The main topic of this Q3 2024 newsletter, is “mediation in arbitration”. Following a survey on this topic conducted by our colleagues in BAHR and Wikborg Rein, we present Wiersholm’s view on what should be expected by an arbitral tribunal regarding mediation in international commercial arbitration.

Furthermore, we will, as always, provide the latest NOMA News and highlight What’s On the Agenda.

We hope you like it!

Mediation in International Commercial Arbitration

Background

On 26 September 2024, the Norwegian law firms BAHR and Wikborg Rein held an arbitration seminar at which they presented the results from their survey regarding “institutional arbitration” and “mediation in arbitration”. The results from the survey can be viewed here.

Regarding the topic “institutional arbitration”, the results from the survey bring, in our view, little new to the table. However, it is interesting to see that 43% of the respondents are in favour of establishing a “full-service” Nordic arbitration institute in addition to NOMA. As we set out in our Q2 2024 newsletter, the Norwegian arbitration community should instead focus its energy and resources on further developing OCC and NOMA to enhance arbitration in Norway and the Nordic region.

However, on the topic “mediation in arbitration”, the survey provided in our view fresh and important input from the Norwegian arbitration community. One of the questions was:

To what extent should arbitral tribunals actively influence the parties to discuss amicable settlement?

To this 58% (of 69 respondents) answered that it is “appropriate from time to time”, 17% replied “always” and 22% replied “only in special circumstances”. Only 3% of the respondents replied “never”.

Against this backdrop, “mediation in arbitration” was the topic of one of the subsequent panel discussions, led by Ronny Lund (Partner in Wiersholm); see the presentation from his introduction here. Different views were exchanged between the three panellists Katinka Mahieu (Oslo District Court Judge), Anne Hesjedal Sending (Partner in Haavind) and Christian Hauge (Attorney-at-Law (H)), see link to a follow-up article in Advokatbladet on 3 October 2024 here (in Norwegian only). During the panel debate and subsequent discussion, it became evident that while the majority agreed that the arbitrator should inform and encourage the parties to consider mediation, some participants still believed that the arbitrator should not take any such steps, especially when the arbitration agreement does not address mediation.

In the following we will set out Wiersholm’s views on “mediation in arbitration”, seen from a Norwegian perspective.

The legal backdrop

For legal disputes subject to the jurisdiction of the Norwegian ordinary courts, the Act relating to Mediation and Procedure in Civil Disputes (the “Dispute Act“) from 2005 applies. As the name of the Act implies, “it is the law” that disputes shall be mediated. This also follows from a range of general rules in the Dispute Act, e.g. section 8-3 (1) regarding judicial mediation:

“The court shall decide that judicial mediation pursuant to Sections 8-4 to 8-6 shall take place should the court finds this appropriate […]” (emphasis added).

In practice, as many of our Norwegian readers will have experienced, this leads to many disputes becoming subject to court-led mediation according to the rules of the Dispute Act Chapter 8.II. Based on the latest figure from Oslo District Court (which is the first instance court with the majority of commercial cases), settlement is reached in 78% of the disputes subject to judicial mediation, see here.

For arbitrations seated in Norway, the Norwegian Arbitration Act (“the NAA“) applies. The NAA has no provisions like those in the Dispute Act regarding the tribunal’s facilitation of settlements or mediation. Taking into consideration that arbitration is conditional on an agreement to arbitrate, it is natural that potential settlement discussions or mediations are also subject to the parties’ agreement.

Moreover, without going into details, it is a general view that arbitrators who act as mediators risk losing their independence and impartiality, and thus may need to either step down as arbitrators if no settlement is reached and the case continues or risk a subsequent challenge of the award.

In the following we will thus discuss the topic of mediation in arbitration on the premise that the option for the arbitral tribunal to act as mediators themselves is “off the table”.

“What should be expected from an arbitral tribunal regarding mediation in arbitration?”

In ICC’s publication “Effective Conflict Management“ (July 2023), the following was stated:

“The cost of disputes is difficult to measure, in terms of both direct and indirect costs. The cost is usually lower when the dispute is settled between the parties themselves or with the aid of a third-party neutral, than when the parties delegate decision-making to an adjudicator or arbitrator.

The parties’ goal is to resolve disputes quickly and at the lowest cost possible. The saved cost can be applied to productive business activities.”

We agree with this statement. Based on its premise, the question in the following is what, if anything, an arbitral tribunal should do in practice to facilitate the parties’ goal of a swift settlement at the lowest possible cost?

At the outset it is our view that arbitral tribunals appointed in commercial cases should “hold two opposing ideas in mind at the same time”, encouraging the parties to take control of their dispute to find an amicable solution within an efficient arbitration framework that will provide the parties with an enforceable award if no settlement is reached.

In our view, there are three powerful tools the arbitral tribunal can use to encourage the parties to reach amicable solutions during the arbitration proceedings:

First, during the first case management meeting, the arbitral tribunal should encourage the parties to agree on a mediation window in the procedural timetable.

Second, the tribunal should seek agreement between the parties to establish effective sealed offer mechanisms to make settlement more likely – regardless of whether a mediation takes place or not.

Third, the arbitral tribunal should seek to establish the dispute’s main legal questions in a decision tree and use this actively at all stages of the process.

Tool no. 1: Mediation window in the procedural timetable

Even if an arbitration is initiated, it is important that the parties either revisit or start to explore the possibility of a negotiated solution. Our general experience is that at this stage of the process, many parties (and their counsels), regardless of previous attempts to settle the case, are “afraid” of making the first move towards e.g. agreeing on a mediation process to avoid looking weak. Moreover, in some cases, the dispute needs to mature a bit before it is “mediation ready”. Based on this, we argued in our Q1 2023 Newsletter that it is important that the arbitral tribunal drives the process on this point and that it is familiar with the potential benefits of a mediation and the framework necessary to ensure the best possible basis for a successful process.

This view is now also supported in ICC’s publication “Effective Conflict Management” (July 2023), which reads as follows (page 37, paragraph 111)[1]:

“The aim of (a) mediation/negotiation window(s) is to encourage the parties to settle in the course of an ongoing arbitration. Such mediation/negotiation window(s) occurs during the arbitration, after the parties will have gained more information on the other side’s case and will have been able to reassess their own positions.”

In the Nordic Offshore and Maritime Arbitration Associations’ (NOMA) Best Practice Guidelines, sections 1.13 and 1.14 of the CMC-Matrix have since 2017 encouraged the parties to agree during the first Case Management Conference to allocate time for mediation/settlement discussions. In addition, the CMC-Matrix also suggests that the arbitral tribunal appoint a mediator on behalf of the parties. In our view, this approach should be followed in all Nordic international commercial arbitrations. If the parties do not want a mediation window, they can just say no.

Tool no. 2: Seek to put in place effective mechanisms for the use of sealed offers

In our Q3 2023 newsletter, we gave an overview of the use of sealed offers in international commercial arbitration, and argued that this may serve as a good mechanism for encouraging early resolution of disputes within the arbitration process – regardless of whether the parties agree on a mediation window or not. However, as we also pointed out, there is no established best practice for defining specific mechanisms to be included in the PO1 or terms of reference in international arbitration.

For sealed offers to serve as an efficient mechanism for encouraging early settlement (and thus saving costs), it is necessary to further develop the best practice of how regulating this in the PO1 or terms of reference. Inspiration can be found in the Society of Maritime Arbitrators (SMA) Arbitration Rules as of June 2022 (SMA Rules 2022) which incorporate the concept of sealed offers in Section 31(d). Our view is that the Nordic-based arbitration institutions should consider incorporating similar regulations into their rules.

In addition, we are of the view that all the Nordic-based arbitration institutions at least should incorporate the same rule as in the NOMA Arbitration Rules Art 37(1), which states that a rejected settlement offer “shall” be taken into account in the arbitral tribunal’s cost ruling. By doing so, it is easier to develop a Nordic best practice when it comes to this.

Tool no. 3: Use of decision trees to nudge the parties “in the right direction”

A decision tree in its purest form, is a visualization of:

a) the parties’ choices in their control (the red square box)

b) the disputes’ main legal questions – which are decision points not in the parties’ control if left to the arbitral tribunal to decide (the yellow circles), and

c) the different potential outcomes depending on the choice made by the parties and the decisions made by the arbitral tribunal (the green triangles).

Below is an example of a (simple) decision tree in a case in which the claimant raised a claim for rescission and repayment of the purchase amount, and the respondent argued that the claim was submitted too late, and in any case that there is no basis for the claim:

(Illustration made by use of dnodes.io)

In addition to mapping out a) – c) mentioned above, the decision tree can be used as a framework for:

i) structured assessments of the pros and cons of each decision point,

ii) assessment of the likely outcome (in percentages) of each decision point, and

iii) calculation of the expected value of the disputed claim(s).

Among available practical tools, the use of decision trees is in our view the best choice as it is easy to use and serves a wide range of purposes for everyone involved in the arbitration at different stages of the proceedings:

It provides all participants (parties and arbitrators) with a “one-page” visualization of a), b) and c) mentioned above

It provides each party with a tool to assist in its litigation risk analysis, ref. i) – iii) mentioned above, and

It provides both potential mediator(s), and eventually the arbitral tribunal, with a tool for the execution of their tasks

The use of decision trees is also recommended by the ICC in its publication “Effective Conflict Management” (July 2023), pages 42-43. The same recommendation is found in literature regarding decision analysis in disputes, see Sverre Blandhol, Kontraktsforhandlinger og forliksforhandlinger (2024), pp. 102 – 127).

In our experience, the best digital platform for the production and use of decision trees is dNodes.io.

Based on the above, the use of decision trees in commercial arbitration will be the main topic of Wiersholm’s pre-event to the Norwegian Arbitration Day in Oslo on 26 February 2025. If you want to reserve a seat for this event, and receive more detailed information when the full programme is ready, please register by following this link: Pre-event NAD 2025 – Advokatfirmaet Wiersholm

NOMA News

NOMA-Arbitration is Gaining Momentum in Norway

Based on the same arbitration survey mentioned above, one of the key questions was: Which arbitration institute have you used for disputes?

While it’s no surprise that established institutions like SCC and ICC ranked highly, it is noteworthy that many respondents have also used NOMA. According to NOMA, this reflects a growing trend, confirmed by other market reports and recent news – such as Den Norske Krigsforsikring for Skib (DNK)’s selection of NOMA as the dispute resolution mechanism for its new Cyber Risk Insurance policy, see here.

The second NOMA Day in Copenhagen

On 10 October 2024, the second NOMA Day was held in Copenhagen – with a full house at the new stunning premises of Bech Bruun. The main theme was “Arbitration from departure to arrival – the NOMA solutions”, with an impressive lineup of moderators and panellists (see here.)

In our view, the highlight of the NOMA Day was the keynote speech by Christian Gorrissen, Vice President and Head of Legal at Torm. In his presentation (which can be viewed here), he i.a. strongly emphasized the importance of the arbitral tribunal being solution-focused instead of process-oriented. Based on his experience, LMAA arbitrators and English counsels are to a too high degree custodians of the process – what he termed “the English virus”. He warned the audience against being “infected by the English virus” and reminded everyone that companies like Torm want the dispute resolved (preferably a.s.a.p. without costs) – not a process.

His view was that on a scale from zero to a hundred, the NOMA framework is already 80% solution-oriented and 20% process-driven. In his view, this was good, but NOMA’s aim should be even more solution oriented.

What’s On the Agenda

Ordre Public and Enforcement of arbitral awards

In a newly published article in the Norwegian Tidsskrift for forretningsjus, professor Giuditta Corder-Moss of the University of Oslo delves into the topic of ordre public with regard to enforcement of arbitration awards under Norwegian law, see here. The article elaborates on the Borgarting Court of Appeal decision LB-2023-18169, addressing whether Norwegian courts were obliged to enforce an arbitration award effectuating payment to the authorities of Yemen – a country subject to Norwegian sanctions and known for violations of public international law.

Despite ruling that the payments would in fact not constitute a breach of the sanctions, the case, and the subsequent article, provide some valuable insight into the subject of ordre public and enforcement of arbitration awards. In line with section 45 of the Norwegian Arbitration Act, Norwegian courts are obliged to enforce an international arbitration award, reflecting the requirements under the New York Convention. However, an exemption follows from section 46 second subsection b, which states that an arbitration award may be refused recognition if it is “contrary to public policy (ordre public)”.

The ordre public reservation typically applies to issues of choice of law, ensuring that the application of a foreign law does not violate certain fundamental principles of the law of the seat. However, as stated in both the judgment and the article, ordre public in light of enforcement of arbitration awards differs slightly: here, it is not a question of whether the application of a specific law violates fundamental principles, but rather the enforcement of the judgment, for instance through payment of the awarded costs.

Another key take-away from the judgment, which applies to both choice of law and enforcement of arbitral awards, is that the threshold for refusing recognition under an ordre public reservation is high, reserved for grave violations of general principles. Additionally, the assessment must be specific. Thus, if the courts cannot identify any actual risks of violation, the enforcement of the award must be upheld.

YAPN arbitration seminars

Young Arbitration Practitioners Norway (YAPN) has launched a series of seminars aimed at educating young practitioners about arbitration. The initiative began with the first seminar on 14 August 2024 and was followed up in the second seminar on 10 October. Both seminars were highly informative and set a positive tone for future sessions.

The initial seminar was titled “Main Principles of International Arbitration” and provided an overview of the basic legal framework and the essential principles of international arbitration, designed to ensure a fair, efficient, and confidential resolution process for all parties involved.

The second seminar was titled “The Arbitral Process in practice” and provided an overview of the various processes in, among other things, Norwegian ad-hoc arbitration and arbitration held under NOMA and ICC-rules.

This educational series by YAPN is an excellent opportunity for young practitioners to deepen their understanding of arbitration and its application in both a domestic and an international context.

Nordic Commercial Arbitration Forum – Nordic Arbitration

Finally, everyone interested in commercial arbitration should already now save the date 11 March 2025 for the first Nordic Commercial Arbitration Forum in Stockholm. This forum is the initiative of the Stockholm Centre for Commercial Law (SCCL) and the Oslo Centre for Commercial Law (OCCL), together with all the Nordic arbitration institutes. The aim is to promote commercial arbitration in the Nordics and the main topic of the first forum is Nordic Arbitration: A Strategic Choice for Business.

We could not be more excited about this initiative as, in line with our views in our Q2 2024 Newsletter, it provides a powerful springboard for promoting and developing the Nordics as the best place for conducting international commercial arbitration.

So, look out for the final invitation – which is just around the corner.

There are many events to choose from on the international commercial arbitration scene. We recommend considering the following upcoming happenings: 

21 – 25 October 2024: SCC Arbitration Week– both online and in Stockholm. The main topics are arbitrating public sector procured contracts, negotiations the “Swedish way”, cost of arbitration and apportionment under the SCC rules and mediation.

23 – 24 January 2025: Swedish Arbitration Days

29 February 2025: Norwegian Arbitration Day Oslo, with pre-event at Wiersholm with the following main topic: “The rule of t(h)ree – Use of decision trees as a research-based tool for better decisions in commercial arbitration. Link to the pre-event reservation: Pre-event NAD 2025 – Advokatfirmaet Wiersholm

11 March 2025: Nordic Commercial Arbitration Forum – Nordic Arbitration: A Strategic Choice for Business (see more regarding this event above)

Read our newsletter on International Commercial Arbitration for Q2 2024 here.

Read our newsletter on International Commercial Arbitration for Q1 2024 here.

Read our newsletter on International Commercial Arbitration for Q4 2023 here.

Footnote:

[1] See also ICC’s publication Facilitating Settlement in International Arbitration.

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