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Should You Use Alternative Dispute Resolution?

Author: Dr Dheeraj Bhar

Should You Use Alternative Dispute Resolution?

Courts provide a nonviolent forum for resolving disputes, but litigation can be expensive and the outcome is often uncertain. There are times when it is best to settle a dispute before legal action is filed in court. Even after a case is commenced in court, a negotiated settlement can be preferable to leaving your fate in the hands of a judge who does not know you. On the other hand, there are times when it makes sense to proceed with litigation rather than spending time and money on alternatives that might prove fruitless.

Alternative Dispute Resolution, or ADR, is the name given to a variety of techniques that are used to settle or resolve disputes without a trial. The two most commonly used in Malaysia are mediation and arbitration. Disputes in certain industries can also be resolved using a specialized tribunal that combines features of mediation and arbitration. There are several advantages[1] to resolving a dispute through ADR, including:

• Courts decide disputes but do not necessarily resolve them. ADR allows parties to be more creative than a court can be in fashioning remedies or resolutions.
• Results of ADR can usually be kept confidential, while most court proceedings take place in a public forum.
• ADR allows you to keep control of your case rather than surrendering control and leaving the ultimate decision to a judge.
• Some forms of ADR, particularly mediation, can be considerably less costly than litigation.
• Disputes can usually be resolved more quickly through ADR than through litigation.
• ADR allows parties to discuss and confront cultural and emotional issues that may be at the heart of the problem but would probably be deemed irrelevant in a trial.

Whether ADR should be used in any particular case depends upon the willingness of the parties to make a good faith effort to settle their disputes and upon the nature of the ADR process. As a general rule, parties have little to lose by participating in mediation. Arbitration, on the other hand, can be just as costly and time-consuming as a trial while imposing requirements that a party might find disadvantageous.

Mediation

Mediation is usually the easiest and least expensive form of dispute resolution. According to the Asian Mediation Association, mediation is an indispensable part of Islamic faith and “is represented by the word shafa’a (meaning intercession and equality, or to even up).”[2] It is reflected in Hindu scriptures, is compatible with the Confucian ideal of harmony, and is consistent with other religious teachings that value the peaceful and fair settlement of disagreements.

The Malaysian Mediation Centre,[3] a member of the Asian Mediation Association, was established by the Bar Council to provide the services of trained mediators as a dispute resolution tool. Parties to litigation may request mediation and choose a mediator from a panel. The mediators are all experienced attorneys. If the parties cannot agree upon a mediator, the Chair will appoint one. Parties sign a mediation agreement that provides for the confidentiality of the proceedings. A fee for mediation services is based on the size of the claim. Court-assisted mediation appears to be a successful means of resolving disputes in about half the cases in which mediation is attempted.[4] In addition to the Mediation Centre in Kuala Lumpur, Mediation Centres have been opened in Johor Bahru, and Selangor.[5]

Mediation is encouraged by the courts and required by certain legislation. The Industrial Relations Act 1967 authorizes the Director General to encourage settlement of trade disputes,[6] including disputes involving the dismissal of a workman.[7] Mediation is commonly used to resolve those disputes. The Law Reform (Marriage and Divorce) Act 1976 generally prohibits a spouse from petitioning for divorce until attempts to resolve marital disputes have been submitted to a conciliatory body.[8]

Since mediation provides a benefit to courts by reducing the workload of judges if cases settle before trial, there is reason to believe that mediation will at some point be mandated in all civil cases. At present, the Mediation Act 2012 merely facilitates mediation by specifying a process that allows one party to a dispute to invite another party to participate in mediation.[9] The mediation process may be initiated before or after the commencement of litigation and it acts as neither a stay of pending litigation nor a barrier to initiating litigation.[10] It is a law without any teeth in the sense that it merely describes what mediation has long been understood to be but does not compel its use in any proceeding. An invitation to participate in mediation can be accepted but it can also be rejected or ignored. The Act does achieve the laudable goals of protecting the confidentiality of mediation, protecting mediators from liability, and creating a process to turn settlement agreements into consent judgments. Unfortunately, it does not do much else to further the process of mediation or to ease court backlogs.

Mediation Tribunals and Bureaus

A hybrid of mediation and arbitration is available to resolve disputes in certain Malaysian industries. Mediation services were initially established to resolve customer disputes with providers of insurance and banking services. They were subsequently expanded to include housing issues and consumer complaints. While the services that address these disputes refer to the process as “mediation,” the tribunals and bureaus take on a larger investigative role than is traditional in mediation. The mediator also plays the role of judge in the sense that the mediator can generally make an award to the consumer in order to resolve the dispute. The business is bound by the mediator’s decision but the consumer is free to reject it and pursue litigation if the award is unsatisfactory. These services are generally available only prior to the commencement of litigation. The nature of the complaints they are authorized to consider and the remedies they can offer is limited, making them more useful for small claims than for large ones.

Mediation services cover four industries in Malaysia:

• The Financial Mediation Bureau, created in 2005 to replace the Insurance Mediation Bureau (established in 1991), provides mediation services to resolve disputes between policyholders and Malaysian insurance companies that belong to the Persatuan Insurans AM, as well as those that are members of the Financial Mediation Bureau. A policyholder who believes an insurance claim has been unjustly denied and who has not commenced legal proceedings may file a complaint with the Financial Mediation Bureau within 6 months after the final denial of a claim by senior management within the insurance company. The consumer may accept or reject a decision of the mediator. If the consumer accepts a decision that requires payment of money, the insurance company must pay that amount. The amount of money that a mediator may award is limited. If the consumer rejects the mediator’s decision, the consumer is free to pursue other remedies. [11]
• The Financial Mediation Bureau also replaced the Banking Mediation Bureau, initially established by the Bank Negara Malaysia, the nation’s central bank. All financial service providers that are regulated by Bank Negara Malaysia, including commercial and Islamic banks, investment banks, and card issuers, must participate in the mediation process. Claims may be made for certain kinds of financial loss (generally involving mistakes made by the institution) and are subject to a monetary limit. Decisions involving the denial of credit and fraud cases that do not involve cheques, credit cards, or ATM cards are excluded. Any award made by the mediator is binding on the financial institution but not on the customer, who is free to reject it and pursue other remedies.[12]
• The Tribunal for Homebuyer’s Claim was originally established as the Housing Buyer’s Tribunal by the Ministry of Housing (now the Ministry of Urban Wellbeing, Housing, and Local Government). It has jurisdiction over disputes between homebuyers and licensed housing developers in Peninsular Malaysia. Claims can be made for breach of the terms of a purchase agreement, including late delivery of the premises and defective workmanship or materials used in the construction of the property. Claims are limited to RM50,000 unless the parties agree to a higher limit. The homebuyer may enforce an award in court or through criminal proceedings.[13]
• The Tribunal for Consumer Claims was established pursuant to the Consumer Protection Act 1999. It is operated by the Ministry of Domestic Trade, Co-operatives and Consumerism. The Tribunal is empowered to hear claims, not exceeding RM25,000, that pertain to financial losses suffered by a consumer resulting from misrepresentations, false advertising, misleading statements, non-delivery of goods after payment is made, the offer of prizes that are never awarded, the sale of unsafe or defective products, the refusal to honor warranties, and similar misconduct. The Tribunal cannot consider disputes involving personal injury or death, title or interests in land or franchises, wills, intellectual property, and certain other claims that do not involve consumer transactions. A “consumer” is a person who acquires good or services for domestic or household use or consumption.[14]

Arbitration

Arbitration differs from mediation in key respects. While mediation uses a third party to facilitate negotiation of a settlement, arbitration uses a third party as a decision-maker. Where mediation is conciliatory, arbitration is adversarial. The arbitrator essentially plays the role of a judge in adjudicating the merits of a legal dispute and in fashioning a remedy. In the case of “binding” arbitration, the parties must accept the arbitrator’s decision. The procedures used in arbitration are often similar to the procedures used in court, although the parties are usually free to agree upon the specific rules of procedure that will govern the arbitration.

Arbitration is often specified in contracts as the dispute resolution procedure that will apply to claims that the contract has been breached. When parties enter into an arbitration agreement (either as a clause in a contract or as a separate agreement), disputes that fall within the subject matter of the agreement are resolved using the procedures specified in the Arbitration Act 2005.[15] The Act specifies that courts shall not intervene in matters that are subject to arbitration.[16] When a party commences a lawsuit that addresses a subject that is covered by an arbitration agreement, the court must stay the judicial proceedings to allow arbitration to occur unless the court determines that the agreement is not valid or enforceable.[17] Arbitrators are permitted to rule on their own jurisdiction; that is, they can decide whether a dispute submitted for arbitration falls within the terms of the arbitration agreement.[18] The Act permits the High Court to set aside arbitration awards under limited circumstances, including misconduct, invalidity of the arbitration agreement, inapplicability of the agreement to the dispute that was decided, and when arbitration is contrary to public policy.[19]

The Act distinguishes between international and domestic arbitrations. Parties to an international arbitration need to “opt in” to a section of the Act that authorizes the High Court to rule on certain points of law if they want those provisions to apply. Those provisions of the Act apply automatically in domestic arbitrations unless the parties “opt out” of them.

The Kuala Lumpur Regional Centre for Arbitration[20] is the resource most often used to facilitate arbitration in Malaysia. It provides panels of trained arbitrators and has established standardized arbitration rules as well as “fast track” rules and Shariah-complaint rules.

There are advantages and disadvantages to arbitration. Whether arbitration is right for you depends on your situation. Litigation is usually more time-consuming than arbitration, in part because courts often have a backlog of cases awaiting trial. If you want a quick result, you will probably benefit from arbitration. If a delayed outcome will benefit you, litigation might be more to your liking.

Litigation tends to be more expensive than arbitration, although arbitration can be an costly process. The objectivity of an arbitrator is more likely to be questioned than the impartiality of a judge. Some people feel that the consistent use of arbitration by a particular business results in favorable decisions for that business, since arbitrators and arbitration services need to be hired to earn an income. In addition, a mistake made in a judicial proceeding can be corrected on appeal, while parties must usually live with the mistakes made by an arbitrator.

The rules of procedure and evidence that apply to arbitrations tend to be simplified, making them easier to understand. At the same time, those rules might be less favorable to one party or the other than would be the rules that apply in court. If privacy is important, the parties can agree to keep the outcome of an arbitration confidential. It is generally not possible to keep litigation confidential since the process takes place in a public forum.

In short, mediation is generally a beneficial ADR technique and parties to a dispute rarely have anything to lose by giving it a try. Before entering into an arbitration agreement, however, parties need to consider whether they are likely to attain a better result through litigation.

[1] Anne Susskind, Mediation Preferred, Any Day, The Malaysian Bar (Sept 14, 2011), available at http://www.malaysianbar.org.my/legal/general_news/mediation_preferred_any_day.html.

[2] Malaysian Mediation Centre, Asian Mediation Association, available at http://www.asianmediationassociation.org/node/15.

[3] Malaysian Mediation Centre, available at http://www.malaysianbar.org.my/malaysian_mediation_centre_mmc.html.

[4] Jennifer Gomez, Mediation Relief for Courts, New Straits Times (Aug 26, 2011), available at http://www.malaysianbar.org.my/legal/general_news/mediation_relief_for_courts.html.

[5] Mediation Can Help Court Reduce Case Backlog, New Straits Times (Feb 28, 2014), available at http://www.nst.com.my/latest/mediation-can-help-court-reduce-case-backlog-1.495150.

[6] Laws of Malaysia, Act 177 § 18.

[7] Id. § 20.

[8] Laws of Malaysia, Act 164, § 106.

[9] Laws of Malaysia, Act 749, § 5.

[10] Id. § 4.

[11] Resolving Disputes Through Mediation, Persatuan Insurans AM Malaysia, available at http://www.piam.org.my/consumer/c007.htm.

[12] About Mediation, Financial Mediation Bureau, available at http://www.fmb.org.my/pc02.about.mediation.htm.

[13] FAQ, Tribunal for Homebuyers Claims Malaysia, available at http://www.kpkt.gov.my/kpkt_bi_2013/index.php/pages/view/370.

[14] Type of Claims, Tribunal for Consumer Claims Malaysia, available at http://ttpm.kpdnkk.gov.my/portal/index.php/en/claims/type-of-claims.

[15] Laws of Malaysia, Act 646. The Act applies to all arbitrations commenced after March 14, 2006. Arbitrations commenced before that date were governed by the Arbitration Act 1952.

[16] Id. § 8.

[17] Id. § 10.

[18] Id. § 18.

[19] Id. § 37.

[20] The KLRCA’s website can be accessed at http://klrca.org.my/.