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Capitalizing On Mediation: The Power Of Promoting Awareness For Business Efficiency

by Alessandra Sgubini
February 2008

I would like to thank you and express my gratitude to all the colleagues, Monya Kian, Monica Sherman, Melanie Gilmore, Troy Krich and Matthew Murphy for their important contributions to this article. ~ Alessandra Sgubini

Alessandra Sgubini

In today’s business market, successful and efficient businesses recognize the numerous benefits of mediation and possess the willingness to engage in cooperative negotiations with the help of an impartial third party. This article addresses the importance of promoting the awareness of mediation as an effective conflict resolution tool for businesses in all fields based on proven evidence that it saves immeasurable time and capital especially for businesses across the board.

Businesses that are unaware or fail to utilize cooperative conflict resolution procedures, such as mediation, sacrifice money, time, and business relationships.

Imagine two companies with a 10-year business relationship enter into a time-sensitive contract for the production of 200 airplane passenger seats. Deutschland Aeronautics (Deutschland), a German airplane manufacturing company, enters into a contract with New York Seat Inc. (NY), an American company. Deutschland requires NY to manufacture and deliver airplane seats to Germany in order for Deutschland to fulfill a pre-existing contract with Inter Air (Inter), a new Italian airline that will introduce this new fleet of airplanes for international travel in exactly one year.

Suppose, however, that NY delivers these seats to Deutschland two months late; causing Inter to rescind the contract according to the time-sensitive stipulation. Consequently, Deutschland sues NY for $20 million in lost profits from its $200 million contract with Inter. A trial date is set for seven months after Deutschland sues NY, and NY files the counterclaim alleging that Deutschland did not inform NY about the new European Union (EU) law instating new passenger seat requirements.

Can this situation be resolved more efficiently and cost effectively, without relying on over-stressed court systems? How can each of the involved parties quickly resolve this situation, without sacrificing their long-standing business relationships? Can these parties derive a flexible solution that is mutually agreeable? Yes they can, and mediation is the key.

By resolving disputes in a manner that is imminently more efficient, businesses are more effective at handling disputes and building solid foundations among other businesses. Disputes are an inevitable part of business ventures, especially in highly complex international undertakings. Disagreements can arise as a result of minor misunderstandings, ranging from unclear delivery time and location, to major conflicts, such as breaches of contracts. These complications are part of every business endeavor, which can create a high potential for misunderstandings and disputes. However, where they are properly addressed, such conflicts are not necessarily detrimental to businesses if handled with diplomacy and tact.

Over the past two decades, businesses throughout the United States have moved away from lengthy and costly litigation processes to more flexible and cost-effective mediation processes and Alternative Dispute Resolution (ADR) methods. Mediation involves the use of a neutral third party who assists the parties in coming to a confidential and binding agreement without the costs associated with traditional litigation. This transition is rooted in Businesses’ growing awareness of the immense potential for mediation to resolve traditional and international business disputes. In fact, more and more businesses are utilizing mediation for their business and legal disputes rather than relying on the sluggish court systems. Numerous industries are aware of the successes of mediation in solving such problems traditionally, and recognize that the benefits can be extended to international dispute resolution as well.

Given the affordable, efficient, and participatory nature of the mediation process, it provides a more viable method of resolving conflicts than litigation in international disputes. Mediation is able to diplomatically and agreeably resolve 80% of all cases submitted to mediation when commercial litigation fails because mediation allows the parties to agree upon their own solutions, rather than have decisions imposed on them by a court. With litigation, parties face the uncertainties and difficulties of foreign jurisdictions, different legal systems (civil law versus common law), diverging modes of discovery, and uncertainty regarding the court’s neutrality. Unlike litigation, mediation is a voluntary process that results in win-win situations for the involved parties as they have arrived at their own solution – removed from the arena of the judicial system.

Mediation offers an open method of resolving conflicts by allowing disputing parties to maintain control over many important factors, namely the ability to experiment with different solutions. For example, in our hypothetical case, the parties could have chosen a repayment plan or adjusted contract agreement or anything in between. This flexibility is essential in the international arena as it provides the parties the latitude to choose any forum regardless of jurisdictional requirements. Moreover, mediation is far more cost-effective in international cases versus litigation, where the direct and indirect costs of litigation are at least 1.5 times higher for international cases.

A practical application of mediation is to introduce mediation clauses into traditional and international contracts. Not only does this expose the market to an alternative method of conflict resolution, but parties learn how to utilize to utilize mediation. Requiring parties initially to use mediation through such a clause not only saves parties time and capital but also preserves business relationships by requiring contracting parties to approach conflicts or breaches through the less limiting process of mediation.

Litigation, alternatively, may destroy any chance of maintaining a healthy and successful business relationship in the future. Therefore, the introduction of mediation clauses into contracts has two benefits: allowing parties to use an efficient and effective method to resolve conflict, and the ability to maintain business relationships.

Additional benefits of mediation are its non-bureaucratic and completely confidential approach to resolving conflicts between international businesses partners involved in a stalemate.

Confidentiality is essential for corporations, as any publicized lawsuits or negative business relationships have the potential to significantly harm a company’s reputation. Moreover, the mediation process ensures that all statements made and all documents furnished during the mediation process are confidential, unless otherwise agreed upon by all of the parties involved. Mediation allows disputants to share information in total legal confidence with the mediator, a privilege not granted by the public litigation system.

Many times cultural issues may become an inter-woven aspect of the dispute itself. Cross-cultural mediation allows peoples of different social backgrounds to cooperatively and respectfully negotiate common and diverging goals until they agree upon a single settlement that is mutually beneficial. Litigation does not promote cross-cultural communication and understand to extent of mediation, which may further complicate the dispute. In addition, discrepancies between common law and civil law systems can be reconciled far more efficiently through mediation vis-à-vis litigation.

Mediation also promotes the preservation and restoration of business relationships. For example, in the hypothetical scenario mentioned above, Deutschland and NY had a dispute-free business relationship for 10 years. A lengthy, multi-million dollar litigated case could quite possibly destroy or severely damage their business ties. Rather than spending seven months in search of evidence to present during the set trial date, the parties could possibly end this conflict in a timely manner while preserving their business relationship. Given the peaceful, flexible, cooperative, nature of mediation, these parties can derive a solution that is mutually beneficial outside of a courtroom. With the council, guidance, and facilitation of a trusted third-party mediator, these parties can work towards their interests and goals in order to develop common alternatives and reach an agreement.

By gathering real data and statistics based on the experience of litigators and mediators who have provided detailed feedback and estimates regarding the billable hours and other costs associated with handling the same hypothetical that mirrored the real world situation case, the benefits of mediation as an alternative to litigation can be illustrated. The chart located at the conclusion reflects the averages from the information gathered from the mediators and the billing statements of two New York medium-sized law firms)

After comparing the information collected, the resulting data showed that for the same amount of total damages ($20 Million) if the NY and Deutschland companies had decided to utilize mediation instead of litigation to resolve their conflict they would have saved nearly $365,000.

The chart highlights three major elements:

First, the total plaintiff expenses (if the parties decided to go to litigation) were $169,462.00 for each party. However, if the parties had been willing to utilize mediation, their total mediation costs would have totaled $43,000 (costs and fees include only traditional litigation and mediation services. Where international costs are included the total fees would be 1.5 times greater).

Second, the amount of time involved in conflict resolution highlights a glaring discrepancy between the two noted methods. The billable hours provided by the attorneys totaled over 550.3 hours in litigation. Comparatively, the entire mediation process, including pre-mediation, actual mediation and post-mediation, totaled only 21.33 hours.

Third, the total amount of attorney’s fees must be evaluated. An average of $450 per hour has been factored in for the billable hourly rate of the given attorneys. The billable hourly rate for the given mediators was also $450 per hour. The difference is staggering - $9,450 for the cost of the mediator compared to $247,500 for the attorney fees. The mediation process does not involve a magical formula for quick, easy, or shallow solutions to any conflict. Instead, this process requires the time and commitment of the disputing parties, as well as the expertise of a qualified impartial mediator, to sit down and engage in cooperative and constructive discussion. By introducing a mediation clause in every contract, or engaging in mediation prior to a lengthy trial, disputing parties can save impressive amounts of money and time, while preserving their business relationships.

Comparing the Traditional and Proposed Methods of Mediation:

As advancements in technology and market globalization continue to make international business transactions more prevalent, inevitably a higher rate of disputes will occur. These disputes raise complex issues for parties and attorneys including jurisdictional, cultural, and financial issues. By promoting the traditional model the possible growth factor for mediation seemed limitless.

However, although arbitration is prevalent in the international business and legal communities, mediation has yet to be fully embraced as a leading method of dispute resolution. Why are international actors wary of using mediation as a method of dispute resolution? The answer is two-fold: Awareness and Trust. Where there is a lack of awareness regarding mediation one has no opportunity to take advantage of it. Additionally, where there is a lack of trust in mediation as a key to dispute resolution, this leads to uncertainty as to its ability to protect a party’s interests.

Many myths surround mediation. These myths mask the benefits of mediation and prevent its pervasiveness in the marketplace. International business professionals are left with a belief that mediation lacks closure or binding authority. However this is not the case. Where parties use the services of a neutral third party to assist them in coming to a common resolution, that agreement is as binding as any other contract.

These current impediments to mediation in the international arena mirror those experienced in the U.S. nearly a decade ago. The success and systematic integration of mediation in the U.S. provides a model from which international business professionals may base their judgments. Also dispelled is the skepticism that international business professionals currently have with respect to the validity and cost-effectiveness of choosing mediation. Looking to the traditional model provided an accurate representation of how the market will react to mediation internationally, giving international players the opportunity to identify and prematurely address challenges as numerous companies have done in the U.S.

By analyzing the established model of mediation, not only will the international sector have the opportunity to mirror its successes, but also recognize and address its shortcomings and learn how to improve on the model. Within the existing educational schema is one substantial flaw, yet there is a solution by deviating from the present model.

A Deviation from the Traditional Model:

To those with knowledge of the process, it is understood that businesses can benefit from implementing mediation, but there is a general complaint that it is not realizing its potential through proper utilization. From this it may be deduced that Business either lacks the knowledge of mediation’s availability or lacks faith in the process.

To face this challenge to promote mediation the traditional model states that by using mediation, businesses will develop trust in the process. Awareness of mediation grows as more people employ this method. However, this model fails to take into consideration that individuals are not likely to use a procedure until they have a basic knowledge and awareness of the method and trust in the process. This deviation from the traditional model of mediation is centered in the fact that businesses are administered by individuals rather than by abstract entities. With this understanding, an optimal strategy for implementation should address the inherent reactions of human nature, to use only what one is aware of and trusts.

No standing CEO would consider implementing an untested process without the knowledge that it would provide a calculated benefit. This is a key element that the traditional model fails to take into consideration. In order to identify this flaw the traditional model has been dissected to determine where the process falls short.

The traditional model, meant to exemplify the popularity of mediation to be sought internationally, has instead shown the market for mediation to become stagnant after reaching its height of popularity. Once faith in the process was established nationally, the crucial element of promoting mediation slowed. This occurred because the individuals who were originally involved in educating the market about mediation then turned to practicing it. This left the market saturated with mediators, while the drop-off in education of the marketplace left a dearth of cases to mediate.

The traditional model caused this decreased demand due to its backwards approach. As previously mentioned, it encourages use of mediation clauses in contracts in the hopes that businesses will trust the procedure and finally create awareness about this method of resolving disputes thus expanding the demand. This patterns out as use, trust, awareness. However, the order of the model is the crucial component that hinders the overall expansion of mediation. Internationally, where this model fails is not in its idea, which may work in certain instances, but in its rate of return. The traditional model failed to create the level of knowledge needed to have mediation accepted into the marketplace and have businesses routinely utilize it as a dispute resolution tool.

This deviation offers the inverse of the existing process: awareness leads to trust then use. What this deviated model suggests is that professionals involved in the mediation industry should first spend time promoting and educating businesses about mediation. This can be done through educational seminars, teaching classes about mediation in universities and law schools, writing scholarly articles and other means of promoting awareness. If enough time is devoted to this critical stage of progression, the trust and faith in mediation will be established and it will create a greater demand for the mechanism.

Some may hesitate to use this deviated model for fear that dedicating resources to awareness efforts will not be as profitable as practicing. However, these hesitations can be put to rest with the knowledge that future benefits will be exponentially realized by businesses and professional mediators alike. For example, if every business were educated to implement mediation clauses in their contracts the market for mediation will be infinite. The end result of this model would benefit all parties: businesses would save money by eliminating unnecessary dispute costs, and practicing mediators would make more revenue due to a heightened demand for their services.

Conclusion

By being equipped with this knowledge and aware of this process, we hope to enable traditional and international businesses to trust the potential and the benefits of mediation to resolve conflicts, thereby incorporating mediation to benefit their companies and to expand further awareness of mediation.

MEDIATION LITIGATION SAVING
Total Damages $20 Million $20 Million -
Trail Expesnes &
Pre-Mediation
$43,000 $169,462 $126,462
Billable hours &
Total mediation
and Post Mediation
21.33 hours 550.3 hours 529 hours
Cost for Attorney
fees $ 130-800
Average 450
per hour
$9,450 $247,500 $238,964
Mediator Cost
$450
$9,450
Total Cost of Dispute Resolution $52,000 $416,962 $364,964

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Biography


Alessandra Sgubini is an Italian attorney and professional mediator. Ms. Sgubini has over 10 years experience in the field of law, international law, and dispute resolution.  She holds the J.D. degree from the University of Milan, Italy, and is currently a licensed attorney in Italy and a member of the Milan Bar Association.  In 2001 Ms. Sgubini completed advanced studies in International Business Transactions from the University of San Diego, California.  In 2003, she earned an L.L.M. degree at California Western School of Law with a specialty in International Law and Dispute Resolution.

Presently she is a professional mediator and CEO of Bridge Mediation LLC an international alternative dispute resolution consulting company specialized in mediation for domestic and international businesses.  Bridge is based in San Diego, California with offices locate in Milan, Italy.

In addition, Ms. Sgubini teaches as a guest lecturer in Universities in San Diego, California, Italy, and Spain. She also serves as a speaker in national internationally organizations and businesses. Ms. Sgubini is author of several articles on ADR and mediation.



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