Mediation: An alternative dispute resolution mechanism under BRI

OVER time, Malaysia and China have engaged in more cross-border commercial transactions. In 2009, Malaysia goods exports to China were worth US$19.1bil (RM83.6bil) and has since increased to US$23.8bil (RM104.2bil) in 2016 and US$37.8bil (RM165.4bil) in 2020.

On the other hand, the imports of goods from China by Malaysia reported an increase from US$17.2bil (RM75.3) in 2009 to US$34.3bil (RM150.1bil) and US$40.8bil (RM178.5bil) in 2016 and 2020, respectively (Data Source: UN Statistic Division).

While these cross-border commercial transactions benefit both countries’ businesses, the possibility of disputes is unavoidable. In concluding cross-border transactions, one of the key concerns of businesses is the method of dispute resolution.

In negotiating a cross-border contract, parties may find it challenging to reach a consensus on deciding which country’s court’s jurisdiction should parties submit to when there is a dispute.

In most cases, for the sake of the contract, one party will give in and agree to submit to the other party’s court jurisdiction. This is usually not out of will but compromise for business continuity, hoping that there will be no dispute arising out of the agreement at a later time.

Thus, unlike a trade between two parties from the same country, the conventional way of settling disputes by referring to the court of a specific country is not the best option to resolve a dispute in a cross-border transaction.

Referring a cross-border trade dispute to a specific country’s court will result in one party perceived to have “home-court” advantage and the other party feeling prejudiced.

This will still be the case despite prior agreement on court jurisdiction by both contracting parties. When a dispute arises, if the court jurisdiction pre-agreed is in the defendant’s home country, the claimant(s) will likely regret their earlier decision.

To counter the pitfalls in most cross-border transaction agreements, parties generally opt to have a “non-exclusive” court jurisdiction clause rather than an exclusive jurisdiction.

As a result, the claimant may commence a legal suit in its home country rather than the court jurisdiction as stated in the agreement due to the non-exclusive clause.

However, such a suit may be challenged by the defendant relying on the principle of "forum non conveniens" (that is whether the court where the claimant institutes an action has the appropriate jurisdiction to inquire into and determine the issues in a dispute between the parties).

Thus, considering the above and other inherent issues with court proceedings such as that it is time-consuming, the high cost incurred, the damage to parties’ reputation and tarnishing parties’ relationships, resorting to a court to resolve disputes in cross-border commercial transactions is never the best option.

In settling a dispute, mediation is deemed a suitable alternative as it is a harmonious way of resolving conflict between parties.

In a mediation process, parties reach a settlement based on the parties’ free will.

As parties in a cross-border commercial transaction would most likely seek a win-win situation, whereby trading relationships are intact and the pitfalls of court proceedings could be overcome, mediation would be the best dispute resolution mechanism in a cross-border commercial transaction.

Under the Belt and Road Initiative, the Malaysia-China Business Mediation Centre (MCBMC) was established to promote and encourage the use of mediation for any disputes arising from the participating countries.

It was jointly established in September 2017 by the Malaysian Bar Council and the Mediation Centre of China Council for the Promotion of International Trade (CCPIT) together with the China Chamber of International Commerce (CCOIC) through the Memorandum of Understanding and Cooperation Agreement.

The MCBMC Secretariats are situated in two locations, Kuala Lumpur, Malaysia, and another in Beijing, China.

While MCBMC has been in existence since 2017, there is still low awareness of this avenue. Thus, not many disputes have been referred to MCBMC for resolution since it started operations.

A review of the Rules of the MCBMC (“the MCBMC Rules”) revealed that the applicability of the MCBMC Rules is not limited to Belt and Road Initiative-related transactions.

As long as both parties agree, disputes may be referred to MCBMC for resolution.

The mediation proceeding under the MCBMC Rules is suitable for a dispute in a cross-border commercial transaction as it provides the parties flexibility on the choice of location. According to Rule 6.1 of the MCBMC Rules, the venue could be either in Kuala Lumpur, Beijing, or any other location agreed upon between the disputing parties and consented by the mediator.

Furthermore, there is no need for legal representations as the disputing parties are free to engage the assistance of counsel or consultants.

Most importantly, according to Rule 8.2.2 of the MCBMC Rules, a settlement will be recorded in writing and has the effect of an arbitral award in accordance with Section 33 of Malaysia's Arbitration Act 2005.

In other words, the settlement is final and binding between the parties and is enforceable against the other party.

The time has come for businesses involved in cross-border commercial transactions to consider mediation as a dispute resolution mechanism.

In August 2019, 46 countries (including the United States of America, China, India and Malaysia) signed the United Nations Convention on Enforcement of International Mediation Settlement Agreement.

The Convention came into force in September 2020 after being ratified by six countries. It is expected that more countries will soon ratify this Convention and mediation will be elevated as “the mechanism” to resolve disputes in a cross-border commercial transaction.

LAI CHOOI LING is a lecturer at Tunku Abdul Rahman University College (TAR UC). The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and the Centre of Business and Policy Research, Tunku Abdul Rahman University College (TAR UC), and co-organised by the Association of Belt and Road Malaysia.