Mediation is the answer to business disputes

01.15.2018 [0]

Ivars Mēkons,
SUCCESS Specialized Advisory Services

Note. By mediation here we understand any process when disputing parties involve a neutral advisor to suggest them a settlement. Formally, that process may be called mediation, conciliation, mini-trial appraisal, executive appraisal, neutral listener arrangements, early neutral evaluation, expert evaluation, or by any other proper name.

Honestly, what is the first response when mediation is proposed in case of a business dispute? Quite far from being a serious and firm trust. In essence, this resembles the dominating global attitude towards resolving business discrepancies – litigation and arbitration is seen as the only proper means. While, seemingly, businesses get at least even in this way, in reality they may lose splendidly. How can it be so?

The primary reason is that business is ruled by market rules and human psychology rather than just formal adherence to legal rules. You may win spectacularly at courts of law, but your business may just disappear because competitors win over your clients. Table below compares the results between using mediation and litigation or arbitration.

Arbitration and Litigation Mediation
Focus Concrete interests Long term interests
Claim Concrete demands Concrete demands are put into the context of long term interests
Time Years Months
Legal and associated costs X (in substantial disputes, lawyers fees alone may amount to millions of USD) A fracture of X
Ability to continue contended business aspects Halted, as the matter is being decided by the courts Free – the parties are eager to find an interim solution while settlement process is pending
Expectations The parties are at the whim of what the judicial panel sees as proper Completely determined by the parties themselves
Outcome Claims rarely awarded in full, a typical result – a fracture only awarded Mediation solution results into a binding agreement
In investment disputes State's action perceived as a typical adversary behavior Tendency of seeking amicable solutions creates a stable and attractive investment environment

Litigation and arbitration is like a “get rich quick” scheme with alluring exterior but decaying substance, while mediation serves to encourage and aid constant growth. Sure, mediation, as well as negotiations, involves much effort and creativity, but – this is what underlies business.

Success of mediation is a real world example. Since 2004, the State Chancellery of the Republic of Latvia – an institution entrusted to advise the Government and the Prime Minister of Latvia - has managed to resolve all major investment discrepancies between State institutions and foreign investors. The average amount of the dispute is 200 million EUR. This has ensured that foreign investors gain credence in the State`s investment policy, particularly, its readiness to sit at the discussion table, if the matter so requires in order to preserve long term cooperation. As a reward, the State has avoided lengthy, expensive and unpredictable international arbitrations.

To foster the use of mediation, there is a need to ensure that key decision makers in businesses or State organizations are convinced of its usefulness. Here, the major international business associations, such as the International Chamber of Commerce, and major law firms have the most important say, because it is to these venues that the key decision makers decide to approach in hope of protection of interests. Advise to resort to mediation would well correspond with the guiding principles of these business associations or law firms.

From legal point of view, mediation is always possible because it is part of the negotiations, or more broadly, amicable settlement process – the process available always. It is advisable that the parties conclude in advance, among themselves an agreement to abide by the outcome proposed by the mediator or mediation panel.

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