ADRB Vol. 1 Issue No. 5

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 EditorRichard Weinstein SC Barrister

8th Floor Selborne Chambers and

University of New South Wales

Editorial PanelPeter 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

General Editor’s noteRichard 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

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

The combination of arbitration and mediationpractice 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-medThe 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-going friendly and co-operative business relationship.

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?


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.

Recent Chinese experience in “hybrid” formsof 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 isa steady increase in the success rate of arb-med cases.Arbitrations with CIETAC, which subsequently settledduring mediations, increased from around 20% in the 1990sto around 30% in recent years. In 2002, SHIAC only had 6out 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: howmediation 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.


End of mediation under the arb-med modelUnder 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 practiceSince 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 practiceCommon 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).


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.

ConclusionLooking 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

[email protected]

Dr Mingchao Fan

Associate Professor of Law

Shanghai University of Political Science

and Law

[email protected]

Footnotes1. 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.ccpi t .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.


Mediation meets arbitration — the experienceof med-arb in Mainland China and Hong KongFei 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 ChinaDeeply 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


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

award based on the terms of the settlement agreement.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 KongMed-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


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.

ConclusionsWith 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

[email protected]

www.huizhonglaw.com/en/

Joe Liu

Assistant Managing Counsel

Hong Kong International Arbitration

Centre

[email protected]

www.hkiac.org/en/


Footnotes1. 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.


11. CIETAC Rules, Arts 45.3 and 45.7.




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].


The history and practice of the InternationalCentre 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 ICSIDThe 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 caseloadAs 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.


Figure 1: Number of cases registered by calendar year under the ICSID Convention andAdditional 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: USDollars at current prices and current exchange rates in millions).16


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 bythe 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 remarksFor 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)

Footnotes1. 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


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.


Expert determination — a multi-purpose toolKirsten 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 processExpert 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);


• 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 advantagesSome 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.

EnforcementAn 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).


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 applicationsExpert 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?


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.

ConclusionContracting 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

Footnotes1. 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).


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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ADRB Vol. 1 Issue No. 5

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