Is commerical mediation a face saver?

As the International Chamber of Commerce (ICC) gets set to hold its regional conferences in March to launch its new ICC Mediation Rules, it is now more pertinent than ever that Vietnam’s business community are aware that when it comes to resolving commercial disputes, there are far cheaper, quicker and more amicable options than simply going to court or arbitration, writes Logan Leung from LNT & Partners.

Companies doing business in Vietnam will benefit from thinking twice about how their commercial disputes should be resolved. Mediation has for many years maintained a position as a viable alternative to resolving disputes for both private and public bodies. In Vietnam, the process is, with the exception of certain labour disputes and administrative matters, compulsorily employed at the courts (court-annexed mediation) and it is also frequently used for small-scale local disputes (grassroots mediation). Yet, mediation has seemingly flown under the radar of businesses when it comes to resolving disputes involving foreign parties.

Private commercial mediation explained

The process of mediation involves the disputing parties attempting to reach an amicable resolution with the assistance of an independent third party (the mediator). As the key element of mediation is amicability, it is a voluntary process in that both parties must agree to use it. While there is no set path to how proceedings may be run, the mediator will often facilitate discussions between the disputants and talk through points of contention with a view to settle. Having a mediator to assist in negotiations can be far more productive than having the parties negotiate privately, as it will often help to navigate through discussion deadlocks.

The advantages of commercial mediation over litigation or arbitration are numerous, and parties can expect to benefit from:

– A much cheaper process because of lower or even no legal fees

– A much faster process, with proceedings seldom taking longer than a week

– The ability to maintain amicable relationships with one another (and save face)

– Full confidentiality in the process.

For disputes with an international element, resolution through the Vietnamese courts is not always approachable, particularly for foreign parties, and arbitration can be very costly. In these circumstances, commercial mediation may be considered, which involves the parties selecting their own mediator to facilitate settlement discussions. Many notable institutions, such as the Vietnam International Arbitration Centre (VIAC) and the International Chamber of Commerce (ICC), have dedicated mediation systems in place to assist parties through the process.

Global development of commercial mediation

The development of commercial mediation has taken strides around the world – particularly in Asia – at a time when businesses are becoming more cost-conscious and seeking to maintain client relationships. This trend is observed through several recent changes.

For businesses, the ICC has become a household name in international arbitration. However, perhaps less well-known and employed are the ICC’s mediation offerings. On 1 January 2014, the ICC Mediation Rules came into effect to replace the 13-year old ICC ADR Rules. These rules guide the parties in initiating mediation (including selecting the mediator) and set out the proceedings’ administrative rules. As the actual mediation follows no fixed approach unlike litigation or arbitration, the rules provide a helpful foundation for parties contemplating using the ICC’s procedures.

Also recently in 2013, the Kuala Lumpur Regional Centre for Arbitration (KLRCA) introduced its new KLRCA Mediation Rules with a view to streamline the commercial mediation process and promote its use among parties. Its provisions are, in many parts, similar to the ICC Mediation Rules and offer a viable and affordable alternative for resolving disputes in South East Asia.

The arbitration powerhouse, Singapore, has also made significant developments. The country boasts an International Commercial Mediation Working Group which has pushed numerous recommendations to the Ministry of Law in December 2013 towards also transforming Singapore into a mediation hub. These recommendations include passing a dedicated mediation law and bolstering judicial support.

The commercial mediation regime in Vietnam

Despite the expanding demand in Asia in shifting from traditional adversarial proceedings to amicable and party-focused mediation, Vietnam has been less active. This is despite the government’s strong embrace of mediation, having even entrenched it in Article 11 of the Civil Code.

While a dedicated Law on Grassroots Mediation will come into effect later this year, commercial mediation has yet to see development. The promotion is currently helped by VIAC, which hosts its own set of modern mediation procedures. The rules, which were developed in 2007, open a gate for businesses to have their disputes resolved amicably within the country. However, other institutions such as the ICC or KLRCA may be used.

Vietnam is also home to numerous legally and/or commercially trained mediators – both Vietnamese and foreign – with the professional capacity to facilitate proceedings. Parties also always have the option to engage specialised mediators from overseas for larger or more complex disputes.

One notable concern that businesses often raise as a reason for avoiding mediation is the binding nature and court recognition of the ensuing settlements. While the settlement agreements will naturally give rise to contractual rights, the agreements are not recognised in the same way as a court judgment or arbitral award. This stance is not very different to the legal position of many other developed Asian countries such as Singapore, and simply enforces the amicable nature of the process.

It is worth noting that enforceability is a concern that is seldom raised. Even in other jurisdictions, court proceedings to enforce mediation settlement agreements are rarely pursued because a mediation settlement’s aim is to encapsulate the parties’ amicable resolution. As parties do not enter into it with an adversarial mindset, it would be highly unusual for a party to renege on its commitments (and risk severing the relationships that they have attempted to preserve).

Nevertheless, for those who seek certainty, Article 58 of the Law on Commercial Arbitration is unique in that it provides for formal recognition of a “decision” concluded through mediation in the same way an arbitral award is enforced. While helpful, the law makes it expressly clear that this will only apply to mediations conducted under the umbrella of arbitration and facilitated by the same arbitrator(s) – i.e., through a costlier and longer arbitration-mediation hybrid process.

Therefore, the only basis for enforcing pure mediation settlements under the current legal framework of Vietnam – for those settled at both the VIAC other foreign institutions – is contract-based. Accordingly, any disputes will be resolved largely against on how the settlement agreement is devised and potential claims will be made for a breach of contract.

Still out of favour

Despite the overwhelming advantages of mediation, to date, fewer than 10 cases have been adjudicated under VIAC’s dedicated rules. The response is particularly surprising, as mediation can often mean the difference between several billion VND and several million VND in legal fees. It can also mean the difference between several months (or years!) in contentious proceedings and several days of negotiations.

The success rate of mediation has been well documented. For businesses who have mutually agreed to commercial mediation, the ICC has cited an impressive settlement rate of over 75 per cent for cases remitted to their procedures.

In light of these advantages, it is no surprise that the use of commercial mediation has expanded globally. Given Vietnam’s pro-mediation stance for domestic disputes, we hope the country will eventually follow suit with a more rigorous legal framework and institutional support to promote it.

Nevertheless, albeit uncommon, mediation presently remains an attractive and viable option in Vietnam, while the process is gaining traction in other countries. Therefore, companies doing business in Vietnam will benefit from thinking twice about how their commercial disputes should be resolved – perhaps even including a detailed mediation clause as part of their business agreements (often as a pre-arbitration stage).

After all, when the alternative is an expensive drawn-out litigation or arbitration, it is clear that there is much to gain and little to lose from trying commercial mediation.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

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