When I am approached by parties to act as a mediator, I am often asked to explain the difference between a mediators‘s role and the role of an arbitrator. Many people treat the roles as interchangeable. A recent decision of the New South Wales Supreme Court highlights the difference between the two processes, and the dangers where legislation in this area is not strictly followed.
Ku-ring-gai Council (the Council) and Ichor Constructions (Ichor) were parties to a construction contract. The contract contained and arbitration clause. As sometimes happens, the parties fell into dispute, and they elected to refer that dispute to a formal arbitration under the Commercial Arbitration Act 2010 (NSW) (the Act).
After 11 ½ days of hearing at the arbitration, the arbitrator suggested to the parties that he could conduct a mediation between them for the purpose of putting to them a proposal to consider settling the dispute – a noble ideal!
Section 27D(1) of the Act permits an arbitrator to act as a mediator in circumstances where all parties in the arbitration have given their written consent to that course.
In this case, the parties both provided written consent for the arbitrator to act as a mediator in the afternoon of the 12th day of the hearing. The “mediator” then put the very simple proposition (that each party should withdraw their respective claims and bear their own costs - not exactly a difficult proposition to come up with!). This was quickly rejected by both parties. The mediator proposed to continue with the arbitration and the arbitration proceeded, with the original arbitrator acting in that role. The arbitrator did not seek the written consent of the parties for him to terminate the mediation and continue as arbitrator, which was required under section 27D(6) of the Act. It just seemed to happen.
The arbitration continued, and it was not until four days after the conclusion of the hearing that Ichor protested about the absent consent when transitioning from the mediation back to the arbitration. The Council then sought orders from the Supreme Court that the arbitration should continue. That application was obviously opposed by Ichor.
Justice McDougall found that the parties had consented in writing to the arbitrator acting as a mediator but had not consented in writing to the reversal of the process back to the arbitration. He described the role of the mediator essentially as “non-arbitral ... The core function of an arbitrator is to hear and decide, on both an interim basis and (by award) a final basis, disputes between parties to an arbitration agreement that are referred to the arbitrator for resolution.... by contrast, a mediator is not required to hear the parties, or to give them an opportunity to present their cases, or (most importantly) to decide their dispute. The core function of the mediator is to seek to bring the parties to agreement so as to resolve the dispute and decide the best way of doing that.”
His Honour referred to a very useful description of a “mediation” was provided in the case of Hopeshore Pty Ltd v Melroad Equipment Pty Ltd, which in turn cited the National Alternative Dispute Resolution Advisory Council definition as follows:
Mediation is a process in which the parties to the dispute, with the assistance of a neutral third party (the mediator), identify the disputed issues, develop options, consider alternatives and endeavour to reach an agreement. The mediator has no advisory or determinative role in regard to the content of the dispute for the outcome of its resolution, but may advise on or determine the process of mediation whereby resolution is it attempted.
The Council attempted to argue that Ichor had, firstly, waived its entitlement to raise any objection, and secondly Ichor was estopped from objecting to the arbitration continuing. Justice McDougall found against the Council on both arguments.
Ultimately, the Court found against the Council, with the effect being that the arbitration could not continue. And, worse still, the original arbitrator “has and had no mandate to continue with the arbitration proceedings following termination of the mediation.” On one view, 11 ½ days of hearing at the arbitration were then poured down the drain for everyone.
What the Judge noted was that the parties were represented by their lawyers, who had agreed in writing to the arbitrator acting in the capacity of a mediator, however no-one considered it necessary to consent in writing to the change in role back to arbitrator, despite the fact that the transition only occurred over a few hours.
There are very obvious lessons from this case for any parties to an arbitration to note:
- it is possible for an arbitrator to transition into the role of a mediator, however that transition must be with the written consent of all the parties.
- if the mediator then wishes to transition back to the role of an arbitrator, that too is permitted, however it must also be done with the written consent of the parties.
- those advising the parties need to pay careful attention to the documentation of the transition of the roles between arbitrator and mediator.
- the person acting as arbitrator/mediator needs to pay careful attention to the documentation of any transition of his/her roles.