This article is written for users of ADR services.
This post is written by Khalil Mechantaf, a dual qualified and bilingual dispute resolution lawyer. He frequently acts on national and international commercial and construction arbitrations, as well as other ADR methods, including mediation and adjudication.
In the complex world of business, disputes are often inevitable. The traditional courtroom battles can be costly, time-consuming, and damaging to relationships. Commercial mediation presents itself as a collaborative approach that not only facilitates dialogue between parties but also fosters creative solutions. Almost all professionals would agree that spending years on litigation and arbitration is a poor use of time and business resources, which would be better deployed in finding ways in which disputes or differences can be dealt with quickly and efficiently in a way that does not hamper ongoing business and contractual relationships. Indeed, the defining theme of access to the court justice system is whether the parties have used mediation before bringing their dispute in front of a judge.
This raises the question why a similar approach is not adopted as a prerequisite to arbitration in commercial disputes. In some standard forms of contract, the alternative to arbitration materializes, for example, upon an engineer’s determination and adjudication. Despite adjudication being an efficient form of Alternative Dispute Resolution (ADR), it remains adversarial and disrupts the collaborative approach to the execution of the contract.
The use of mediation in a business context
The perception of mediation as an alternative method of settling disputes is often linked to domestic conflicts, notably in areas related to family law, and employment disputes. Few are the business organizations that consider resorting to mediation in the commercial sector. The concern to resorting to mediation is often attributed to the non-binding nature of this method or its process when there can be so much at stake in the presence of an ongoing business dispute, such as an imminent financial loss or a multiparty dispute with intricate legal issues. Such concern is misplaced.
The mediation process deserves increasing consideration for resolving business disputes as it emphasizes speed, maintains and fosters business relations even rehabilitating lost ones, at a fraction of the costs that could be spent on litigation or other ADR methods. At the dawn of ESGs and adherence to ethical business practices and regulations, it is difficult to ignore the qualities of mediation when comparing it to other much costlier and adversarial dispute resolution methods.
Commercial mediation can develop through the gaps of litigation and arbitration, with those often leading to lost confidence, breakdown of economic relations, and difficulty recovering money lost, even with an enforceable decision or award. The true advantages of mediation often appear when intervening in ongoing business relationships or in situations where a resolution does not only apply to a past conflict but also has implications on conducting the business in the future. Furthermore, when several parties are involved in a complex dispute, they sometimes wish to resolve this issue together and find a common solution without being limited by procedural rules, a prominent feature of other ADR methods. Mediation is particularly relevant when a dispute materializes in the first phases of contract execution or even in the context of preventing a potential dispute. The reasons for such a dispute do not even have to be legal, they may solely or partially be a business issue, even a managerial approach to contract execution, or a deadlock in the decision-making process.
Standing in the parties’ shoes
As with all other forms of ADR, commercial mediation is a form of intervention in conflict and is meant to help the parties who are engaged in that conflict. Although distinctive from the full rigors of arbitration or litigation, commercial mediation shares several similarities with most forms of ADR in that it offers an opportunity for a quick and efficient resolution of the dispute. In the context of construction claims, this could hardly be less important. On the one hand, litigation or arbitration can take years before reaching an enforceable decision, and require significant costs which, at times, can be equal to the amount in dispute. On the other hand, mediation is designed to provide a resolution of the dispute in a way that is consistent with the parties’ understanding of what that dispute is. More importantly, instead of focusing on legal entitlements, mediation offers a platform for the parties to discuss what went wrong and why they are in what can be described as a deadlock, trying to find common grounds in how, for example, a specific contractual provision should be interpreted from a commercial perspective or a work process performed.
The role of the mediator
The relevance of commercial mediation in today’s business is often dependent on the qualities and skills of the mediator, who plays a crucial role in resolving commercial disputes by acting as someone who guides the parties through a structured dialogue. Unlike a judge or arbitrator who impose a decision, the mediator creates an environment where open communication can thrive, helping parties express their concerns and business interests. This is an important asset in a commercial context, which requires the adoption of a collaborative approach and open communication, especially on large and complex projects. Focusing solely on legal arguments can push the parties back into their corners, often impeding an interest-based negotiation. By employing active listening and effective questioning, the mediator helps identify underlying issues, fostering collaboration rather than confrontation.
Most importantly, a mediator conveys a party’s position to the other in a reframed and unpacked fashion, providing an opportunity for the parties to identify common grounds. A commercial mediation has a higher chance of success when the parties view their contractual engagements through the same lenses. This approach not only promotes mutual understanding but also encourages creative solutions that might not emerge in an adversarial setting.
The commitment dilemma
It is not uncommon for parties to a contract to resist committing to a mediation process outlined in their dispute resolution clause for several reasons. One common concern is the perception that mediation may undermine their negotiating power or lead to unfavourable compromises, particularly if they feel strongly about their position. Additionally, some parties may doubt the effectiveness of mediation, viewing it as a time-consuming step that delays more decisive actions, such as litigation or arbitration. There can also be a lack of trust in the mediator’s ability to facilitate a fair process, especially if prior experiences with mediation have been negative. Moreover, parties may simply be unfamiliar with the mediation process or sceptical about its ability to resolve complex disputes.
When faced with such dilemma, parties should remind themselves of the reasons for agreeing to adopt a multi-tier dispute resolution clause that includes mediation. Such recollection process induces a thought-provoking approach, transferring the parties away from their trenches and back to the negotiation table. Such process is not only a business necessity, but also a step towards complying with their contractual commitments, the resistance of which has created the conflict situation in the first place.
In any event, failing to commit to a mediation process often raises challenges as to the admissibility of any subsequent ADR mechanism, such as arbitration, thus increasing the time and cost required to resolve the dispute.
Conclusion
As the complexity of commercial transactions continues to grow, the need for a structured yet flexible approach to conflict resolution becomes increasingly important. Embracing commercial mediation can lead to more efficient outcomes and a healthier business environment, ultimately benefiting all stakeholders involved.
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This post is written by Khalil Mechantaf, a dual qualified and bilingual dispute resolution lawyer. He frequently acts on national and international commercial and construction arbitrations, as well as other ADR methods, including mediation and adjudication.
Reviewed and Edited by the ADRIO Newsletter Blog Committee in collaboration with Staff:
Babara Benoliel (Chair)
Ben Drory
Robyn Jacobson
Kim Parish
Tommy Lam (Staff)
The opinions expressed in the articles featured in this blog are that of the respective writers and do not represent the views of The ADR Institute of Ontario.