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How To Enter International Mediation Without Losing Face

How To Enter International Mediation Without Losing Face

Source: Corporate Counsel
Date: October 2005

Imagine the following scenario. A South East Asian company mistakenly receives a large shipment of a raw material from a US supplier containing a substance that happens to be illegal in that country. As a result, the company faces criminal prosecution, suffers huge business losses and ultimately sues the US supplier in its home state. The US company suggests mediation, which the Asian company reluctantly accepts. The mediation results in a settlement agreement equally acceptable to both sides. Pipe dream? Hardly. It's a garden variety international mediation.

Resolving domestic disputes through mediation has grown in popularity during the last two decades, so much so that in the United States, sophisticated business people expect to mediate significant disputes as an alternative or at least a prelude to litigation. However, in many parts of the world, mediation is far less routine and there's no regular pattern of using mediators. As a result, in an international dispute, suggesting mediation can be risky and possibly perceived as a sign of weakness. Yet with complex international disputes, mediation has the potential to make the biggest impact. The more multifaceted a problem, the greater the need for a fast, flexible approach to solutions. The benefits of mediation lie in its flexibility, especially in international disputes, which can be complicated by long distances, cultural misunderstanding, political intervention and shifting commercial agendas.

Though international mediation is still in its infancy, recent growth trends suggest that it will play an increasingly vital role in resolving disputes. Last year, for example, the UK-based Centre for Effective Dispute Resolution (CEDR) saw international mediations make up a significant 15 percent of its total case loads. Insurance, finance, supply of goods, employment and entertainment are industry sectors most commonly affected by international disputes and domestic experience indicates they are also highly suitable for mediation.

At its core, mediation is a flexible, confidential process in which a neutral person actively assists parties to a dispute in working towards a negotiated agreement, with the parties in ultimate control of the decision to settle and the terms of the resolution. The flexibility extends to timing, duration, venue and agenda, all items especially significant in international disputes. Mediation parties have real control over any settlement deal and this sense of responsibility and ownership gives mediation its power. Perhaps most important to parties in international disputes is the confidential nature of mediation. Mediation can provide a safe environment where parties can talk candidly and quietly experiment with ideas.

Selling It to the Other Side…
International disputes can arrive at mediation as the result of contract clauses, a court referral, frustration with court or other procedural delays, or the lack of any forum with jurisdiction. Mediation can be successfully applied at any stage of a dispute, from before litigation to after judgment, when the parties wish to avoid the time and cost of enforcement or appellate proceedings. Mediation can also serve as a complementary tool - that is, a procedure woven into or paralleled with other dispute resolution methods.

Advisors inexperienced in ADR may pitch mediation as a last resort. But the benefits of international mediation are profound. Mediation typically entails lower transaction costs, especially because the direct and indirect costs of litigation are multiplied by a factor of at least 1.5 in international cases. Procedural benefits include a concentrated time frame, a joint meeting rather than a series of fragmented ones, as well as a prescribed negotiating focus. Perhaps most importantly, the likelihood of preserving business relationships is increased with mediation as opposed to traditional courtroom litigation.

If current negotiations in an international dispute are making limited progress, consider approaching opposing counsel with a mediation proposal. If you're unsure whether your case is suitable for mediation, evaluate whether the parties have enough information to negotiate effectively. If negotiations are already blocked, what is the most critical leverage to improve negotiations that a third-party neutral could provide? Evaluate the best and worst outcomes related to the costs of legal proceedings. And assess the likelihood of damage resulting from exploring mediation with another party who ends up refusing. Does your side have much to lose by stating that it is your policy to seek, whenever possible, to settle cases with minimal external costs or damage to business relations?

In international disputes, cultural customs and concerns over issues of admission and apology may factor into a party's reluctance to mediate. Because international disputes sometimes involve cross-cultural suspicions and misunderstandings, stress the fresh mind and objectivity that a mediator will bring to the resolution process. If the parties plan to negotiate in their native tongues, the mediator may need an interpreter, which is never as satisfactory as witnessing the subtleties of dialogue first hand. Instead, consider proposing a mediator or co-mediator with appropriate language skills.

For effectiveness, mediation relies on intense in-person communication, though technology can still be helpful in preliminary matters, such as early meetings by video conference. Assure the other side that long-distance communications will be used with care. Our best advice is to consider the entry into mediation as a mediation process in its own right. Make proposals in a restrained and exploratory tone and jointly discuss potential mediators and process details.

…Without Losing Face
Because mediation is far less common outside the US and UK, proposing it could be interpreted as a sign of weakness. However, there are ways to suggest mediation while preserving your bargaining position. First, use any previous negotiating efforts, business relationships and other contacts as an informal platform for exploring a mediation proposal. Use the best communication point possible - that is, ask who in your company has a relationship with anyone in the opposing side's company and have that person make the initial call.

In approaching the other side, refer to contract provisions that require or imply alternative dispute resolution. For example, you could say,"Our company [or law firm] has a policy of offering mediation in every case; it's routine, it doesn't imply anything about this case." Mention that your organization has specifically signed pledges to explore mediation in international disputes.

Alternatively, while stressing your interest in positive negotiation and your belief that your case is valid, acknowledge that there is a stalemate, making third-party involvement inevitable. If applicable, note the possibility of imminent court-directed ADR and frame the proposal as "we should pick the third-party neutral, not the court." In other words, re-label the process in terms that are most likely to appeal to the opposing side.

Consider asking a neutral organization or a mediator to talk to both sides about the mediation process. Offer to hold all meetings in the other party's country, to accept a qualified mediator of the other side's choice or any other tactical offer that overcomes objections raised by the other side.

Just like the South East Asian company in the scenario above, just get your opponent to the mediation table. Chances are, once you do, everyone will be hooked.

This article is reprinted with permission from the October 2005 edition of CORPORATE COUNSEL. © 2005 ALM Properties, Inc. All rights reserved.