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Business mediation during commercial disagreements

Mediation finds useful realization during commercial disagreements. The practice confirms that mediation is most useful in cases with financial claims.

Taking commercial conflicts to the courtroom doesn’t work well for the businessmen. The reasons are the high spending costs during the trial, the lack of expectation from the justice institutions, lack of confidentiality, delay of the decision, hurting reputation and general worsening of the business relations.

Most companies are dealing with bad strategies when facing conflicts and crises. Underestimation of the preferences of clients, partners, employees, providers or the sense towards those preferences is wrong. The first thought is to start a public trial without researching other ways of solving the issue.

The business “works” with making promises for performance of duties and commitments. These promises are written or oral, as the parties rely on one another that each of them will keep the agreement. But when there is break of the contract or ambiguity – a dispute arises. These disputes can be costly.

Typically, the parties hire lawyers and start negotiations that may or may not have a successful outcome.

When no agreement is reached, a claim is taken to the competent court.  Such proceedings cause several major inconveniences for business:

• The relevant parties lose control. Lawyers and judges are the “masters” of time and procedure, and the process can take years.

• The parties lose the ability to communicate with one another. Relationships between them are destroyed.

• Costs – lost time, paid court fees, lawyer fees.

So engrossed in conflict, parties may lose their positions in business.                           

International Practices in Mediation in Commercial Disputes

One of the most cost-effective, quick and comprehensive ways to resolve a business / trade dispute is mediation. It is widely used in economic relations because of its good regulatory framework and the success rate of over 80% according to the World Mediation Forum (WMF) and the World Trade Organization (WTO).

Mediation as a way of out-of-court settlement of commercial disputes has a tradition. For its effectiveness, the fact is that in a number of states of the United States, in certain categories of trade disputes, it is impossible to bring the case to court if the parties have not previously tried to resolve their conflict through a professional intermediary. In England, about 21% and in China, about 25% of commercial disputes are settled outside court through a mediation procedure.

In some EU members (Germany, the Netherlands, Austria, etc.) an alternative means of resolving conflicts is used – “awarding the dispute to a court”, where a judge engaged in the dispute is actively intervening for reconciliation. Other options include third party adjudication by the court of an agreement and the obligation of the parties under German law to refer the dispute before the court to an alternative dispute resolution mechanism.

Advantages of mediation in business disputes

“Smart” companies often predict the creation of a dispute settlement clause in the respective contracts signed through the mediation process.

Mediation is a more flexible way to resolve disputes than the judiciary. It has several key advantages over the traditional judicial system.

What are the benefits of mediation for business?

It saves:

• Time

• Money (and any other resources)

• Nerves;

It retains:

• Good relationships important to successful business and developing them

• Image and business secret;

• Active engagement of clients and partners

It creates:

• New, out of the box solutions – such that never occurred to the participants

• Effective models of communication and work – teamwork and collaboration, workflow management, tasks and time, etc., referring precisely to these people and circumstances

• A new level of economic culture (a win-win culture) – and hence sustainable profit, as confirmed by the most successful leaders and companies around the world;

In what cases can it be used?

In all types of relationships:

Business to business (BTB)

Business to Customer (BTC)

Business to Employee (BTE)

Business with partners, shareholders, distributors, etc.

Business to Administration * (only in some cases, an explicit exception currently makes tax, customs disputes and state liability for damages under Article 1 of the European Directive 2008/52 / EC)

For all kinds of disputes, for example:

• Contracts for order execution (construction, interior, pollution and noise, etc.)

• In separating partners engaged in mutual business (including a family one)

• Distribution contracts

• In-company – in the workplace between managers, between managers and employees, between teams, between key employees, termination of a contract by mutual agreement, collective labor disputes, etc.

• Joint venture, joint-stock companies

• Projects and any commercial transactions;

Mediation is particularly useful for large and delicate deals and companies for which confidentiality and preservation of good reputation and market positions is important.

What tools does mediation use?

Mediation is interdisciplinary and holistic. The palette and style of the chosen mediator and the decision of the parties depend on what set of tools will be used at each meeting and in any particular dispute.

For example: the art of meeting (ichi-go ichi-e – “once in a lifetime“); the scales technique; the staple technique; expanding evaluation / growing the pie; perspective roll/ quantum leap out of the box; changing places; clarification procedure; coaching techniques, psychological practices, and so on.

The use of specific methods and techniques typical of other professions does not represent the exercise of those professions and doesn’t support such a claim. Very often, if needed, experts from different countries are invited to mediation, and this is one of its great advantages – the “gathering” of a round table for synchronization and clarity of the picture and for optimally informed choice and the good of all. For example: lawyers, human resources specialists, certified appraisers, economists, experts, psychotherapists, coach specialists, technical specialists, etc.

How is mediation different from the negotiations?

Mediation is not like positional negotiations that are conducted by the lawyers of the parties.

Negotiations can also work in certain cases for the win-or-lose type of mentality, but not in all cases. And very often, because of the lack of a truly neutral mediator, something very important is omitted: the negotiation of the procedural rules of the dialogue itself, not just the holding of “hard” or “soft” conversations on the merits. Behind the obvious actions often lies an attitude of opposing and overcoming instead of cooperation. And it is scientifically established that working and decision-making under pressure and manipulation, in the presence of an enemy, limits the field of view and hinders creative processes. While the mediation agreement is “unlocked” with at least four golden keys: differentiation of the persons from the problem and the positions of the interests; exploring deep values; identify an expanded range of opportunities; and the use of objective criteria and diverse points of view;

Why is it important to include a mediation clause in the commercial contract?

The inclusion of a mediation clause in civilian and especially commercial and labor contracts is an expression of civilized business and provides the parties with the mutual peace of mind that they will deal first in a spirit of partnership and resolve the dispute between themselves before seeking their rights in a “militant” way – through court or arbitration. There are many variants of mediation clauses, some of which are too short and unclear, others are very complex and rigid. We offer you the option we use:

Inclusion of a mediation clause in the contract, which provides the parties with the opportunity to settle disputes in a relationship with the contract before filing a claim in court, will facilitate parties. As it is good the contract to be elaborated in detail, it is as good for the parties to be sure they will have the opportunity to settle their relations on a mutually beneficial and desirable basis way through mediation before a possible court case. There is a specific process that clearly outlines framework to the parties, mediation allows experienced third party to participate in the conflict by restoring communication and helping countries to build lasting and executable agreement.

Mediation moves the focus of the past and the present to their potential future needs. They set up creative choices and preserve the good business relations. Overall benefits of including a clause for mediation are: timely provision to the parties’ option to deal with a dispute situation. Mediation is an exceptional quick procedure and is completely confidential. She offers an opportunity for a creative solution to the conflict. Also mediation is the cheapest of all alternatives to settlement of disputes.

The inclusion of a mediation clause in every civil and commercial contract is a directive for prosperity and allows for amicable and bona fide settlement of possible disputes before resorting to extreme and militant measures.

Recommended, when creating a clause for mediation, is to take into account the following: there should be clarity of the process – there should be no ambiguity and contradictions, time parameters must be specified, the participants must determine who will be part of the mediation procedure.

Example:

“Art. X. Any disputes arising out of or relating to this Agreement will be settled first in extrajudicial order through mediation. In the event of a dispute, either party may address the other by written invitation / notice that it wishes to initiate mediation. The parties agree to make a conscious effort to resolve the dispute within 3 months of the date of the notification. Mediation is a voluntary procedure and each party can resign in writing, at every stage of its development. Mediation is conducted by one or two mediators, designated by either party, or both. “

Written by:  Elena Taneva-Nikolova

One thought on “Business mediation during commercial disagreements”

  1. Lyubomir Evtimov says:

    This article about mediation is written by Elena Taneva-Nikolova, chairman of the Bulgarian non-governmental organization INPO.

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