[An abridged version of this article appeared
in the East/West Executive Guide,
September 1998, Vol. 8, Number 9]
Making Mediation Viable in Russia and Ukraine: The Need for an Appropriate Legal Framework[1]
by Ethan S. Burger, Member, Ludwig & Robinson
Nikolay Drozdov, Vice President, Russian Bank for
Reconstruction & Development (Russia) and Member of the Executive Committee
of the Foundation for the Peaceful Settlement of International Business
Disputes (UK);
Stuart Kerr, Executive Director, International
Law Institute (US);
Michael Lewis, Senior Advisor, Center for
Dispute Settlement (US);
Boris Megrelishvili, Megrelishvili &
Partners (Russia);
Marina Roufman, Special Legal Consultant, Vorys,
Sater, Seymour & Pease (US), and Member of the Moscow Regional Bar
(Russia).
I. Background
The relative success of mediation[2]
in resolving certain types of disputes in the United States, the United
Kingdom, Australia, New Zealand, Argentina, China and other countries can be
attributed to a number of factors, the most important of which are probably:
(i) dissatisfaction with other available forms of dispute resolution (due to
the unpredictability of outcomes, the high cost of litigation or arbitration,
and the length of time needed to obtain a final decision), and (ii) the
existence of a legal framework supportive of the mediation process.
It is our belief that for mediation to be successfully
applied in Russia and Ukraine on a large scale, in particular with respect to
commercial and investment disputes, the parties to such disputes must not only
believe that mediation has the potential to yield better solutions to their
disputes than other processes, they also must be confident that if they fail to
achieve a successful outcome through mediation, they will not suffer any
significant adverse consequences solely as a result of attempting the mediation
(other than lost time and expenses incurred).
The purpose of this article is to examine the
legislative framework for mediation in the Russian Federation (“RF”) and Ukraine. It also discusses how RF and Ukrainian
legislation might be adapted (based on an Argentine or U.S. model) so that
mediation may offer a viable means of dispute resolution and help to alleviate
court overcrowding in Russia and Ukraine.
In so doing, we hope to stimulate discussion by interested judges,
businessmen, lawyers, mediators and legislators on this topic.[3]
II. The Existing Legal Framework for
Mediation in Russia and Ukraine
Although mediation is being used to resolve certain types
of disputes in Russia and Ukraine on a small scale,[4] it is largely occurring within a legal
vacuum.[5] While parties who choose to mediate a
dispute are likely to enter into a formal agreement governing the conduct of
the mediation, it is by no means absolutely certain that Russian and Ukrainian
courts will enforce such rules to the degree they are inconsistent with
provisions of applicable RF and Ukrainian legislation.[6]
The
Russian and Ukrainian Arbitrazh Procedure Codes do not refer to
mediation as a process allowing parties to resolve their disputes, though as is
discussed below, the Codes envision the possibility that parties may enter into
negotiations in the hope of resolving their differences by means of concluding
a written settlement agreement (‘mirovoe soglashenie’ in Russian and ‘mirova
ugoda’ in Ukrainian). To our
knowledge, the Russian and Ukrainian courts have not yet adopted normative
materials outlining how such negotiations should be conducted.
Although the Russian and Ukrainian Arbitrazh Procedure
Codes do not discuss mediation, this is not to suggest that the conduct of
mediation in both countries is without a legal basis. Under Russian and Ukrainian legislation, parties to a dispute
certainly have the right to retain one or more individuals (i.e. the
mediator(s)) to assist them in resolving their differences. The mediator would either be working under a
personal service contract, or the organization under which the mediator(s)
operates would enter into a contract with the disputing parties. If the parties to the dispute successfully
settled their differences, the settlement agreement would be governed by civil
law principles concerning contracts and obligations.
It
is useful to identify three “pure” situations giving rise to mediations and
then analyze them within the context of Russian and Ukrainian civil law:
(1) The parties have no actual or implied contractual
relationship with each other, but as a consequence of one party’s action or
inaction, the other party suffers economic harm.[7] The parties agree to mediate their dispute
without the party that suffered the harm filing a claim in court.
(2) The parties have a dispute involving their contractual
relationship. Before seeking the resolution of this dispute with the assistance
of either a court or arbitral body, they agree to mediate it pursuant to: (i)
an existing mediation clause in the relevant contract, (ii) an amendment of
their existing contract to provide for mediation, (iii) a new agreement to
mediate.
(3) One or more parties have filed a claim with the
relevant arbitrazh court or arbitral body. At some time in the course of the proceeding, (after the
plaintiff has already paid the applicable state duty), the parties ask the
judge/arbitrator(s) to allow a recess to permit the mediation of the dispute.
In the first two cases, if
the mediation is successful and the parties conclude a settlement agreement,
such agreement will be binding for them.
Such agreement would be deemed to be either a new contract of obligation
(in the first case), or represent an amendment to or novation of an existing
contract (in the second case). If a
dispute arises out of the agreements produced by the parties as a consequence
of the mediation (i.e. a party does not fulfill its obligations under the
agreement resulting from the mediation), the adjudicator or arbitrator would
have the authority to undertake a de novo review of the relevant
agreement(s). Absent a violation of
applicable law, such agreement(s) should be enforceable according to its terms.
In
the third case, as is discussed below, if the parties enter into a settlement
agreement under the auspices of a court or arbitral body, such agreement would
be accorded the same status as a formal decision of the court or arbitral body. That is, the court or arbitral body would
not perform a de novo review of the agreement. Unfortunately, neither the RF nor Ukrainian Arbitrazh
Codes provide for a refund of the state duty paid to initiate a case where the
parties themselves enter into a court-approved settlement. This means that there may be less of an
economic incentive for parties to resolve their own disputes by mediation after
a claim has been filed with a court.
Still, the Codes grant the parties the right to distribute judicial
expenditures between themselves within the settlement agreement.[8]
The
instances where mediation results in the creation of a settlement agreement do
not present any special legal problems for the parties. Potential problems arise, however, if
efforts at mediation fail to achieve a settlement agreement. Unlike the American legal system, which has
written laws on mediation, detailed rules of evidence and well-developed case
law that protect the interests of parties that participate in the mediation
process,[9]
the Russian and Ukrainian legal systems do not. In contrast, the RF and Ukrainian Arbitrazh Procedure
Codes contain fairly cursory provisions defining evidence,[10]
its relevance[11] and
admissibility. The Codes seem to rely
on the view that judges are adequately trained to correctly weigh evidence.[12]
In
theory, parties to a mediation may agree in advance not to disclose to a judge,
arbitrator, or third parties information obtained during a mediation as well as
agree to limit their rights to call a mediator as a witness. Whether courts will uphold such contractual
obligations is uncertain. Risk-averse
parties may be unwilling to rely on contractual provisions for confidentiality
where the other party may gain significant advantage by disclosing facts
learned during an unsuccessful mediation.
Furthermore, information disclosed during the course of a mediation may
place a party at a competitive disadvantage in its future commercial dealings –
since information once revealed is difficult to control. [13]
Since
mediations are prospective in focus, in theory, a party can avoid disclosing
unfavorable “facts” to a mediator since such party does not have a “burden of
proof” to meet to convince a third party decision-maker (such as a judge or
arbitrator) that it should win the case.
Rather, the goal of mediation is for the parties to reach an agreement
on their future relations (which is likely to remedy a situation that arose in
the past). Unfortunately, it is often difficult for parties not to refer to
past events and past practices – and such references have potential value for
the other party.[14]
While
all the Codes contain references to the resolution of a claim pursuant to a
written settlement, none discuss a procedure to be followed to bring about such
an agreement. Both countries’ Arbitrazh
and Civil Procedure Codes provide that before a judge examines a case on the
merits, he should inquire of the parties whether they might want to settle
their dispute by means of a settlement agreement.[15] The parties have the right to conclude such
a settlement agreement at any time.[16] In the event the parties successfully enter
into a settlement agreement, the court is required to review it. The court will approve the settlement
agreement if it does not contradict applicable legislation or violate rights
and other legally protected interests of the parties.[17]
If the court approves the settlement agreement, it is incorporated into the
court’s decision and signed by the parties.[18] A settlement agreement approved by a court
has the same legal force as a court decision.[19] For this reason, it is critical that the
operative court document state explicitly that except as otherwise agreed by
the parties, information disclosed in the course of settlement negotiations is
confidential.
Similarly,
the Russian and Ukrainian Laws “On International Commercial Arbitration”,
Article 30, dated July 7, 1993 and February 24, 1994, envision an arbitral
panel accepting a settlement agreement reached by the parties as its own
decision, but does not compel the arbitral panel to attempt to reconcile the
parties.[20]
The
above discussion illustrates that the legal structure for conducting mediations
in Russia and Ukraine is partially formed.
Parties may seek to be bound by rules that are consistent with norms
found in recognized procedural rules on mediation or that reproduce concepts
found in the legislation of other countries that seek to promote the use of
mediation.
III. The Argentine and Alternative
Mediation Models
In
October 1995, Argentina, a civil law country like Russia and Ukraine, adopted a
Law on Mediation and Conciliation.[21] In part to alleviate the problem of court
overcrowding, Argentina provided for mandatory mediation of most cases. Once a case is filed in an Argentine court,
it is assigned to a mediator, and mediation is scheduled to begin within sixty
(60) days of the notification of the respondent and relevant third
parties. We outline below some features
of the law:
¨
Attendance of parties at
a mediation is mandatory and parties must be represented by an attorney. A party that fails to attend is subject to a
fine (Articles 10 and 11).
¨
Mediation proceedings
are confidential. The mediator has
discretion to hold joint or separate sessions with the parties (Article 11).
¨
If the parties enter
into a mediation agreement, it shall be signed by the mediator, the parties,
and their attorneys. Such agreement
shall be enforceable as if it were a court decision. If the parties are unable to settle their dispute, the mediator
shall issue a document to the parties allowing them to proceed with the claim
in a court (Articles 12 and 14).
¨
The Ministry of Justice
maintains a Register of Mediators consisting of persons who have a law degree
and other specialized training (Articles 15 and 16).
¨
Mediators must recuse
themselves from handling cases according to principles similar to those
requiring judges to decline to hear particular cases. Parties may request a new mediator to be assigned to the case if
they present a valid reason (Article 18).
¨
Mediators shall be compensated
according to a set schedule established by regulations promulgated by the
Ministry of Justice. If the mediation
is successful, the parties themselves will apportion among themselves the cost
of the mediator; if the mediation does not result in an agreement, the
mediator’s fee is paid out of a special state fund (Article 21).
The Argentine Law largely
assigns to the legal community a monopoly over the conduct of mediation. In Russia and Ukraine, where psychologists
and management consultants have taken the lead in promoting mediation, this may
not be appropriate.
As an
alternative to the Argentine model, Russia and Ukraine may want to consider a
voluntary approach to mediation. Such
an approach would require the amendment of the relevant Arbitrazh and
Civil Procedure Codes. Such amendments
might include provisions that:
n
Information disclosed to
a mediator or other party or received from a mediator in the course of a
mediation is confidential (though a law enforcement exception might be provided
to exempt information relating to illegal activity).
n A mediator should be immune from having to testify
before a court or administrative body about a case he has mediated (except in
the case where he has knowledge about illegal activity).
n A mediator should be required to accurately and fully
disclose to the parties his professional qualifications, experience and any
potential conflicts of interest he may have and be liable for incomplete or
misleading disclosures.
Overall, given the changing
legal and economic conditions in these countries and the likelihood that the
requirements for mediation will often depend on the subject being mediated,
Russia and Ukraine may wish to adopt a more flexible approach to structuring
mediation and allow the parties themselves to decide what they need.
IV. A Contractual Approach for Parties
to a Mediation to Follow in the Absence of An Appropriate Legal Framework
Until
Russia and Ukraine adapt their legislation formally to embrace the mediation
process, it is critical that parties contemplating the use of mediation outside
the framework of an on-going court case prepare an appropriate agreement to
mediate. At a minimum, such contract
should provide that:
n
all information and
materials disclosed to the mediator or the other party during the course of the
mediation shall be deemed to be confidential and shall not be used in any
manner by the parties or the mediator except in connection with the
mediation. Furthermore, at the conclusion
of the mediation, the mediator(s) shall destroy his notes and materials
received from the parties;
n
neither party will seek
to call the mediator as a witness in a court or administrative proceeding[22];
n
in the event that a
party violates either of the above points, such party shall pay a predetermined
monetary penalty (liquidated damages).
While it is not absolutely
certain that a Russian or Ukrainian court will enforce such provisions in a
mediation agreement, since parties generally have freedom to set the terms of
their contracts, there are strong legal arguments that the courts will enforce
such terms.
V. Future Issues to
Consider in Connection with Mediation
If mediation is to become a reliable tool for
resolving disputes, Russia and Ukraine will probably want to regulate mediators
and the process they use. This may
involve:
¨
requiring that mediators
undergo suitable professional training and possess licenses, as well as
adopting special rules allowing qualified foreign mediators to handle
international business and investment disputes. Alternatively, the state might license private bodies to organize
mediations, and such organizations would be entrusted with the responsibility
to conduct their own mediation training and ensure the qualification of their
mediators.
¨
establishing rules of
professional ethics for mediators; for example, to ensure that mediators do not
have direct or indirect interest in the outcome of matters that they are
mediating, and do not make personal use of information received in the course
of a mediation. Conceivably, such rules
could be adopted by private organizations themselves, assuming such
organizations are properly regulated.
* * *
* *
[1] This is the second of two articles on the resolution of commercial disputes in Russia and Ukraine. The authors wish to acknowledge the insightful comments of Igor Abramov, Special Advisor to the U.S. Department of Commerce International Trade Administration, on the earlier draft of this article, as well as his encouragement to explore the idea of making mediation a viable method of dispute resolution in Russia and Ukraine.
[2] Mediation is a process in which a third party (the mediator) seeks to assist two or more parties involved in a dispute to reach a voluntary, negotiated resolution of their differences, usually embodied in a formal written agreement. Mediation differs from adjudication and arbitration in that the mediator, unlike a judge or arbitrator, has no authority to impose a solution on the parties. Mediators seek to have parties to a dispute focus on their interests in resolving their differences rather than their declared positions. Successful mediations result in “win/win” solutions rather than “win/lose” outcomes produced by third party decision-makers such as judges and arbitrators. Advocates of mediation believe that it is not only more cost effective than other forms of dispute resolution, but that mediated solutions are superior since they are crafted by the disputing parties themselves.
[3] Readers are encouraged to visit the International Law Institute’s Web Site at www.ili.org/nis.htm to learn more about mediation in Russia and Ukraine and are invited to send their comments on this article and express their desire to learn more about the use of mediation to resolve commercial disputes in Russia and Ukraine by sending an e-mail message to nismed@ili.org or by fax in the United States to 1-202-822-1622, in Russia to 7-095-737-8963 or in Ukraine to 380-44-268-2427.
[5] Russia and Ukraine have two separate systems of courts: courts of general jurisdiction and commercial (arbitrazh) courts. Since we are primarily concerned here with the mediation of commercial and investment disputes, this article focuses on the rules applicable to the Russian and Ukrainian arbitrazh courts. Within Russia, mediation can be conducted under the rubric of a treteiskii sud (literally “third party court”) – traditionally, the term treteiskii sud covered both ad hoc arbitration as well as arbitration under the auspices of an established body. Article 10 of the Temporary Regulations on the Treteiskii Sud for the Resolution of Economic Disputes, approved by Supreme Soviet Decree No. 3115-1, dated June 24, 1992, as amended by Russian Federal Law “On the Introduction of Changes and Additions in Laws and Other Legal Acts of the Russian Federation in Connection with the Adoption of the Federal Constitutional Law ‘On Arbitrazh Courts in the Russian Federation’ and the RF Arbitrazh Procedure Code”, dated November 16, 1997, seem to grant parties to a dispute considerable discretion in determining the procedure for resolving their dispute. It reads: “[p]arties may according to their own discretion determine the procedure for the resolution of a dispute in a treteiskii sud, established for the examination of a concrete case. The treteiskii sud may determine the procedure for the resolution of the dispute, taking into account the present Regulations and the RF Arbitrazh Procedure Code in the absence of such an agreement”. The degree to which these Regulations may serve as the legal basis for mediation in Russia needs to be examined further.
[6] Typically, agreements to mediate include rules governing (i) disclosure of information to the mediator and the other parties, (ii) confidentiality of the proceeding, (iii) the role of the mediator (providing that the mediator is immune from having to testify in a future judicial or administrative proceeding or an arbitration, and (iv) admissibility of evidence in other proceedings.
Detailed model rules on these and related issues can be found in the Conciliation Rules of the United Nations Commission of International Law (the “UNCITRAL Rules”). Since the UNCITRAL Rules were developed by a United Nations body, they are more likely to win acceptance in countries without a long-standing practice of using mediation (conciliation) to resolve disputes. While the term “conciliation” is often used as a synonym for mediation, it sometimes describes a similar, though distinct, process. Generally, conciliation may differ from mediation because conciliators may offer their own proposed settlements to the parties, rather than helping the parties to develop their own. In any event, most formal rules on mediation (e.g. CPR Model Mediation Procedure for Business Disputes (revised 1994). and the American Arbitration Association’s Commercial Mediation Rules, (as amended and effective on January 1, 1992) also cover the following critical issues contained in the UNCITRAL Rules:
Article 10 – Disclosure of information – When the
conciliator receives factual information concerning the dispute from a party,
he discloses the substance of that information to the other party in order that
the other party may have the opportunity to present any explanation which he
considers appropriate. However, when a
party gives any information to the conciliator subject to a specific condition
that it be kept confidential, the conciliator does not disclose that
information to the other party.
Article 14 – Confidentiality – The conciliator and
the parties must keep confidential all matters relating to the conciliation
proceedings. Confidentiality extends to
the settlement agreement, except where its disclosure is necessary for purposes
of implementation and enforcement.
Article 19 – Role of Conciliator in other Proceedings
– The parties and conciliator undertake that the conciliator will not act as an
arbitrator or as a representative or counsel of a party in any arbitral or
judicial proceedings in respect of a dispute that is the subject of the
conciliation proceedings. The parties
also undertake that they will not present the conciliator as a witness in any
such proceeding.
Article 20 – Admissibility of Evidence in Other
Proceedings – The parties undertake not to rely on or introduce as evidence
in arbitral or judicial proceedings, whether or not such proceedings relate to
the dispute that is the subject of the conciliation proceedings :
(a) Views expressed or suggestions made by the other party
in respect of a possible settlement of the dispute;
(b) Admissions made by the other party in the course of
the conciliation proceedings;
(c) Proposals made by the conciliator;
(d) The fact that the other party indicated his
willingness to accept a proposal for settlement made by the conciliator.
[7] RF Civil Code (Part II), Chapter 59 – Obligations as a Consequence of Causing Harm; and Ukrainian Civil Code, Chapter 40 – Obligations Arising from Causing Harm.
[8] See RF Arbitrazh Procedure Code, Articles 90, 93, and 95; Ukrainian Arbitrazh Procedure Code, Article 47 and 49 . The size of the state duties can be significant – up to 5% of the amount of the claim -- though in Russia, as the amount at issue in the case increases, the percentage amount of the state duty decreases (see RF Law “On Introducing Changes and Additions to RF Law “On the State Duty”, dated December 31, 1995, as amended, and Cabinet of Ministers of Ukraine Decree No 793, “On the State Duty”, dated January 21, 1993.
[9] The
Federal Rules of Evidence (as well as their counterparts at the state level)
contain rules that promote the resolution of cases outside the court system,
the most important of which is Rule 408 – Compromise or Offers to
Compromise. It provides generally that
“[e]vidence of (1) furnishing or offering or promising to furnish, or (2)
accepting or offering or promising to accept, a valuable consideration in
compromising or attempting to compromise a claim which was disputed as to
either validity or amount, is not admissible to prove liability for or
invalidity of the claim or its amount.
Evidence of conduct or statements made in compromise negotiations is
likewise not admissible.” As a result of this rule, a party can make an offer
to settle without undermining its position if the case goes on to trial. Nevertheless, it is worth noting that unlike
certain states, there is no blanket mediation privilege in U.S. federal courts
nor any requirement that U.S. federal judges enforce mediation confidentiality
agreements (although most probably would).
This situation does not seem to have an inhibiting effect on the use of
success of mediation of federal court cases in the U.S. The fact that most experienced mediators
usually destroy their notes at the conclusion of a mediation may also have an
impact here.
[10] See Article 52 of the RF Arbitrazh Procedure Code – Concept and Types of Evidence and Article 32 of the Ukrainian Arbitrazh Procedure Code --- Concept and Types of Evidence. Since the wording of these two articles is so similar, we only provide the text of the RF Arbitrazh Procedure Code’s Article 52 below:
“1. Evidence for a case is information which is received in accordance with the procedure envisioned by the present Code and other federal laws, on the basis of which an arbitrazh court shall establish the presence or absence of circumstances justifying claims or objections of persons participating in a case, as well as other circumstances having significance for the proper resolution of a dispute.
The information shall be established by written and physical evidence, conclusions of experts, statements of witnesses and explanations of persons participating in the case.
2. The use of evidence received in violation of federal law shall not be allowed.”
[11] Article 56 of the RF Arbitrazh Procedure Code - Relevance of Evidence, and Article 34 of the Ukrainian Arbitrazh Procedure Code – Relevance and Admissibility of Evidence provide: “an arbitrazh court shall accept only that evidence which has a relationship to the examined matter.”
[12] Article 59 of the RF Arbitrazh Procedure Code and Article 43 of the Ukrainian Arbitrazh Procedure Code provide:
“1. The arbitrazh court shall assess evidence according to its own internal convictions based on a detailed, full and objective investigation of evidence in the case.
2. No evidence has earlier-established [binding] force for the arbitrazh court.”
[13] It is worth noticing that both the RF Criminal Procedure Code, Article 183, and the Ukrainian Criminal Code, Article 148-7, treat the illegal receipt and disclosure of commercial information as a criminal offense. Typically, such offenses occur within the context of an employment relationship and it is not clear that a Russian or Ukrainian court would be willing to impose sanctions for revealing information obtained in the course of a mediation from an adversary.
[14] Under the U.S. Federal Rules of Evidence, remedial actions are not admissible as evidence (Rule 407). A party’s willingness in a mediation to undertake remedial action (cure a contract breach, fix a hazard, etc.) can often have an important psychological effect by demonstrating to the other party a good faith desire to settle a given matter. Unfortunately, Russian and Ukrainian legislation does not contain an analogous rule, making it less likely that parties engaged in a dispute in these countries will want to make an initial concession in the hope of advancing the negotiations.
[15] RF Arbitrazh Procedure Code, Article 112, Russian Civil Procedure Code, Article 164, Ukrainian Arbitrazh Procedure Code, Article 73, and Ukrainian Civil Procedure Code, Article 178. Of the four Codes, it appears that the Russian Arbitrazh Procedure Code requires a judge to adopt measures aimed at reconciling the parties at an earlier stage than the other Codes.
[16] See RF Arbitrazh Procedure Code, Articles 37 and 121 and Ukrainian Arbitrazh Procedure Code, Article 80.
[17] See Russian Arbitrazh Procedure Code, Article 37 and 85, Ukrainian Arbitrazh Procedure Code, Article 73; see also RF Civil Code, Article 9(2) that provides “the waiver by citizens and legal entities of the effectuation of rights belonging to them does not entail the termination of these rights, with the exception of cases envisioned by law.”
[18] RF Arbitrazh Procedure Code, Article 37 and 85, Ukrainian Arbitrazh Procedure Code, Article 84.
[19] The RF and Ukrainian Arbitrazh Procedure Codes envision the following grounds for appeal of such a decision: (i) incomplete investigation of relevant circumstances; (ii) lack of proof of relevant circumstances which the arbitrazh court considered proved; (iii) divergence of the conclusions stated in the decision from the relevant circumstances; (iv) violation or improper use of norms of business law or norms of procedural law.
[20] Both Laws
are based on the UNCITRAL Model Law.
Article 30 of both laws contains identical language:
“If
in the course of an arbitration proceeding the parties resolve the dispute, the
arbitral tribunal shall terminate the proceeding and upon the request of the
parties and in the absence of objections from any of the parties, shall fix
this resolution in the form of an arbitration decision on the agreed upon
conditions.
The
arbitration decision on the agreed upon conditions must be introduced in
accordance with the provisions of Article 31 and must contain indications that
it is an arbitration decision. Such
arbitration decision has the same force and is subject to enforcement in the
same manner as any other arbitration decision on the subject of the dispute.”
[21] Argentine Law No. 24.537 “Mediation and Conciliation”, promulgated October 25, 1995.
[22] In case such mediator is an attorney, the parties need to provide in their agreement to mediate that they do not see this situation as a conflict of interest.