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Mediation and Financial Institutions

Mediation and Financial Institutions

Source: New York Law Journal
Date: June 19, 2017

By Dr. Monique SaSSon, JaMS The global financial crisis of 2008-2009 increased the litiga- tion caseload of financial insti- tutions. The broad array of claims included debt recovery, foreclosure actions over collat- eral and claims based on negli- gence or breach of duty of care. It is generally thought that such claims placed substantial new pressure on legal departments at financial institutions and has prompted these tradition- ally conservative institutions to consider enhanced use of alternative dispute resolution (“ADR”) methods to resolve dis- putes in a short timeframe. Last year, the International Cham- ber of Commerce prepared a report on financial institutions and ADR that underscored the potential advantages to finan- cial institutions of referring disputes to ADR. Avoiding the time and expense of exten- sive discovery, maintaining confidentiality of proceedings and appearing before neu- trals with financial expertise are some of the advantages to an ADR program for financial institutions. Mediation, in particular, can be a very effective tool to manage a heavy caseload. Among the vast range of finan- cial activities, some types of cases seem especially suitable for mediation: (i) international financing, with assets or com- panies located in several juris- dictions; (ii) advisory matters such as mergers and acquisi- tions, and transactions related to the sale or acquisition of a business of a company by another investment bank; (iii) asset management and private banking – activities that man- age investments on behalf of individuals; and iv) interbank disputes, when an institution enters into a contract with another financial institution. Of course, mediation is also often appropriate in employ- ment disputes between a bank official and a bank. In addition to the ADR advantages of confidentiality, mediator expertise and lim- ited discovery, mediation in these types of cases also offers the possibility of a brighter future commercial relationship with the “adversary” party, SERVING THE BENCH AND BAR SINCE 1888 Monday, June 19, 2017 Mediation and Financial Institutions www. NYL J.comsince all parties avoid the confrontational aspects of liti- gation or arbitration proceed- ings. Further, in international cases, litigation leaves open the potential difficulty of enforce- ment against assets located in different jurisdictions. The use of ADR to resolve financial issues has many advantages: Confidentiality: In certain contexts where standardization of judgments is sought, such as in derivatives, confidentiality may be less desirable (see, for example, the observations in the 2016 ICC Report on Finan- cial Institutions). In sovereign finance matters, confidentiality may also be problematic, since the State may require transpar- ency in relation to its disputes. However, these are narrow exceptions. In most disputes in which financial institutions are engaged, confidential- ity is definitely a positive fac- tor. Mediation offers financial institutions the opportunity to avoid the publicizing of internal processes. Expertise of mediators: Financial disputes often entail specialized knowledge of the instruments used and how financial institutions operate. There are many mediators with vast experience in the financial sector and their ability to speak to principals in their language offers a great opportunity to resolve disputes on bases that make sense. Future deals on the horizon instead of pending litigation: Litigation often entails exten- sive discovery and a confron- tational environment, where accusations of bad faith and mendacity abound. It is then unlikely that the parties would enter into future business deal- ings. Mediation certainly can entail the airing of harsh charac- terizations, but it still provides a better platform for enabling parties to engage in future com- mercial relationships. Unbound by rules of evidence: In mediation, instead of being ‘buried’ by the evi- dence, the parties can con- centrate on putting their most reasonable positions forward, supported by the most perti- nent evidence. This not only lowers costs, but enables the parties to put their differences to each other without the sti- fling effects of evidentiary strictness. Mediation is not an assur- ance that the disputing parties will be future business part- ners. But it is in many respects a “talking cure.” By airing their differences in an informal, non-binding setting, the parties often are able to see, in part, the adversary’s point of view and come to a financial arrange- ment that nobody is happy with but everybody can live with. Dr. Monique Sasson is a neutral with JAMS based in New York. Her experience includes major, multi-jurisdictional litiga- tion and international arbitra- tion proceedings. She specializes in resolving banking, business/ commercial, energy/utility, finan - cial markets, international and telecommunications industry matters. She received her Ph.D. in Public International Law from Cambridge University. You may reach her at msasson@jamsin- ternational.com. Reprinted with permission from the June 19, 2017 edition of the NEW YORK LA W JOURNAL © 2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or reprints@alm.com. # 070-07-17-40