order to
consider whether med-arb is a suitable dispute resolu-
tion mechanism for their transactions with Chinese
counterparties, Australian or other foreign parties should
spend greater efforts to familiarise themselves with the
benefits and risks of med-arb, and the different approaches
to the practice taken in likely arbitration venues such as
Hong Kong and Mainland China.
Fei Ning
Managing Partner
Beijing Hui Zhong Law Firm; Council
Member of the Hong Kong International
Arbitration Centre
fei.ning@huizhonglaw.com
www.huizhonglaw.com/en/
Joe Liu
Assistant Managing Counsel
Hong Kong International Arbitration
Centre
joe@hkiac.org
www.hkiac.org/en/
australian alternative dispute resolution bulletin October 2014 99
12. Footnotes
1. See Laura Lozano, Can a Med-Arb Serve in Two Processes?,
May 2013, www.mediate.com. According to the article, Ger-
mans “often encountered arbitrators participating in the settle-
ment negotiations”, while in the US this attitude was “very
rarely” seen; 92% of Germans considered this attitude appro-
priate, while 71% of the US sample group rejected that role of
the arbitrator.
2. For example, the China International Economic and Trade
Arbitration Commission (CIETAC) has reported that 20–30%
of CIETAC’s cases are resolved by med-arb every year. See
Allison Ross “An interview with Yu Jianlong” (2011) 6(5)
Global Arbitration Review. A study of the Japan Commercial
Arbitration Association (JCAA) indicated a successful out-
come in 25 out of 48 cases from 1999 to 2008, in which
arbitrators assisted the parties in reaching a settlement. See
Tatsuya Nakamura “Brief Empirical Study on Arb-Med in the
JCAA Arbitration” (2009) 22 JCAA Newsletter 10 at 10.
3. See for example, Art 45 of the 2012 CIETAC Rules (CIETAC
Rules), rr 54 and 55 of the 2014 JCAA Rules, and the
Singapore Mediation Centre and Singapore International Arbi-
tration Centre Med-Arb Procedure.
4. Department of Foreign Affairs and Trade of the Australian
Government, People’s Republic of China country brief, June 2014,
www.dfat.gov.au.
5. Zhang Wei, “The Annual Caseload of Arbitration Cases Broke
Through 100,000 for the First Time”, China Legal Daily
6 June 2014 www.legaldaily.com.cn.
6. It has been reported that, prior to 1983, most of CIETAC’s
cases were settled through med-arb; from 1984 to 1988, half of
CIETAC’s cases were resolved through mediation conducted
by the arbitral tribunal; since 1989, disputes have been resolved
through CIETAC’s med-arb procedure with a success rate of
20–30% every year. See Wang Shengchang Resolving Disputes
in the PRC: A Practical Guide to Arbitration and Conciliation
in China FT Law & Tax Asia Pacific, Hong Kong 1996. See
also Victor Lau and Vanja Bulut “Resolution of Disputes in
China — What it means for Australia” Clayton Utz Insights
15 March 2012 www.claytonutz.com.
7. Fa Shi (2006) No 7, effective 8 September 2006.
8. Another example is ch VI of the China (Shanghai) Pilot Free
Trade Zone Arbitration Rules (effective 1 May 2014), which
include some features of Art 45 of the CIETAC Rules.
9. CIETAC Rules, Art 45.1.
10. CIETAC Rules, Art 45.2.
11. CIETAC Rules, Arts 45.3 and 45.7.
12. CIETAC Rules, Art 45.9.
13. CIETAC Rules, Art 45.5.
14. CIETAC Rules, Art 45.8.
15. Hong Kong Institute of Arbitrators Report of Committee on
Hong Kong Arbitration Law 30 April 2003 para 38.12.
16. The HKIAC Mediation Rules are available at www.hkiac.org.
17. Hebei Import & Export Corp v Polytek Engineering Co Ltd,
FACV No 10 of 1998 (Hong Kong Court of Final Appeal),
9 February 1999, p 42.
18. Gao Haiyan v Keeneye Holdings Ltd [2011] HKCA 459 (Hong
Kong Court of Appeal), 2 December 2011; [2011] HKCFI 240
(Hong Kong Court of First Instance), 12 April 2011.
19. Gao Haiyan [2011] HKCFI 240; [2011] 3 HKC 157; HCCT
41/2010 (Hong Kong Court of First Instance), 12 April 2011.
20. Gao Haiyan v Keeneye Holdings Ltd [2011] HKCA 459;
[2012] 1 HKLRD 627; [2012] 1 HKC 335; CACV 79/2011
(Hong Kong Court of Appeal), 2 December 2011, at [102].
australian alternative dispute resolution bulletin October 2014100
13. The history and practice of the International
Centre for Settlement of Investment Disputes
Meg Kinnear and Monty Taylor INTERNATIONAL CENTRE FOR SETTLEMENT OF
INVESTMENT DISPUTES
Since its establishment in 1966 under the Convention
on the Settlement of Investment Disputes between States
and Nationals of Other States (ICSID Convention),1
the
International Centre for Settlement of Investment Dis-
putes (ICSID or the Centre) has provided eligible parties
with an independent and impartial forum for the resolu-
tion of international investment disputes. Although the
Centre’s case load was low in the initial years following
its establishment,2
its membership has grown to 150
“Contracting States”3
and, as at 31 December 2013, it
had registered 459 cases under the ICSID Convention
and Additional Facility Rules.4
This short paper aims
both to provide some history of the Centre and also
discuss the types of specialised alternative dispute reso-
lution (ADR) proceedings it administers.
The establishment of ICSID
The ICSID Convention was formulated by the Execu-
tive Directors of the International Bank for Reconstruc-
tion and Development (IBRD), which is one of the
organisations that make up the World Bank. The process
behind the Convention’s drafting was driven by the
efforts of Mr. Aron Broches, then World Bank General
Counsel (and later ICSID’s first Secretary-General), to
address problems in settling disputes between foreign
investors and the government of the state where the
investment is made.5
At the time, no permanent forum
existed for the resolution of those types of disputes, and
in its absence, the World Bank and its President had been
petitioned by various governments to assist on an ad hoc
basis.6
ICSID was established under the Convention to
create such a forum,7
and to remove some of the
obstacles and uncertainties faced by foreign investors (in
particular, the limited available means to remedy adverse
state action). In the Report of the Executive Directors of
the IBRD, which accompanied the signing text of the
Convention, the Executive Directors articulated the
importance of removing such obstacles to the stimula-
tion of private international investment.8
The central importance of private international invest-
ment to the establishment of ICSID is reflected in the
Preamble to the ICSID Convention, which begins by
referring to the Contracting States’ consideration of “the
need for international cooperation for economic devel-
opment, and the role of private international investment
therein”9
in agreeing to the terms of the ICSID Conven-
tion. The Preamble accordingly recognises the connec-
tion between development and private international
investment (commonly known as FDI, or foreign direct
investment). In framing that connection as a “consider-
ation” in the States’ agreement to the ICSID Convention,
the Executive Directors of the IBRD inextricably linked
the Convention and the Centre itself to the work of
economic development.10
The connection drawn in the Preamble between
investment and development is unsurprising, as ICSID is
one of the five organisations that make up the World
Bank Group11
(each of the Group’s other four organisa-
tions also have stated development “missions”12
). It is
important, however, to distinguish the rationales for
establishing the Centre from the Centre’s approach to its
day-to-day operations. ICSID is an impartial and inde-
pendent institution which provides facilities for the
resolution of investment disputes between eligible par-
ties.13
In this respect, the existence and availability of
the Centre furthers the development objective set out in
the Preamble to the Convention, but the Secretariat
(namely, the Secretary-General and staff) acts in a
strictly impartial and independent manner in fulfilling its
mandated responsibilities in administering ICSID pro-
ceedings. As such, the Centre does not pursue “devel-
opment” goals in its daily work.
The ICSID caseload
As mentioned above, ICSID has witnessed a signifi-
cant increase in the number of cases registered at the
Centre over the past 20 or so years.
australian alternative dispute resolution bulletin October 2014 101
14. Figure 1: Number of cases registered by calendar year under the ICSID Convention and
Additional Facility Rules (1972–2013).14
This surge in filings is likely attributable to two
principal reasons:
• a worldwide increase in foreign direct investment;
and
• the proliferation of international investment agree
ments (IIAs), such as bilateral investment treaties
and multilateral investment agreements.
With respect to the increase in FDI, worldwide FDI
inflows quadrupled between 1990 and 2000,15
and have
continued to increase since that time.
Figure 2: World inward foreign direct investment flows, annual, 1970-2012 (measure: US
Dollars at current prices and current exchange rates in millions).16
australian alternative dispute resolution bulletin October 2014102
15. With respect to the increase in IIAs, the number of
IIAs at the end of 2012 consisted of 3,196 treaties,
including 2,857 BITs and 339 “other IIAs”, such as free
trade agreements or economic partnership agreements
with investment provisions.17
The combination of increased
trade and increased trade treaties, arguably, has been the
key driver behind the growth in investment disputes
referred to ICSID.
The types of proceedings administered by
the Centre
The Centre administers proceedings which fall under
three main categories:
(a) ICSID Convention arbitrations and conciliations;
(b) cases conducted under the ICSID Additional Facil-
ity and UNCITRAL Rules; and
(c) amicable dispute resolution proceedings, such as
mediation.
Arbitrations commenced under the ICSID Conven-
tion constitute the majority of cases administered by
ICSID. Most commonly, these cases involve foreign
investors bringing an action against sovereign states for
alleged breaches of a treaty or contract, although the
Convention also anticipates the possibility of states
bringing actions against investors.18
The jurisdiction of
the Centre under the Convention extends (relevantly) to
disputes that arise between ICSID Contracting States
and nationals of other Contracting States; that is, the
disputants must be states, or nationals of states, that have
both signed and ratified the ICSID Convention.19
Fur-
ther jurisdictional requirements for access to ICSID
Convention arbitration are set out in Art 25(1) of the
Convention.
Arbitrations under the Convention offer numerous
advantages to eligible parties, including the availability
of “delocalised” proceedings; there is no requirement to
determine a lex loci arbitri as local courts do not have a
role to play in the process. In this way, arbitration
proceedings under the Convention are conducted entirely
“in house” at ICSID (for example, parties’ provisional
measures applications are considered by the constituted
ICSID Tribunal, rather than referred to a local court). To
the extent that courts may be relevant to the recognition
and enforcement of an ICSID award, again, the Conven-
tion provides value to parties, as ICSID Contracting
States are required to, in effect, transform an ICSID
award into a final judgment of a court in that state.20
Beyond the proceedings available under the Conven-
tion and the Additional Facility,21
ICSID also adminis-
ters investor-state cases conducted under other rules (for
example, the UNCITRAL Rules), state-to-state cases,
and various other forms of ADR. With respect to ADR,
interest continues to grow in the mediation of investor-
state investment disputes,22
and ICSID is equipped and
able to administer such proceedings either as a stand-
alone process or in parallel with other ICSID dispute
streams (conciliation proceedings are also available to
parties under the ICSID Convention). ICSID’s stable of
World Bank venues (including Washington, DC and
Paris, France) and our numerous agreements with insti-
tutions around the world (which allow the Centre to hold
hearings at their facilities)23
provide parties with flex-
ibility and cost-savings in pursuing mediation or any
other type of ICSID-administered proceeding.
Concluding remarks
For nearly 50 years, ICSID has offered a depoliticised,
neutral, and effective forum for the settlement of invest-
ment disputes between foreign investors and sovereign
states. While the number of ICSID Convention and
Additional Facility cases has grown considerably over
the past 20 years, the Centre remains flexible and able to
accommodate the developing needs of disputants and
the variety of dispute resolution streams that they may
wish to pursue. For more information on the Centre, our
new ICSID website will provide detailed statistics and
information on the Centre’s caseload, along with an
in-depth guide to the proceedings the Centre adminis-
ters.
Meg Kinnear
Secretary-General
International Centre for Settlement of
Investment Disputes (ICSID)
Monty Taylor
Legal Counsel
International Centre for Settlement of
Investment (ICSID)
Footnotes
1. Opened for signature on 18 March 1965, and entered into force
on 14 October 1966.
2. Rudolf Dolzer and Christoph Schreuer Principles of Interna-
tional Investment Law Oxford University Press, Oxford 2008 p
1, citing UNCTAD, World Investment Report 2005: Overview.
3. “Contracting States” refers to those states that have both signed
and ratified the ICSID Convention.
4. The ICSID Caseload — Statistics (Issue 2014-1), at 7. The
Additional Facility has been available to parties since 1978.
5. See, by way of background, A Broches’ note to the Executive
Directors of August 28, 1961, entitled ‘Settlement of Disputes
australian alternative dispute resolution bulletin October 2014 103
16. between Governments and Private Parties’ (see History of the
ICSID Convention Volume II-1 ICSID, Washington DC 2009
p 1.
6. History of the ICSID Convention Volume I ICSID, Washington
DC 2009 p 2. In his 19 September 1961 address to the Annual
Meeting of the Board of Governors, the then President of the
World Bank (Eugene R Black) noted that “[w]e have, indeed,
succeeded in facilitating settlements in some issues of this
kind, but the Bank is not really equipped to handle this sort of
business in the course of its regular routine” (see History of the
ICSID Convention ICSID, Washington DC 2009 Volume II-1 p
3).
7. ICSID Convention, Art 1(1).
8. See International Bank for Reconstruction and Development
Report of the Executive Directors on the Convention on the
Settlement of Investment Disputes between States and Nation-
als of Other States (18 March 1965), at [9] and [12].
9. ICSID Convention, Preamble.
10. Indeed, in submitting the Convention to governments, the
Executive Directors were “prompted by the desire to strengthen
the partnership between countries in the cause of economic
development”, above, n 9, at [9].
11. See The World Bank Annual Report (2013) at 48.
12. For the IBRD, International Finance Corporation (IFC), and
International Development Association (IDA), see their respec-
tive Articles of Agreement, and for Multilateral Investment
Guarantee Agency (MIGA), the MIGA Convention (available
at www.worldbank.org).
13. See Art 1(2) of the ICSID Convention.
14. This graph does not include arbitrations administered by ICSID
conducted under the Arbitration Rules of the United Nations
Commission on International Trade Law (the UNCITRAL
Rules).
15. Above, n 3, at, p 1, citing UNCTAD, World Investment Report
2005: Overview.
16. Source: UNCTAD (http://unctadstat.unctad.org), accessed on
6 June 2014 at 10:35 am.
17. UNCTAD, World Investment Report (2013), p. x. Although
many of these instruments contain ICSID Convention/
Additional Facility provisions, we note that each IAA will
contain its own dispute resolution clause (if it contains one at
all); in other words, not every instrument will refer relevant
disputes to ICSID, as this is a matter for the parties to the
relevant instrument to agree upon. The authors stress that
proceedings under the ICSID Convention and the Additional
Facility are always dependent upon the consent of the partici-
pating parties.
18. The authors note that the Centre has administered such cases:
see, for example, Republic of Peru v Caravelí Cotaruse
Transmisora de Energía SAC (ICSID Case No ARB/13/24);
Gabon v Société Serete SA (ICSID Case No. ARB/76/1).
19. ICSID Convention, Art 25.
20. ICSID Convention, Art 54(1).
21. The Additional Facility allows the Secretariat to administer the
following two types of investment disputes which are ineligible
for ICSID Convention arbitration and conciliation: (i) where
either the State party to the dispute or the home State of the
investor is not an ICSID Contracting State; and (ii) where the
dispute does not arise directly out of an investment, provided
that either the State party to the dispute or the State whose
national is a party to the dispute is a Contracting State
(Additional Facility Rules, Art 2).
22. See in particular the recent International Bar Association (IBA)
Rules for Investor-State Mediation (adopted by a resolution of
the IBA Council, 4 October 2012), and the numerous papers on
this subject in ICSID Review (2014)29.
23. For a full list of these institutions, see the ICSID website at
http://icsid.worldbank.org.
australian alternative dispute resolution bulletin October 2014104
18. Expert determination — a multi-purpose tool
Kirsten Dow FINLAYSONS
Use of expert determination has grown in popularity
and prominence in recent years, given the ever-
increasing cost associated with litigation in its tradi-
tional form. Expert determination has many varied
applications in today’s complicated litigation landscape.
This article explores some of those applications.
Expert determination is an alternative dispute resolu-
tion process by which a suitably qualified independent
expert is appointed by the parties to a dispute to
investigate and make a determination in respect of some
or all of the issues in dispute. The expert is selected
based on the expert’s specialist knowledge, skills and/or
experience. The appointment is governed by a formal
agreement between the parties, which also details the
process to be followed (which can be tailored to specific
circumstances). Importantly, the expert’s determination
is generally binding on the parties, subject to what they
have agreed, and there are limited grounds on which it
may be challenged, and which in turn offers finality.
Expert determination can be used in a variety of
disputes but is particularly effective for disputes involv-
ing discrete technical or valuation issues. It may be used
alone or in combination with other alternative dispute
resolution processes, such as mediation or arbitration,
and may also be effective within existing court proceed-
ings.
The process
Expert determination (in its traditional and strict
sense) is a purely contractual process. It solely relies on,
and is governed by, the agreement between the parties to
a dispute.1
There is no legislative framework for the
conduct of expert determinations (as distinct from, for
example, arbitration2
).
Matters such as:
• the initiating trigger;
• the selection and appointment of an expert;
• the powers and duties of the expert;
• the expert’s terms of reference;
• the procedures to be followed by the expert and
the parties; and
• who will pay the expert’s fees and the parties’
costs.
should therefore be carefully considered by the parties
and expressly addressed in the contract. This may occur
and be included when the parties first contract (ie in a
“dispute resolution” or “expert determination” clause)
or, less commonly (and less desirably), once a dispute
has arisen.
The process will be triggered once the parties identify
and notify a dispute. The agreement can then provide for
a single expert or multiple experts to be appointed.
Where there are multiple issues in dispute, requiring
distinct expertise, it is often appropriate to appoint more
than one expert. In some circumstances, it may also be
appropriate to appoint a legal expert in addition to a
technical expert to, for example, determine a contractual
interpretation point where a technical issue may turn on
this.
The mechanism for appointment should be addressed
in the parties’ contract. Parties will usually agree to
nominate a suitable expert or, failing agreement, request
an appropriate professional body to appoint an expert.
Clear appointment mechanisms are important so as to
avoid escalation of the dispute.
The expert’s terms of reference should be clearly
defined, as should the issue(s) being referred for deter-
mination (establishing the expert’s “jurisdiction”). This
is critical for enforcement and in the context of any
subsequent challenge to a determination.
The procedures to be adopted by the parties and
expert(s) will be guided and governed by the parties’
agreement. Pleadings, discovery, witness statements,
applications and formal hearings are usually dispensed
with. The parties will generally agree on (or, in some
cases, less commonly and less desirably, may permit the
expert to decide):
• the nature and extent of materials and submissions
to be supplied to the expert;
• the conduct of any hearings, inspections or site
visits;
• any rights to legal representation;
• procedural timeframes (including for delivery of a
final determination);
• the form and content of the final determination
(including any requirement for reasons);
australian alternative dispute resolution bulletin October 2014106
19. • the extent to which a determination will be final
and binding; and
• any agreed rights of review or appeal.
As expert determination is a contractual process, the
expert will have no power over third parties who are not
parties to the original agreement. An expert cannot
compel production of relevant documents or information
or issue subpoenas to third parties.
Parties will usually agree that experts will be required
to be independent, act fairly and impartially and provide
each party with a reasonable opportunity to set out their
position and respond to that of the party or parties.
Experts will be entitled to use and rely on their own
specialist knowledge derived from their training, study
and/or experience. This obviously differs from the posi-
tion of an arbitrator or judge, who will generally decide
a matter within the confines of the material presented by
the parties, and receive expert evidence on matters
outside common knowledge.
Once an expert has considered the material submitted
by the parties and conducted an investigation, the expert
will make a determination. Depending on the agreement
between the parties, this may be final and binding.
An expert will have no inherent power, in the absence
of agreement, to award costs following a determination.
Unless specifically agreed otherwise, the parties each
bear their own costs and a share of the expert’s fee.
Key advantages
Some of the key attractions and advantages of the
process are its simplicity, flexibility, speed and cost
effectiveness, as well as its finality, offering certainty.
An expert will have specialist technical knowledge
and expertise that a mediator, arbitrator or judge may not
have. They may therefore be far better placed to effec-
tively and expeditiously resolve technical issues and
disputes within their field.
Given the expert’s specialist knowledge and exper-
tise, the volume of evidence required to be produced to
establish a technical matter is minimised.
The informal nature of the process avoids the need
for compliance with often cumbersome and expensive
procedural requirements such as disclosure. The parties
also retain the ability to control the process and timeframes.
These factors mean that, when used in appropriate
circumstances, expert determination can often offer a
faster, simpler and less expensive means of resolving
disputes, with the added benefit of finality (albeit finality
can also be problematic where a party is dissatisfied with
the result).
It is a process conducive to maintaining ongoing
relationships, due to its less adversarial nature and its
efficiency and certainty (which allows parties to move
forward more quickly, as opposed to becoming embroiled
in lengthy arbitration or court proceedings and appeals).
This can be an important consideration in the context of
ongoing contractual relationships.
Parties can also avoid sensitive issues or disputes (for
example involving pricing) being publicly ventilated, as
it is a private and confidential process.
Enforcement
An expert determination is not enforceable in its own
right (in contrast to an arbitral award or court judgment).
It is treated as a provision of the parties’ contract.
Accordingly, if one party refuses to comply with an
expert determination, the other party or parties must
issue court proceedings seeking a declaration or order
for specific performance of the parties’ agreement to
enforce the determination. The resulting court judgment
may then be relied upon and enforced. This can,
unfortunately, lead to increased expense and delay.
An expert determination may not be as readily
enforceable by courts in other jurisdictions. Where a
dispute involves an international party, or the resulting
decision may need to be enforced overseas, arbitration
may therefore be more appropriate, given the legislation
and international conventions in place enabling arbitra-
tion awards to be more efficiently and effectively enforced
overseas.
Unless the parties’ agreement expressly provides
otherwise, there are limited grounds for challenging an
expert determination (significantly more limited than for
an arbitration award or court judgment). Courts have
demonstrated a reluctance to set aside expert determina-
tions where parties have agreed they will be final and
binding. Established grounds for setting aside an expert’s
determination include:
• fraud or collusion;3
• partiality (requiring actual, not merely apparent,
bias);4
or
• where the expert has failed to comply with the
contractual process or has determined an issue
beyond the scope of the referral.5
Other potential grounds of challenge include:
• an attack on the validity of the expert determina-
tion itself, for example that the agreement in fact
provided for an arbitration and not expert deter-
mination and accordingly the appeal rights attach-
ing to arbitration should follow; or
• asserting that the agreement is void for uncertainty
if the contractual procedure is deficient6
(although
many determinations have still been upheld where
there have been omissions or inconsistencies).
australian alternative dispute resolution bulletin October 2014 107
20. A mere mistake will not be sufficient,7
unless the
parties have otherwise contractually agreed for example
that a decision may be challenged for “manifest error”.
Varied applications
Expert determination may be used in a range of
disputes and can be tailored to a variety of applications.
Its suitability will ultimately depend on the nature of the
dispute, the circumstances and the parties’ priorities and
objectives.
It is most effective for disputes involving discrete and
limited “technical” issues or a valuation, particularly
where key facts have been agreed.
Examples of where it might be used include a dispute
over the valuation of a business or other property, the
price of commodities (such as oil or gas), the value of
shares or other assets, the quantification of damages, the
amount of rent to be paid under a lease, assessment of an
alleged patent infringement, compliance with contrac-
tual or technical standards or other specifications (for
example in the context of a construction or engineering
contract) or the quality of goods or services (for example
grape quality grading and consequent pricing under a
grape supply contract).
Expert determination may not be suitable where, for
example:
• a party requires relief that can only be granted by
a court (for example, a declaration);
• a party seeks to establish a precedent going
forward in respect of a particular issue (as an
expert determination has no precedential force,
unlike a court decision or some arbitral awards);
• a dispute requires involvement of third parties (as
the expert has no power over third parties not
subject to the contractual expert determination
process);
• there are complex and intertwined legal, factual
and technical issues (and it becomes difficult to
delineate these);
• the consequences of the result (and associated
risks) are sufficiently material to insist upon clear
appeal rights; or
• there are complex disputed factual issues or ques-
tions of credit (best tested through discovery and
cross-examination in the context of arbitration or
court proceedings).
As expert determination can be used in conjunction
with other alternative dispute resolution processes, such
as mediation or arbitration, it is increasingly being used
in the context of “multi-tiered” dispute resolution mecha-
nisms.8
It may, for example, form an initial or interme-
diate step before parties progress to mediation or arbitration.
Mediation or arbitration may be selected by the
parties as the general over-arching dispute resolution
mechanism but the parties agree that certain discrete
issues of a technical nature are first referred to an expert
for determination (whether for reason that the mediator
or arbitrator may not best be equipped to deal with them
and/or to improve efficiency). Alternatively, a particular
issue may be referred out to an expert while those
processes are already underway, at an appropriate junc-
ture. The expert determination in respect of that issue
can then be used and relied upon in any subsequent
mediation or arbitration process that follows. The remain-
der of the issues in dispute (which may involve legal as
opposed to technical issues) are resolved through media-
tion or arbitration.
Another emerging alternative is for certain issues to
be decided, in the first instance, by (non-binding) expert
determination and then finally settled by arbitration.
This may, for example, occur where:
• the initial expert determination was in some way
unsuccessful;
• a party is dissatisfied with the result and the
contract provides for a right of review and referral
to arbitration (ie, in specified circumstances and
within a specified period);
• the result of the determination exceeds a previ-
ously agreed monetary or other threshold, result-
ing in escalation to arbitration.
Other potential variations on “hybrid” use of expert
determination include where the parties agree:
• to seek to resolve a dispute initially by mediation,
but, in the absence of a settlement, finally resolve
the dispute by expert determination;
• that an expert determination will be final and
binding up to a specified monetary cap, but once
this amount is exceeded, the parties may elect to
submit the matter to arbitration or court proceed-
ings;
• that an expert determination is final and binding
unless the parties escalate the matter to arbitration
within a specified period; or
• that specific technical issues will be referred to a
final and binding expert determination, with the
balance of issues to be determined by arbitration
or court proceedings.9
Some of these models may, in practice, raise some
interesting questions and tensions. For example, how
does a binding expert determination sit within the
non-binding process of mediation?
australian alternative dispute resolution bulletin October 2014108
21. Extensions of “expert determination”
Apart from the above “hybrid models”, while not
strictly “expert determination” in the traditional sense,
there are also certain other (arguably) analogous pro-
cesses currently being used to resolve disputes.
One example is the use of court appointed experts or
“referees”. Australian courts (at State and Federal level)
are empowered to refer specific questions arising in
existing court proceedings to an expert or “referee” for
consideration and report.10
In this context, the expert or
“referee” will be appointed by the Court (although he or
she may be nominated by the parties). The expert or
“referee” will consider the referred question and then
prepare a written report for the court. Some cross-
examination of the expert or “referee” may be permitted.
Upon receipt of the expert or referee’s written report
(setting out the determination of the issue), the court
may accept, reject or vary the recommendation and give
the determination whatever weight the court deems
appropriate. This is, in effect, a non-binding expert
determination operating in conjunction with court pro-
ceedings. An arbitrator may have similar powers to refer
issues to an expert or referee.11
Another example is the increasing use of the practice
of expert “hot-tubbing” (ie, “concurrent expert evi-
dence”). This process involves experts from the same
discipline, or sometimes more than one discipline,
giving evidence at the same time and in each other’s
presence. The experts, who have been appointed and
briefed by the respective parties to the proceedings, are
sworn in together, and the judge puts the same questions
to each expert in turn, effectively acting as “chair” of a
debate between the experts. In effect, this may be
characterised as a de facto joint (non-binding) expert
determination.
The use of “expert conferences” or “expert con-
claves” within court proceedings is a further example.
An expert conference is designed to allow the parties’
appointed experts the opportunity to resolve any differ-
ences of opinion and agree on facts or technical opinions
and issue a written report to the court.
Outside of the context of court proceedings, another
example of a “pseudo” expert determination process
may be the increasing use of expert advisory boards on
large construction projects (who often assess and deter-
mine technical questions in the midst of a project to
avoid scheduling disruptions).
While strictly an “adjudication” process, the decision-
making process provided for under various States’
“security of payment” legislation, which provide a
statutory regime (and “fast track” mechanism) for the
recovery of progress payments within the building and
construction industry has some common elements with,
and embraces similar concepts to, expert determination.
Adjudicators will make an interim “determination” in
respect of parties’ payment rights and obligations based
on a valuation of construction work undertaken using
their specialist expertise.
These analogous processes again serve to illustrate
how the expert determination process, or at least the
concepts underlying it, may be adapted to a range of
applications beyond those often in parties’ immediate
contemplation.
Conclusion
Contracting parties should consider, at the outset of
their relationship, expert determination as a proactive
means of resolving disputes, ensuring more timely
completion of the contract and as a mechanism for
maintaining ongoing contractual relations. The applica-
tions and use of expert determination continue to extend,
including as an adjunct to other alternative dispute
resolution procedures and, increasingly, as an adjunct to
existing court proceedings. Effective use in appropriate
circumstances may avoid protracted and costly disputes
and litigation.
Kirsten Dow
Partner
Finlaysons
Footnotes
1. Heart Research Institute Ltd v Psiron Ltd [2002] NSWSC 646;
BC200205034 at [17] (Einstein J).
2. In Australia, arbitrations are currently governed by the follow-
ing: International Arbitration Act 1974 (Cth); Commercial
Arbitration Act 1986 Act No 84 of 1986 (ACT); Commercial
Arbitration (National Uniform Legislation) Act 2011 Act No 23
of 2011 (NT); Commercial Arbitration Act 2010 Act No 61 of
2010 (NSW); Commercial Arbitration Act 2013 Act No 8 of
2013 (QLD); Commercial Arbitration Act 2011 Act No 32 of
2011 (SA); Commercial Arbitration Act 2011 Act No 13 of
2011 (TAS); Commercial Arbitration Act 2011 Act No 50 of
2011 (VIC); and Commercial Arbitration Act 2012 Act No 23
of 2012 (WA).
3. Legal and General Life of Aust Ltd v A Hudson Pty Ltd (1985)
1 NSWLR 314 at 335; [1985] ANZ ConvR 108; (1985) NSW
ConvR 55-237 (McHugh JA); Kanivah Holdings Pty Ltd
v Holdsworth Properties Pty Ltd (2001) 10 BPR 18,825;
(2001) NSW ConvR 55-985; [2001] NSWSC 405; BC200102599
at [47] and [48] (Palmer J); Holt v Cox (1994) 15 ACSR 313
(Santow J) and, on appeal, (1997) 23 ACSR 590 at 594; 15
ACLC 645; BC9701393 (Mason P).
australian alternative dispute resolution bulletin October 2014 109
22. 4. Macro v Thompson (No 3) [1997] 2 BCLC 36; Beevers v Port
Phillip Sea Pilots Pty Ltd [2007] VSC 556; BC200711350 at
[264]–[270] (Dodds-Streeton J).
5. Legal & General Life of Aust Ltd v A Hudson Pty Ltd (1985) 1
NSWLR 314 at 335–6; [1985] ANZ ConvR 108; (1985) NSW
ConvR 55-237 (McHugh JA); Savcor Pty Ltd v New South
Wales (2001) 52 NSWLR 587; [2001] NSWSC 596; BC200103967
at [36] (Barrett J); Heart Research Institute Ltd v Psiron Ltd
[2002] NSWSC 646; BC200205034 at [32] (Einstein J).
6. Heart Research Institute Ltd v Psiron Ltd [2002] NSWSC 646;
BC200205034.
7. Legal and General Life of Aust Ltd v A Hudson Pty Ltd (1985)
1 NSWLR 314 at 335; [1985] ANZ ConvR 108; (1985) NSW
ConvR 55-237 (McHugh J); WMC Resources Ltd v Leighton
Contractors Pty Ltd (1999) 20 WAR 489; (2000) 16 BCL 53;
[1999] WASCA 10; BC9902536 at [35] (Ipp J); Holt v Cox
(1997) 23 ACSR 590 at 595–6; 15 ACLC 645; BC9701393.
8. Martin Valasek and Frédéric Wilson “Distinguishing Expert
Determination from Arbitration: The Canadian Approach in a
Comparative Perspective” (2013) 29(1) Arbitration Interna-
tional 63, 64.
9. This is expressly contemplated by, for example, the Federal
Court of Australia Act 1976 (Cth), s 53A(1)(c).
10. See for example Supreme Court Act 1935 (SA) s 67 and
Supreme Court Civil Rules 2006 (SA) r 4; Supreme Court
(General Civil Procedure) Rules 2005 (Vic) rr 50.01-50.06;
Uniform Civil Procedure Rules 2005 (NSW) rr 20.13 to 20.24;
Uniform Civil Procedure Rules 1999 (Qld) Ch 11, Pt 5, Divs 3
and 4 and r 425; Rules of the Supreme Court 1971 (WA) O 40
r 2; Supreme Court Rules 2000 (Tas) Pt 22 Div 5; Federal
Court of Australia Act 1976 (Cth) s 54A (permitting referral to
a “referee”).
11. See for example Commercial Arbitration Act 2011 (SA), s 26.
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