Mediation as an Effective Alternative to Litigation

Mediation is emerging as a new trend in conflict resolution. This article explores mediation as a method for resolving corporate conflicts, discussing how it helps maintain partnership relations and preserve business, even in confrontational situations.

Foreword

Disagreements between business partners and sometimes among top managers are common and often escalate into corporate disputes. As practice shows, corporate conflicts can disrupt a company's normal operations for an extended period, and sometimes even lead to its collapse.

To avoid negative consequences, businesses are increasingly seeking ways to resolve corporate conflicts out of court. In situations where traditional dispute resolution methods are not effective, mediation becomes an attractive alternative.

Mediation as an Effective Dispute Resolution Mechanism

Mediation is a flexible, voluntary, and confidential process where a neutral third party (mediator) facilitates the parties in finding a mutually acceptable and viable solution based on mutual respect.

Commercial mediation is well-developed and quite popular in prestigious foreign jurisdictions. In international practice, there are generally two main types of mediators: (i) an external independent mediator and (ii) an internal ('in-house') mediator, who is part of an organization's conflict management system.

Why Mediation?

The situation where only legal arguments are considered in resolving a conflict, reducing the dispute to determining whose position is stronger, has practically become the norm.

Mediation not only addresses the legal side of a dispute but also delves into the relationships between people and the emotional aspect of the conflict, which often serves as the key motivating factor.

Advantages of Mediation in Corporate Disputes:

• Personal Interests: Corporate disputes, like any other type of conflict, involve a human factor. Behind the uncompromising positions of the parties always lie deep human interests such as protecting reputation, hidden resentment, broken promises, safety, and similar concerns. Mediation allows these interests to be identified and formulates a mutually acceptable position, taking into account the true interests of the parties.

• Possibility to Preserve Business: Corporate conflicts often lead to the final breakup of relations between partners, destroying both small companies and multimillion-dollar empires. Even in Ukrainian history, there have been many such cases in recent years. Commercial mediation not only preserves partnership relations and trust between founders but also avoids the destruction of the existing business. It's hard to argue that all parties benefit if a profitable enterprise is preserved.

• Confidentiality: Mediation guarantees confidentiality regarding both the nature of the conflict and the process of its discussion and resolution. This fundamental principle makes mediation very sought-after and attractive in the business environment, as it preserves the "face" of the company, neither its reputation nor the reputation of the owners suffers. Moreover, the confidentiality of the conflict is extremely important for maintaining the investment attractiveness of the business: the presence of a corporate dispute can significantly lower the business valuation or even cause an investor to withdraw from the investment.

• Flexibility and Expediency: Legal proceedings can last for years, and are extremely costly and exhausting for the parties and the enterprise itself. Mediation, on the other hand, allows for "sorting everything out" in just a few sessions. The company's operations are not paralyzed, and the timing of meetings is adjusted based on the needs of the parties. Moreover, the parties risk nothing - they can leave the mediation at any time, and if they fail to agree, they can resort to traditional conflict resolution options.

Mediation in International Practice

The effectiveness and benefits of mediation as a method of resolving corporate conflict have long been recognized in international practice. The United Nations Commission on International Trade Law has adopted the UNCITRAL Model Law on International Commercial Conciliation.

Mediation is actively used in all prestigious jurisdictions, for example, in the USA, Canada, European and Asian countries.

Most European countries share the fundamental principles of mediation and integrate it into their legal systems. For instance, in Italy, mediation is by default a mandatory procedure, and only after its completion can a party proceed to court. In the UK, mediation has become an integral part of the conflict resolution system. Germany actively operates and develops the Federal Mediation Association in the economy and labor sector.

In the USA, approximately 800 corporations, including Time Warner, UPS, General Electric, Prudential, and Coca-Cola, try to resolve disputes through alternative methods, particularly mediation, before going to court.

According to the American Arbitration Association, 75% of disputes reviewed through mediation end with a mutually acceptable resolution and reconciliation of the parties.

Asia is not lagging behind in this regard. For example, in such a thriving "business hub" as Singapore, commercial mediation is actively used to resolve corporate disputes, laying the foundation for the emergence of original mediative techniques and unique cases.

Conclusion

Overall, a positive trend is observed: businesses are increasingly trying to resolve disputes through commercial mediation, postponing litigation "for later". Although the absence of a specific law on mediation negatively impacts the trust in this institution, the advantages of mediation make this conflict resolution tool extremely attractive and promising.