Mediation in Commercial Disputes: is this Workable?

 

by Mohammed Saleem Tariq

 
This article aims to provide detailed insight into the concept of mediation for corporations and likeminded entrepreneurs. Whether the dispute is over an amount of money owed or over the supply of goods and services, the process of mediation remains rooted. Due to this characteristic, this article will proceed to filter similar commercial disputes through the mediation process in order to expose and evaluate not just the benefits that attach but any doubts the process could cast and balance this in favour of the former.

Scenario

In everyday economy, business survival depends on meeting consumer demands, high profits and its relationship with its suppliers. Keeping costs down means everything must run smoothly. In the same breath, it is expected for these costs to spiral out of control, should a company fail to make scheduled payments or should the supplier fail to manufacture goods and deliver them on time. The immediate response would be to search for a lawyer and proceed with litigation. In the end, communications breakdown, business relationships become un-repairable. There is no guarantee that the one party would claim victory over the other or for damage outside the dispute, to be successfully controlled. In perspective, one must appreciate neither party would be comfortable reaching deep into their pockets to fund the case going to court.

Mediation Defined

Mediation, like its counterparts of arbitration and negotiation, is classed as an alternative form of dispute resolution (ADR). They are the alternatives to going to court. Many have offered definitions of mediation, but the Centre for Effective Dispute Resolution (CEDR) offers a more fuller account defining mediation as ‘…a flexible process conducted confidentially in which a neutral person actively assists parties in working towards a negotiated agreement of a dispute or difference, with the parties in ultimate control of the decision to settle and the terms of the resolution.’

Disputes in mediation should normally filter through the following four stage process:

a) the opening phase;
b) the exploration phase;
c) the negotiation phase; and
d) the settlement.

The usual worry of pursing mediation is the idea that one party would play tactically and use the mediation process to gather information and intentionally fail to settle. The rationale behind this would be to use that information as evidence in court in order to make a weak case appear stronger or a strong case to become more likely to succeed.
However, it cannot be stressed enough to mention that mediation is both confidential and without prejudice. Suppose the dispute was between Apple and its suppliers. Were the supplier to reveal a manufacturing defect during mediation or were Apple to confess to a verbal alteration to the contracted amount, in either written or oral form, the information would remain confidential. Any attempt to use this information at court, would be unsuccessful. Inadvertently, this should assert the thought that all parties involved in the mediation, are here to put in serious effort to reach a compromised agreement. Remarkably, this quality offers a level of sincerity in the offer made and how it’s received by the other side.

Formality of Mediation

Mediation is less formal then going to court, but the process itself is not entirely informal. On one hand, the parties will not arrive to mediation and be put on trial nor would they be placed under the extreme pressures of a cross examination. On the other hand however, there is some element of formality particularly in commercial disputes. In these types of disputes, all sides are required to bring expert and factual evidence. Suppose the supplier has a recorded phone conversation with the representative of Apple, who decided to order 500 batches of the iPhone 5 instead of 700. Now should he not be required as a formality to bring this with him to the mediation, the mediation would fail. There is no likelihood of him agreeing to terms that are more suitable to Apple, if he has this piece of evidence available. Instead, he will be more resistance and more reluctant to be swayed into a compromise. Therefore, there is an element of formality that is needed in terms of brining evidence to support an argument, but the process is flexible in that it ‘can be tailored to meet the needs of the case.’

In the opening phase of mediation and after formal introductions, the mediator should proceed to make his opening statement. By listing his qualifications and explaining how the mediation process will operate, the mediator immediately integrates comfort, security and a plan of action into the minds of the attendees. Without this formality, there is little to keep the parties motivated to settle and the tone is against the idea of a compromise. The mediation must only commence if the parties have authority to settle the dispute. Therefore, if a relative of the supplier arrives or the representative of the Apple Corporation attends without the authority to settle, mediation comes to a halt and the hope to settle is diminished. Should the right people attend mediation, they will each give an opening statement outlining their case and detailing what they wish to achieve.

The Mediator

Like a judge, the mediator is a neutral third party in the mediation process. However, their responsibilities could not be more polarised. The success of mediation is not solely dependent on the parties willingness to compromise. Indeed this is crucial, but as important is how expeditiously the mediator is able to build a rapport with both parties, both of whom feel they have a strong case, that they should be sided with and that the terms which should form the compromised agreement should favour them the most. As the mediator arrives and suggests erroneous offers made by the other side, he may expect his neutral position to undergo some emotional scrutiny. Any perceived bias or favouritism displayed by the mediator himself could hinder the parties chances to reach a settlement. The danger is easily avoidable. It comes down to his level of skill involved to extract and identify the real interests and needs of both parties.

The mediator who fails to identify the potential impact a delayed release could have on Apples sales, undo’s all the progress made during the mediation. A mediator who adopts the evaluative approach on the other hand and offers the strength and weaknesses of each sides case and challenges the parties predictions on litigation outcomes could impair the parties trust, confidence and belief in the mediator as well as the process.

The evaluative approach may be a necessary evil during the exploration phase of mediation, however. In order for the parties to appreciate the level of offers they make and receive, they must face a reality check. The mediator must be firm and must list the consequences of litigation to each party. For Apple, it may mean waves of negative media and publicity. They may need reminding of their competitors. Ones, whom are ready to conquer the market with their latest releases. It is inconceivable to expect even loyal consumers to wait months let alone weeks for a phone. Once released, sales will be affected.

The same principles are applicable to the supplier’s conundrum. If for instance they were in possession of a recording, one which once listened to, revealed Apple changing its count of units from 700 to 500 but the sound being distorted, must be told that this could hamper their whole argument at court. Should this be the only evidence available to them, then their chances of succeeding may be dim. Not to mention, should they proceed with the case, future business agreements with Apple may be jeopardised.

Keeping neutral is therefore paramount and achieving this may take adopting both a facilitative approach as well as an evaluative one, of which a balance could promote trust and confidence in the mediator. It may be best to select a lawyer with expertise in the relevant field to mediate a commercial dispute, preferably one who is also accredited as a mediator. Since accreditation is provided for by a credible body experienced in holding mediations, there is less chance of mediations being unsuccessful.

Parties are in Ultimate Control

Whether a party attends mediation with his Solicitor, or not, ‘the possibility exists that these commercial people will during the mediation process determine their own solutions.’ Unlike the judgment of the court, mediation allows for two winners and an outcome that is not always monetary. What mediation can offer is a compromised agreement, which reflects the personal interest of these parties.

Offers on non-contentious issues should be made first before breaking glass over the more contentious ones. Normally, the mediator will bear the burden of communicating these offers, as he shuffles from one room to the other during the negotiation phase. It is best if parties avoid sight of each other, should wounds start to unseal on sight, as the compromise could face danger.

Taking the example above, if one were to imagine a batch of 500 Apple iPhone 5’s arriving on site, each with varying degrees of scratch marks to the aluminium cover or noticeable chips round the curves: it is expected Apple would want a replacement of all 500? At no additional cost? Within a period that would not interfere with their release date, as scheduled? Perhaps, Apple would pay a little extra to have them polished up to the standard expected? If the amount supplied was short by 200 units, then for these to be supplied within the next set working days? At a lower cost to Apple?

Suppose the supplier on the other hand, intentionally failed to supply the full contracted amount due to a series of failed payments. In mediation, perhaps he would agree to partial payment? Or a variation to the terms of the contract to now read that Apple would use these suppliers for a set number of years? An apology, possibly?

Disputes that are commercial in nature, would find any one of these terms drafted into a settlement agreement. With competition eager to capitalise on any set back and pressure from consumers for the new release rising, it seems inevitable that a compromise would be reached in one form or the other. Needless to say, whether such compromises can be made are essentially dependent on the willingness of the parties to compromise. With media ready to make their dirty laundry public, it takes little to convince a party that loyalty and business relationships which once existed are worth resolving. Once the agreement is drafted and signed by both parties and their lawyers, it becomes legally binding. However, as mediation is voluntary, it remains voluntary up to the point of agreement. Therefore heading to court remains an open option should either party decide not to sign the mediation agreement even if the terms have been reached.

Conclusion

Is mediation in commercial dispute workable? No doubt mediations are speedier, result in more creative outcomes, saves business relationships and ‘singularly offers parties an opportunity to eliminate the risk of adverse decisions by retaining a large degree of control over the process and its outcomes.’ Commercial disputes will no doubt occur and reoccur and recent figures reveal that at least 78.2% of commercial disputes are settled using mediation. One simply way of considering mediation would be for lawyers to draft a clause to this effect into business agreements. If headlines don’t capture these disputes it can be supposed that the use of mediation in commercial disputes is in fact more prevalent.

Footnotes

1. S. Blake, J. Browne & S. Sime, ‘A Practical Approach to Alternative Dispute Resolution” OUP, 2011, p. 177.

2. Ibid., at p. 181.

3. J. Doyle, ‘Mediation in Commercial Disputes,’ in Dillon Eustace, January 2010 viewed on 1 November 2012,http://www.dilloneustace.ie/download/1/Mediation%20in%20Commercial%20Disputes.pdf.>

4. P. Brooker, ‘Commercial Lawyers’ Attitudes and Experience with Mediation’, 4 Web JCLI viewed on 1 November 2012, http://webjcli.ncl.ac.uk/2002/issue4/brooker4.html#Heading153.

 

Mohammed Saleem Tariq received his LL.B (Hons) in Law with Honours at the University of Liverpool, his LLM in International Commercial Law at the University of Nottingham, and has since become an ADRg Accredited Civil and Commercial Mediator. He is pursing the BPTC at BBP Law School in Holborn, London. He plans to shape and establish a strong career in the commercial sector as a practicing Barrister. In the interim, he is keen on developing skills of critical analysis and thinking, writing for ‘the Barrister’ and other outlets, on topical issues and recent developments in Commercial and Contract law. His core interests are sparked by the current trends and on-going developments in the field of Commercial law.

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