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EFFICACY OF MEDIATION IN BUSINESS CRISIS MANAGEMENT: LESSONS FROM AROUND THE WORLD (By-Divyanshu Bhardwaj)
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EFFICACY OF MEDIATION IN BUSINESS CRISIS MANAGEMENT:
LESSONS FROM AROUND THE WORLD
Authored By-Divyanshu Bhardwaj
Table of Contents
In the business world, economic
collapse owing to lockdowns has been a common phenomenon in most countries
across the world. It has resulted in an
unprecedented number of lawsuits, many of which revolve around contractual
concerns and, indeed, a special legal principle known as force majeure in the
event of a pandemic. These issues will probably linger in the judicial system for
years, remain unsolved, and finally, when disposed of will leave behind a
massive body of case laws on the subject where none existed before. The
question thus arises, is there an alternative that can prevent this. One would
be prompt to answer that the disputes can be arbitrated. However, arbitration
itself is facing the parallel issue of delays due to prolonged litigation
involved in the execution of awards.
In the course of business, companies
do not see the benefit of spending years litigating on force majeure issues in
clogged and overburdened courts, when it is possible for them to change course,
particularly in the emerging digital economy, and go straight to the heart of
their respective interests. Resultantly, most stakeholders have resorted to adopting
easier mechanisms to resolve the crisis and move on to put their entire focus
on making profits. Amidst this crisis, mediation comes as a messiah and offers
a simple technique to suit the business time rhythms rather than the courts. In
the face of a crisis, the mindset of parties has shifted and the tendency to
sit on the dispute together, discuss, negotiate, and even compromise to some
level to end the scuffle. Contractual disputes revolve around the breach of
obligations on either or both parties. It is very likely that most corporations
have not been able to keep up with their commitments in the middle of the
present health crisis. Mediation is the best way to encourage consensual
settlement, and a breaching party that pays damages through consensual dispute
resolution should ideally not be put in a worse position when the opposite
party has also been under the radar of breaches.
One cannot neglect the advantages of
Commercial Mediation while assessing its effectiveness in resolving corporate
crises. Lockdowns were imposed in the majority of countries as a result of
Covid-19, causing huge business setbacks all across the world. Furthermore,
most traditional systems of dispute resolution have become less accessible, yet
mediation has proven to be a viable and appealing alternative. As more and more
aspects of life and business move online, it makes sense to seek dispute
resolution online as well. The comparative advantage of mediation, which is
fundamentally a flexible and adaptable technique, is found here. It is easier
for this conflict resolution process, in which parties retain decision-making
power, to go online with the cooperation of the parties than it is for courts.
Mediation has the advantage of being able to be performed in whatever manner
the parties like, including through live screen or telephone conference.
In such an uncertain and
unprecedented era, mediation has provided clarity to the parties concerning the
fate of their disputes.[1]
The procedure's efficiency is valuable in itself, especially as it is
impossible to predict the length of the case's prospective litigation due to
lockdowns, backlogs, and other factors. With so many disputed legal issues
currently arising as a result of the pandemic's disruptions, the resolution of
which is unpredictable, it is sometimes more desirable to focus on economic
interests and partnerships in business conflicts coming forward. As a result,
another benefit of mediation is that it enables innovative solutions to emerge,
as well as the consideration and prioritization of economic interests. Finally,
mediation is a more relaxing, adaptable, and supporting technique. This could
be done in a secure and comfortable environment for clients, with flexible
scheduling and cost savings. Even when the courts open, the prospect of having
to travel and attend hearings, fearing a second wave, or, on the other hand,
wondering whether further hearings would be postponed, and when the dispute
will truly be settled, is frightening in and of itself.
A
business group based in Odisha, India, supplying medical equipment’s, realized
that one of its customers, a newly opened hospital, owed crores of rupees.
There was neither proper paperwork nor witnesses to back up the several
sale transactions. The sellers were small-business owners having a
long-term history of doing business well with the hospital. When the
case went to mediation, the mediator assisted the suppliers in realizing
that foregoing the outstanding debts or going to court to confront the hospital
owners would be comparable to betraying their long-term faith in the hospital.
It would be counterproductive to the hospital's new beginning as well. Finally,
the new hospital paid a proportion of the dues, and arriving at an
understanding, both parties agreed to a profitable supply contract with a
smoother reconciliation mechanism moving forward. In addition, the hospital
provided stall facilities on campus without any charges for the coming four
years in order to uphold and reaffirm the suppliers' gesture of goodwill. As a
result, mediation was more productive than arbitration in reaching a
settlement. Even though mediation is a long-standing practice inside the rural
administrative structure, it is not yet the most often used method for
resolving civil disputes.[2]
Now,
let us discuss how mediation has been the go-to-go mechanism in some other
countries.
The United States of America
According to the American Arbitration
Association, more than 85 percent of all mediation cases resulted in a
settlement. As per a 2003 report by AAA, a stream of evidence has consistently
indicated that the rapid, fairly priced, and readily available alternative to
the judicial process that ADR offers has enormous corporate value.[3]
Various multinational corporations,
like The Coca-Cola Company, Bell South Corporation, Bank of America Corp.,
General Mills Inc., and others, have established Conflict Management Programs
that use mediation rather than litigation. According to the report of a Cornell
University-sponsored poll of 1,000 U.S. firms, 19% of survey respondents said
they used mediation regularly, 30% said they used it seldom, and 43% said they
used it occasionally.
European Union
The EU's involvement in the Singapore
Convention would allow European businesses to take advantage of mediation by
making Mediated Settlement Agreements (MSAs) for international commercial
disputes easier to enforce.[4]
Mediation's flexible and less expensive nature has long been embraced by
sophisticated European business executives, who know that it is well suited to
enterprises of various sizes and spending capacities. Mediation's core idea of
resolving conflicts in a non-adversarial manner aid in maintaining goodwill
between parties.
Australia
According to the Australian Bureau of
Statistics (ABS), the COVID-19 study is expected to have the following negative
business impacts:
·
Over
the next two months, seven out of ten businesses expect reduced cash flow (72%)
and decreased demand for goods and services (69%).
·
Two-thirds
of businesses reported lower demand for goods and services (64 %), as well as
lower cash flow or turnover (66 %).
As per the study, Mediation would be
proved way more effective in resolving the business crisis as it provides rapid
and cost-effective resolutions, can even be negotiated without the help of a
third party or with the help of a neutral third-party mediator who can help
them reach an agreement and above all, there are fewer constraints on the
options open to parties. [5]
The United Nations adopted a
Convention on International Settlement Agreements Resulting from Mediation
which is most commonly known as the “Singapore Convention” on 20th December
2018[6],
to recognize and enforce the settlement agreements arrived at via mediation and
to expand their use. Along with 45 other states, Turkey signed the Singapore
Convention on the very day it was kept forward for signature i.e., 7th August
2019. Until today, fifty-five states have signed the Convention.[7]
Along with Turkey, Australia, Ecuador, Honduras, the Philippines, Samoa, Saudi
Arabia, and Singapore have already ratified the convention.
The Convention intends to create a
structure of international settlement agreements reached through mediation,
allowing for the development of amicable international economic relations. The
convention has given an efficient system for the execution of such agreements
through its elaborate 16 articles. As per Article 1, the convention
concentrates on agreements aimed at resolving a commercial dispute between two
parties who are both incorporated and operating in different states. Also,
conflicts can be resolved through mediation agreements, when the
participants' places of business are not in the same state as the state in
which an essential part of the settlement agreement's commitments is serviced
or the state that is most closely linked with the agreement's subject
matter. [8]
The Singapore Convention has an
important role in global economic relations as with the help of its provisions,
the commercial international mediation settlement agreements can be enforced in
member states without necessitating a full court proceeding. This will save
both the time and money of the parties, provided that enforcing the agreement
should not be against the public policy of that country and that the laws of
that country should allow settlement by the mediation of the subject matter of
that particular dispute, as specified under Article 5. According to Article 3
of the convention, member states need not change their procedural rules to
mediation settlement agreements, rather, they just need to put those rules in
line with the provisions of this convention.
States and economic cooperation
organisations can sign, ratify, and join the treaty. When a country ratifies
the Convention, it is considered to have backed UNCITRAL's (United Nations
Commission on International Trade Law) aim of removing legal barriers to
international trade. As more and more states become party to the Singapore
Convention, it will ensure that mediation is more frequently preferred for the
settlement of international commercial disputes due to its fast and flexible
process.
There are some notable
characteristics of the Convention on Mediation which has been enumerated below:[9]
·
Either side
to a settlement agreement can seek direct implementation of the agreement in
the domestic courts of a Member State wherever assets are located, and
even use such settlement agreement to show that the matter has
already been resolved by judicial means.
·
Enforcement
will take place following the enforcing State's rules of procedure.
·
When
trying to obtain enforcement of a settlement agreement, the party
depending on it has to exhibit that it was attained through mediation. It
can be done by either displaying (a) the signature of
the mediator on the concluding agreement, (b) a signed document
by the mediator denoting that the process of mediation occurred, (c) an
authentication from the organisation that conducted the mediation, or (d) some
other evidence appropriate to the relevant enforcing authority.
The convention will apply to all
settlement agreements that involves member States as well as their agencies
unless the state has expressly declared the non-application of the convention.
In summary, the Mediation Convention makes things simpler to implement
settlement agreements made through mediation, and after it enters into force in
a significant number of jurisdictions, it will increase enforcement options by
giving easy access to courts wherever important assets or enterprises are
located. As a result, it adds to the international dispute resolution toolkit
for cross-border trade a valuable instrument.[10]
Mediation is a cost-effective and
time-saving method of dispute resolution which encourages parties to reach a
mutual agreement. It is becoming more popular in commercial disputes especially
as without risking their business relationship, parties can resolve the
disputes cordially in front of the mediator while maintaining confidentiality
between the mediator and the two parties.
Mediation
must almost always be the first step in settling a conflict without a doubt.
Mediation is a rapid and cost-effective procedure whereas arbitration or
litigation involves longer, more emotionally, and costly taxing. Most
significantly, mediation allows the parties to reach a mutually agreed
settlement under terms and conditions established by the parties in a conflict.
The arbitration tribunal or court shall, however, decide on the issue, and the
parties have a legal duty to abide by that decision when a case is arbitrated
or litigated.
The Singapore Convention intends to
increase the use of mediation in international trade by making settlement
agreements more effective. Meditation has been proven to be the most effective
and greatest strategy for resolving business crises in several countries due to
its multiple benefits. As India is also a signatory to the convention, we can
expect improvement in the corporate performance of the country. Disputes are
bound to occur; they cannot be put at bay. However, simpler resolution can
increase the ease of doing business.
Article Information
EFFICACY OF MEDIATION IN BUSINESS CRISIS MANAGEMENT: LESSONS FROM AROUND THE WORLD (By-Divyanshu Bhardwaj)
Author Name: Divyanshu Bhardwaj
Title: EFFICACY OF MEDIATION IN BUSINESS CRISIS MANAGEMENT: LESSONS FROM AROUND THE WORLD
Email Id: divyanshurai082@gmail.com
- Journal IJLRA
- ISSN 2582-6433
- Published 2022/07/02
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International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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