Editor's Note: The Third Seminar of the International Commercial Expert Committee of the Supreme People's Court and Reappointment Ceremony of the First Group of Expert Members was held successfully on Augest 25, 2022. Over 40 experts from more than 20 countries and regions focused on the theme of the Development, Challenges and Countermeasures of Cross-Border Commercial Disputes during the seminar. Extensive and in-depth discussions were held within the framework of four specific issues. The texts of speeches delivered by the participants would be posted on the CICC's website. 

THE INTERFACE BETWEEN LITIGATION AND MEDIATION IN THE "ONE-STOP" DISPUTE RESOLUTION MECHANISM

Du Xinli

Professor of International Law School of China University of Political Science and Law, 

Deputy Chairman of Chinese Society of Private International Law

There are three methods of international commercial dispute resolution: mediation, arbitration and litigation, which can be used to resolve disputes individually or in combination. The model of integrated dispute resolution, known as the Alternative Dispute Resolution (ADR) featuring a variety of hybridized approaches, is the "One-Stop" dispute resolution mechanism advocated by the International Commercial Court. The International Commercial Court has offered an articulated platform for dispute resolution as one of its functions. Where parties have brought the disputes to the International Commercial Court, the court may, upon approval by the parties, entrust members of the International Commercial Expert Committee or an international commercial mediation institution with the mediation work. If the parties in dispute conclude a settlement agreement, the court may prepare a mediation statement after judicial confirmation; and if the parties require the issuance of a judgment, the court may, based on the settlement agreement, prepare a judgment. The interface between mediation and litigation is a court-led mechanism with multi-subject participation, making meditative interaction with litigation as well as bridging judicial and social mediation.

I. Nature of Entrusted Mediation

Entrusted mediation is the procedural interface between litigation and mediation. The entrusted mediation in the "One-Stop" mechanism of the International Commercial Court is a post-filing mediation. It shall be characterized as a mediation before court for its procedure can be regarded as a part of litigation process and case management is still in the hands of the court. The judge may, in accordance with the content of the settlement agreement, directly issue a mediation statement with the same effect as a judgment, which serves as the manifestation of exercising the state's jurisdiction. In the legal relationship of mandate, the mandatory shall handle affairs in the name of the mandator. When it comes to entrusted mediation, the civil mediation institution (as the mandatory) presides over the mediation proceeding but in the name of the court (as the mandator). The court shall therefore be deemed as the actual mediator, and the civil mediation institution merely mediates in place of the court. Once a mediation agreement has been reached, the court may guarantee it by directly preparing a mediation statement.[1] From the side, it is reflected that the mediation agreement reached through the entrusted mediation after filing caseand mediation in litigation have the same legal effect. Therefore, the post-filing entrusted mediation shall be defined as the mediation before court.

II. Initiation of Entrusted Mediation Procedure

The initiation of entrusted mediation lies in the ex officio entrustment of disputes by the court in pursuit of case diversion. There is then an endless controversy over whether the ex officio entrusted mediation is justified and whether it departs from the basic idea of voluntary mediation. However, mandatory mediation has become an inevitable trend in the development of mediation throughout the world, and it seems that the real question is not whether but how to make it mandatory.[2] In fact, the mandatory nature of the initiation is not supposed to be transferred to the outcome; the two are clearly separated. In the course of entrusted mediation, the forced participation is not final and does not lead to an enforceable settlement. The right to terminate entrusted mediation of the parties is full and not subject to any conditions. Once the entrusted mediation fails, it will automatically get the process back to the litigation procedural stage and make the case returned to the judge without any impediment. Clearly, there is no substantial infringement of the parties' right of action.

III. Enforcement Interface between Litigation and Mediation: Judicial Confirmation of Mediation Agreements

The procedural purpose of the entrusted mediation is to promote the efficiency of resolving disputes. Entrusted mediation in essence is one of the measures which have mobilized social resources to facilitate dispute resolution in the way that the court entrusts a case to civil mediation institutions for settlement. In this procedure, the court plays a role as the mandator, while the civil mediation institutions are the mandatory, and the dispute between the parties is the entrusted object. According to the principle of entrustment, the civil mediation institution is engaged in mediation in the name of the court, and it is legitimate for the court to judicially confirm the settlement agreement resulting from entrusted mediation. If it does not have the court guaranteeing the legal effect of the settlement agreement, the parties will not choose to adopt this procedure, which is a consideration particularly prominent in international commercial exchanges. It is the flexible and autonomous nature of the International Commercial Court's mediation mechanism and the court's overall arrangements and safeguards for the mediation process that are key considerations for parties choosing to get their disputes settled in China. Therefore, judicial confirmation of settlement agreements is legitimate in jurisprudence, meanwhile reasonable and necessary in practice.

IV. Safeguards for the Interface Between Litigation and Mediation

Settlement agreements are reached on the basis of negotiations between the parties concerned, and the content of the agreements fully reflects autonomy, making the rate of performance thereof by parties on their own motions relatively high. However, the existence of defaulters in society is inevitable. Where the parties fail to actively fulfill the obligations under the agreement, the value of the mediation will be greatly impaired. Therefore, parties who opt for the mediation expect the settlement agreement resulting from mediation to be legally effective and to have relevant institutional measures to guarantee its enforceability.

(1) Settlement Agreement shall include the basic elements of a contract in order to be valid.A valid settlement agreement in commercial disputes is the result of the parties' consensus, whereby the parties agree to establish, modify or terminate the civil rights and obligations on an equal and voluntary basis. Therefore, a commercial settlement agreement is to some extent equivalent to a contract, and shall have the identical elements of validity to that of a general contract. Specifically, in a commercial settlement agreement, the signing parties shall have full civil capacity; the issues agreed upon are true expressions of the parties' intentions; the content is not contrary and harmful to the public interest as well as the interests of any third parties; and the subject matter thereof has certainty and possibility of being performed. Once the settlement agreement is validly established, the parties shall be bound thereby.

(2) The court has the right to supervise commercial settlement agreements. Once a settlement agreement has been judicially confirmed by the court, the obligee may apply directly to the court for enforcement where the other party refuses to perform the agreement. Such actions are either positive or negative confirmation actions, in which the court's function is to confirm the validity of the commercial settlement agreement. In this way, the court grants enforcement to the settlement agreement and reserves the right to supervise. 

(3) Enforcement guarantees for commercial settlement agreements shall be established. Enforcement guarantee refers to the guarantee provided to the people's court by the party against whom enforcement is sought requesting a suspension of execution during the enforcement procedure, which is based on the Civil Procedure Law of China. Therefore, guarantees in respect of settlement agreements and enforcement have different legal effects. Where there is enforcement guarantee in settlement agreements, if the principal debtor identified in the mediation statement fails to perform obligations, the creditor may apply to enforce the guarantor's property directly on the basis of the mediation statement, without the need for further litigation. After settlement agreements are given enforceability, it is particularly important to establish enforcement guarantees accordingly. The reason is that in practice there is the phenomenon that some enterprises, after signing commercial contracts, are temporarily unable to pay their debts due to broken capital chains, etc., and enforcement against their property at this time will plunge them into a state of business distress or bankruptcy, making things even worse. It is detrimental to the parties concerned and does no good to optimization of the international business environment. Due to a temporary lack of performance capacity, parties to agreements who have difficulties in satisfying debts may provide the debtor with a guarantee or third-party guarantee to timely fulfill settlement agreements, getting an opportunity to get out of the predicament.

[1] Several Opinions On Establishing and Improving the Dispute Resolution Mechanism Between Litigation and Non-litigationArticle 15: Upon the consent of both parties or when the people’s court deems necessary, the people’s court may, after docketing a case, authorize an administrative organ, a people’s mediation organization, a commercial mediation organization, an industrial mediation organization or any other organization with the mediation function to assist in the mediation of the civil case. The parties may select the relevant organ or organization through consultation or request a determination by the people’s court. After the completion of mediation, the relevant organ or organization shall notify the people’s court of the mediation results. If a mediation agreement is reached, the parties may apply for dropping the lawsuit or for judicial confirmation, or the people’s court may make a mediation record after examination. If the mediation fails, the people’s court shall timely try the case.

[2] Naja Alexander: Global Trends in Mediation, translated by Wang Fuhua, China legal Publishing House, 2011, pp. 234-235.

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*The original text is Chinese and has been translated into English for reference only. If there is any inconsistency or ambiguity between the Chinese version and the English version, the Chinese version shall prevail.