1. Introduction

The world has changed profoundly in recent decades. After the collapse of the Soviet Union, China opened to foreign trade, India liberalized its economy and Brazil stabilized its currency through the Plano Real. In the ten years since Jim O'Neill of Goldman Sachs coined the acronym BRIC, these four economies have transformed global trade. Together, the economies of China, Japan and India have a GDP of around US$ 16 trillion. With the expansion of world trade and investment, business has become more integrated, interdependent and complex. Large corporations are now organized and operate on a global scale, and countless 'small' companies now do business across borders. Indeed, many corporations generate more revenue from international operations than from their domestic markets.

2. Dispute-wise companies are all alike

The growth in world trade has led to a rise in the number of commercial disputes. They range from the most simple to the most complex. Companies do not enter into business relationships with the expectation of becoming embroiled in a disagreement, but disputes do happen. They are indeed a normal part of conducting business. For this reason, they need to be viewed systemically rather than as one-off events. It is in the interest of all corporations to build processes centred on dispute resolution with a view to understanding and reducing its risks.

Once corporations recognize that disputes are an inherent part of doing business and call for a policy-based approach, their dispute resolution policies are all fundamentally alike. Their underlying aim is to resolve disputes swiftly and inexpensively with minimal waste of executive and management time. Damage to important business relationships must be reduced and the uncertainty of the outcome minimized. The standard 'tool box' for resolving disputes must include negotiation, mediation, arbitration and litigation (in addition to other hybrid tools). Dispute resolution professionals - whether in-house or outside lawyers - must possess, in addition to the necessary technical, legal and industry expertise, a deep understanding of conflict dynamics, including conflict resolution skills.

While there is no doubt that corporations sensitive to dispute resolution issues will subscribe to these basic elements in their dispute resolution policies, the market for supplying dispute resolution services does not yet fully answer this demand. Law firms pitch their specialized litigation or arbitration practices to companies but the authors rarely see them placing a similar emphasis on marketing their mediation practices and early dispute resolution tools, if any. They showcase large, complex, multi-jurisdictional disputes but give less attention to showing how to resolve swiftly and economically the small and medium-sized cases that make up the vast majority of commercial disputes. They offer sophisticated training on a wide variety of complex legal issues but the authors cannot recall any offers for training in negotiation or other conflict resolution skills.

Companies in most parts of the world traditionally outsourced dispute resolution to external lawyers. They would sometime take such a hands-off approach that the lawyers reported back only once the case had been decided by the court or arbitral tribunal. As in-house legal departments become more sophisticated, companies have discovered the benefit of having dispute resolution expertise and professionals within their organizations. Mediation is regarded as a key part of that expertise and is also often a selection criterion when engaging outside advisers. [Page27:]

3. Mediation's importance in resolving disputes

Commercial mediation is not new. Already in 1979, the International Institute for Conflict Prevention & Resolution ('CPR') started promoting alternative forms of dispute resolution, including mediation, as a way of lowering the cost of litigation. Since then, mediation has become a key dispute resolution tool for companies that have a strong dispute resolution culture and have established a dispute resolution policy either formally or informally. For such companies, the benefits of mediation are self-evident, as illustrated by the following examples from our daily practice.

a) Cost and time efficiency

For companies, the time taken to resolve a dispute is crucial. The longer it takes to resolve a dispute, the higher the cost. This explains the apathy over approaching the courts for the settlement of commercial disputes. India is a classic example: there are 30 million cases pending with the judiciary, including commercial disputes, which makes the timely resolution of disputes improbable, if not impossible. A similar situation exists in many other countries. Disillusion with the courts is not limited to countries where the judiciary has a reputation for being slow. A Price Waterhouse Coopers (PWC) study found, in relation to litigation in Germany, that while companies in general have confidence in the domestic court system they are concerned that the formalism and inflexibility of court procedures hamper dispute resolution. The general perception is that litigation is inefficient, slow and expensive.1

Arbitration may be an alternative to litigation in certain countries and for certain disputes. For example, a PWC study2 found that in India 91% of the companies surveyed had a dispute resolution policy that included arbitration (not litigation), and the majority of the companies surveyed used arbitration on its own or in combination with another dispute resolution mechanism. Yet, companies are concerned about the cost and duration of arbitration, and they sometimes insist on having disputes resolved in the courts. Ultimately, it all depends on the particular circumstances of the matter. If there is a risk of litigation in a country where the courts are known to be inefficient and judicial corruption rampant, the preference will clearly be for international arbitration. On the other hand, in other countries, litigation and arbitration may be regarded by parties as interchangeable insofar as the two processes turn out to be very similar. At least, in such cases the quality, cost and duration of both processes are similar enough for it not to become a negotiating issue between the parties, requiring a concession from one in exchange for the other's agreement to arbitration or litigation, whichever the preference may be.

Litigation and arbitration are therefore often seen as alternative choices, and companies will select one or the other depending on numerous factors, including the leverage they offer when negotiating. By contrast, there is no competition between mediation, on the one hand, and arbitration or litigation, on the other hand. In the vast majority of cases, companies sensitive to dispute resolution will recognize the advantages of mediation, regardless of the strength or weakness of their position and irrespective of whether mediation takes place before, during or after an arbitration or litigation. This is borne out by the examples given below.

=> One of the authors was involved in a US$110 million arbitration with another large multinational company, where the parties agreed to stay proceedings and went back to the mediation table. The dispute was swiftly settled, maintaining good business relationships between the two parties and avoiding significant costs.

=> In another matter in which one of the authors was involved, multiple parties filed a US$190 million suit against the company in a South American country. As there was a mandatory mediation step, the parties agreed to mediation in Europe, allowing a large part of the dispute with one of the claimants to be settled. The settlement built on the parties' relationship and took into account rebates on future sales. The mediation lasted one day and the total cost was less than 10,000 euros. The other claimants continued to pursue their claims in court. No progress has been made over the last five years and the court is still at the stage of considering jurisdictional issues.

b) Interests as opposed to rights

The authors have been involved in numerous disputes where the parties were entangled in litigation or arbitral proceedings, which focused on their contractual rights and obligations, while their real interests, and the key to resolving the disputes, lay elsewhere. In such cases, negotiation will often have reached an impasse and the adversarial nature of the litigation or arbitral process makes it difficult for the businesses to continue a dialogue on how to resolve their dispute. Mediation is then often the only way of [Page28:] addressing the underlying interests that are driving the litigation or arbitration and hence of resolving the dispute, as illustrated by the following examples from the authors' experience.

=> One of the authors was involved in a US$ 60 million contractual dispute with a large customer. After more than a year spent trying to find a negotiated solution, the parties found themselves in an impasse and initiated formal proceedings. After exchanging written pleadings, they agreed to mediation, which lasted for two days. While the mediation confirmed that both parties had strong views on their respective contractual positions, the mediator sought to understand what had triggered the dispute by holding private sessions with the parties separately. In one of those sessions, it emerged that the claimant considered it unfair for the other party to have ownership of the intellectual property developed during the project even though this was what the contact stated. While this point was unrelated to the dispute, it opened the door to a settlement agreement whereby the parties entered into a licensing agreement. Interestingly, although the claimant had mentioned in its writ of summons what it regarded as the unfair allocation of intellectual property rights, the matter was brushed aside as completely irrelevant in the defence writ. Nobody understood that it was actually the key to resolving the dispute.

=> In another case, a dispute of valued at 140 million euros was heading for a bitter litigation, but thanks to last-minute mediation litigation was avoided and a good business relationship was restored between the parties.

c) Preferred and most economical option for small disputes

The majority of commercial disputes are small or medium-sized, although they may raise complex factual (and sometimes legal) issues similar to those in large disputes. Economic constraints often compel against handling such disputes through litigation or arbitration, where the costs and risks may be so prohibitive that the dispute is left unresolved. A briefing note of the European Parliament stated in this regard: 'About 25% of disputes are left unsolved by SMEs because they refuse to litigate. Mediation awareness of these companies would significantly reduce this percentage.'3 In their daily practice, the authors regularly advise their internal clients against litigation or arbitration for small disputes, and encourage them to focus on mediation instead. They have experience of numerous small disputes, in which litigation or arbitration was not economical, being resolved by mediation. Below is an example:

=> One of the authors was involved in a US$ 500,000 cross-border dispute. Under the parties' contract, mediation was a mandatory step before arbitration. Given the technical nature of the dispute, the parties estimated that the total cost of arbitral proceedings would exceed US$ 250,000. Driven by their concern over this cost, the parties settled the dispute through mediation at a total cost of approximately US$ 8,000.

4. Mediation is entering the mainstream

Numerous legislative, judicial and other initiatives bear witness to the transformation of mediation into a mainstream dispute resolution procedure. To illustrate the breadth of this development, the authors briefly describe below how courts in various parts of the world recognize the importance of mediation for resolving disputes.

Already in 2005, mediation received the endorsement of the courts in the United Kingdom. The Court of Appeal held that:

Halsey has made plain not only the high rate of a successful outcome being achieved by mediation but also its established importance as a track to a just result running parallel with that of the court system. Both have a proper part to play in the administration of justice. The court has given its stamp of approval to mediation and it is now the legal profession which must become fully aware of and acknowledge its value. The profession can no longer with immunity shrug aside reasonable requests to mediate. The parties cannot ignore a proper request to mediate simply because it was made before the claim was issued. With court fees escalating it may be folly to do so.4

In a recent judgment, the Court further extended the Halsey principles.5 The Court stressed that 'silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable' and 'sufficient to warrant a costs sanction' (paras. 34 and 40). While the Court considered this to be a 'modest extension to the principles and guidelines set out in the Halsey case', it demonstrated that mediation had become commonplace and that, as a general rule, the refusal to participate in a mediation should be considered unreasonable. [Page29:]

In Nigeria in 2002, the Lagos State High Court of Justice and the Negotiation and Conflict Management Group, a Nigerian non-profit organization, established the Lagos Multi-Door Courthouse as a public-private partnership, with the objective of facilitating dispute resolution, mainly through mediation, within the Nigerian justice system.6 In 2007, the Lagos Multi-Door Courthouse Law was enacted, which established the Multi-Door Courthouse as a focal point for the promotion of ADR in Lagos State. In December 2012, Chief Judge Philips of Lagos State signed the new civil procedure rules of the Lagos State High Court, which made it mandatory for lawyers to explore whether a matter is suitable for settlement by mediation. Such matters now follow the ADR track to the Lagos Multi-Door Courthouse or another ADR institution.

In India, court-annexed mediation began about five years ago. Mediation centres have been set up by several High Courts, including those of Delhi, Chennai and Bangalore. Cases are referred to the mediation centres where mediators assist parties to settle their disputes. Where a settlement is achieved, the agreement may be sent back to the court for it to be made into an enforceable instrument. The statistics of the Bangalore mediation centre are impressive as they show that 65% of some 26,000 cases mediated between 2007 and August 2013 were settled.7 Sometimes cases that had been pending for several years were resolved within a few days. There have been instances where the Supreme Court of India has refused to entertain a petition concerning arbitration which ignored the provision of mediation as a remedy under the relevant contract.

5. Dispute resolution policies

The authors are convinced that the future will bring more mediation, with more corporations developing formal policies in which mediation plays a key role. Implementing dispute resolution policies is hardly rocket science, as illustrated by the approaches taken by General Electric and the Hinduja Group. For both companies, mediation plays a central role in the dispute resolution process and both companies have achieved through mediation results that they would otherwise have been unable to obtain. While the Hinduja Group opted for a more informal process, General Electric developed a number of policies implementing its early dispute resolution programme.

General Electric's early dispute resolution programme was introduced in the 1990s in response to the high cost of litigation in the United States, which sparked an interest in ADR including mediation. GE set itself the challenging task of updating its legal culture by taking a systemic approach to, and embracing alternative forms of, dispute resolution. Over a number of years, GE began institutionalizing ADR through various initiatives, including educational programmes for in-house lawyers showing matters that had been successfully resolved through mediation. The early dispute resolution programme required disputes to be resolved quickly and at low cost with minimal waste of management time and avoiding damage to important business relationships. An important component of the programme is the early case evaluation, which provides an assessment of the most likely best and worst case scenarios on the basis of the relevant factual and legal issues, including a calculation of the total cost of the dispute if it were to progress to litigation or arbitration. The early case assessment gives managers and lawyers the information they need in order to determine how a case should be handled.8

The Hinduja Group follows a more informal dispute resolution policy in which a clear message is sent to its businesses to resolve disputes through formal or informal mediation. As with GE, the guiding principle is that commercial disputes must be resolved as early as possible. Instead of adopting a formal policy, Hinduja has focused on creating a dispute resolution culture in which negotiation and mediation are essential components. The standard dispute resolution clause provides for mandatory mediation followed by arbitration. The dispute resolution process is managed by the Legal Department, which advises the Commercial Department on dispute resolution strategies. These always favour negotiation and mediation.

The aforementioned PWC report on arbitration in India highlights some other strategic benefits that may accrue from a dispute resolution policy when negotiating a contract. For example, the report notes that a dispute resolution policy '(f)acilitates discussion regarding the availability of important model clauses to mitigate potential risks when a dispute arises' and provides '(g)uidance for adoption of tiered dispute resolution procedures to minimise costs associated with dispute escalation. For example, in the event of a dispute, there are pre-determined levels of escalation in the company. These would ensure that disputes are addressed in time and by the relevant authority.'9[Page30:]

6. How to find and select a mediator

While the adoption of a formal dispute resolution policy often necessitates a cultural change within a company, we would expect that most smaller companies will simply attempt to resolve disputes by way of mediation, without first adopting formal policies. The actual mediation process is intuitive to most business managers. However, finding and selecting a suitable mediator may pose a challenge. Below is a short account of what can go wrong when the mediator is not qualified to assist the parties.

=> One of the authors was involved in a mediation in a country where commercial mediation is in its infancy. The local market for commercial mediators was small and lacked transparency (as is true in many countries). When the other party rejected the proposal to engage a reputed international mediator, as he or she would not be conversant with local laws, the parties agreed on a local mediator. The selection was essentially made on the basis of hearsay and the mediator was highly recommended. Following his appointment, the mediator did not engage in any discussions with the parties prior to the mediation day. After a short opening session, private meetings (caucuses) were held between the mediator and each of the parties. When the mediator entered our room for the first time, without being asked he immediately offered an opinion on the merits of the case and how the case should be settled. While the so-called mediation continued for most of the day, it had actually ended at that very moment. The parties did not settle during the mediation, and neither party involved the mediator in any of the discussions that subsequently took place.

One of the challenges when looking for a mediator is the availability of information for assessing the suitability of a mediator for a particular dispute. Without access to objective data, and without the adoption of common high standards in mediation, one is left with word of mouth, directory listings and self-proclamations by mediators which, as the example above shows, can prove most unreliable. This problem was acknowledged in the 2008 European Mediation Directive,10 which requires EU Member States to develop 'voluntary codes of conduct by mediators and organisations providing mediation services, as well as other effective quality control mechanisms' and to encourage the 'initial and further training of mediators' (Article 4).

While there have been attempts to adopt national accreditation systems for mediators, such as in Belgium and Romania, the International Mediation Institute (IMI) has set out to develop global, professional standards for experienced mediators, advocates and others involved in collaborative dispute resolution and negotiation processes.11 The IMI also operates a credentialing scheme to establish transparent and high standards for mediators. Under the scheme, mediators are required to collect feedback on their performance from parties and their professional representatives, appoint an independent organization or individual to condense it into a 'feedback digest' and then include it in the IMI mediator's profile.

In a dispute, the parties often have divergent perceptions, recollections and analyses of the facts and take positions that are impossible to reconcile. Moreover, they may be unhappy because something was done wrongly in their eyes or because the other party makes what they consider to be wrong accusations. There may also be a sense of personal betrayal when faced with allegations of wrongdoing after trusting somebody on the other side.

In most commercial matters, in addition to possessing the relevant technical and legal skills, a mediator must work to defuse emotions in a way that both parties understand and respect. Mediators need a wide range of attributes, skills and knowledge. A mediator should be able to build rapport and have active listening skills, a flexible approach and persistence. Moreover, a mediator should have analytical and problem-solving skills and the ability to deal with complex factual issues using clear, simple and neutral language. The mediator should also be able to separate personal values from the issues, have the ability to understand power imbalances and respect the parties' cultural sensitivities. The authors have seen numerous cases in which 'soft' skills such as these were key to resolving the dispute, while the knowledge of the applicable law or other technical skills were secondary, as illustrated by the following example:

=> One of the authors was involved in a large dispute where one party believed that the value of the claim exceeded US$110 million while the other party took the view that it was zero. In the mediation the mediator created a structured process, which broke the matter down into digestible elements and moved the highly contested elements into a more neutral territory. This process allowed the parties to narrow the [Page31:] gap in their perceptions of what had happened and led the way to a commercial resolution of the dispute.

7. Why administered mediation?

Institutional mediation provides a mechanism and time frame, as well as a codified process, for the selection of the mediator. While this may be perceived as limiting flexibility and adding cost, the mediation institute may be key to the mediation's taking place at all. In particular, where one of the parties is less familiar than the other with the mediation process, it may rely on guidance by the mediation institute in order to understand the nature of mediation and how the process works.

=> One of the authors was involved in a dispute valued at US$ 11 million with a party that was not familiar with mediation. The contract included a mandatory mediation stage and allowed each party to appoint its 'own' mediator unless the parties agreed on appointing a sole mediator. When negotiations reached an impasse, and the parties contemplated mediation, the other party expressed a preference for appointing one of its employees as 'mediator', which reflected a misunderstanding of the mediation process. Instead of rejecting the proposal, it was suggested that the other party should contact the ICC International Centre for ADR with a view to identifying suitable candidates to act as mediator. The other party accepted and a true mediation was able to proceed.

8. Conclusion

In today's globalized world where trade and commerce are witnessing exponential growth involving economies in all regions, domestic and cross-border commercial disputes are bound to rise. Consequent upon this change, foreign direct investments are also increasing, which will lead to further economic expansion. Companies that were already global are expanding and many companies from the developing and emerging markets are fast becoming global. A recent survey revealed that out of 100 start-up companies 27 were from emerging countries, many of which can be expected to grow into global companies in the coming decades. In such a situation, it is important for companies to have appropriate dispute resolution tools and policies, which must incorporate mediation.

It is also important for companies to be able to rely on mediation rules and services that meet their needs. The International Chamber of Commerce has for a long time played a major role in providing a platform for resolving commercial disputes through mediation and arbitration. Its dispute resolution rules are recognized by courts worldwide. The ICC's new Mediation Rules (effective 1 January 2014) continue that tradition, strengthening the appeal of the ICC's dispute resolution services worldwide.

1
Praxis des Konfliktmanagements deutscher Unternehmen, in collaboration with Europa-Universität Viadrina, Frankfurt (Oder) (PWC, 2007).

2
Corporate Attitudes and Practices towards Arbitration in India (PWC, 2013).

3
European Parliament, Directorate General for Internal Policies (Legal Affairs), 'Lessons learnt from the implementation of the EU Mediation Directive: the business perspective' (European Parliament, 2011) at 4, 'Key Findings'.

4
Court of Appeal, Burchell v. Bullard [2005] EWCA Civ. 358, referring to Halsey v. The Milton Keynes General NHS Trust [2004] EWCA Civ.576, [2004] 1 WLR 3002.

5
PGF II SA v.OMFS Company 1 Ltd [2013] EWCA Civ. 1288.

6
http://www.lagosmultidoor.org/

7
http://www.bangaloremediationcentre.kar.nic.in/statistics.html

8
An Early Case Assessment Toolkit can be downloaded from the CPR website. See http://www.cpradr.org/Resources/ADRTools/ EarlyCaseAssessmentGuidelines.aspx.

9
Supra note 2 at 8.

10
Directive 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters.

11
http://www.imimediation.org/. IMI is a Dutch-registered non-profit foundation. It is wholly reliant on grants and contributions from stakeholders, and is supported by numerous organizations and corporations including Shell, the GE Foundation, the AAA, the SMA, SIAC, the BCDR, the ICC and JAMS.