Mediation of Commercial Disputes
This is the second of a four part series of posts which will provide an overview of each of your dispute resolution options: Business Negotiation, Mediation, Litigation and Arbitration. See: Compare Dispute Resolution Options
Mediation of commercial disputes or commercial mediation is often described as an “assisted-negotiation.” It is a dispute resolution process in which a third-party, who does not have a stake in the outcome and often does not know any of the parties at the table, facilitates the negotiation between the parties to help bring about a settlement. It is a voluntary process. In contrast to litigation and arbitration, in a commercial mediation, neither side is legally compelled to participate in the process. It is also a confidential process. Akin to the confidentiality protection of settlement negotiations in most states, the mediation process offers parties a forum that is private and flexible to resolve their dispute.
For the parties, the mediation of commercial disputes is very similar to a business negotiation. The key difference is that in the commercial mediation, the mediator continually guides the parties towards generating and considering options for resolution. It is this “assistance” that exponentially improves the probability that a settlement will be reached. The parties’ negotiation is elevated in importance and purposefully directed by the mediator to attain a resolution.
For the purposes of this article, the terms “commercial mediation” or “business mediation” are intended to encompass mediation of commercial disputes arising out of a business/corporate context, including but not limited to, disputes between employee/management, principals, and third parties external to the business. Business mediations between a company and outside third parties are often referred to as commercial mediations. See: Commercial Dispute Resolution and Employment Complaints Mediation
Every successful mediation of commercial disputes requires a professional mediator who is adept at the art of negotiation and experienced in resolving business disputes.
The process of mediation consists of six stages:
1. Mediator’s Opening Statement
2. Parties’ Opening Statements
3. Joint Discussion
4. Private Caucuses
5. Joint Negotiation
Mediator’s Opening Statement
The mediator’s opening statement is critical to the ultimate success of a business mediation. It is designed to achieve three purposes: to inform the parties of the voluntary and confidential aspects of the process, to establish rapport between the mediator and the parties, and to share the procedural steps and agenda of the process with the parties. It is this opening statement that lays out the quasi-formal nature of every business mediation and which ensures that everyone at the table is on notice of their rights within the process.
Dependent upon the type of business dispute at hand, the mediator’s opening statement will strive to underscore the importance of understanding, compromise, or problem-solving. For example in an employee/management dispute, each party’s understanding of the other’s position is crucial to acknowledging the impact of one’s actions on the other. Only then can the parties move forward to considering options that would effectively address each other’s concerns. Without the acknowledgement, the aggrieved party may likely resist to consider options for resolution-even less be open to settlement. Contrastingly, in a commercial mediation where money damages are sought by one party, the mediator will emphasize to the parties the need to be open to compromise and to seek out alternative trade-offs that may make the aggrieved party sufficiently satisfied to settle the case.
In addition, this opening statement is an opportunity for the mediator to facilitate a negotiation of the ground rules and procedure within the mediation. Establishing the agenda of issues in dispute, the order in which to discuss them, agreeing to which of the parties will speak first, and when a private caucus might be appropriate, all allow the parties with opportunities to compromise before a discussion of the substantive issues even begins. This “procedural negotiation” creates successes for the parties in reaching agreement and also signals to each party and the mediator, a party’s negotiating style.
Parties’ Opening Statement
The parties’ opening statements consists of each party presenting their position to the mediator and the opposing party. Although both parties may have counsel present at the table, it is often preferable for each party (rather than his attorney) to present his position. Ultimately it will be each party’s decision whether or not to settle the dispute. Accordingly, each party speaking for themselves lends to the effectiveness of the process for purposes of resolution. Attorneys are always welcomed to speak and often add statements after their client present’s his position.
As it is the case with every business negotiation each party and their attorney need to prepare for the four stages of negotiation. The better preparation of each side for the business mediation in terms of negotiating the substantive issues, the more likely the parties will reach a satisfactory agreement to both sides.
The second stage in a business mediation informs everyone of the parties’ positions and often signals their willingness or resistance to settlement. It is a key factor for the mediator and the opposing party to learn in order to effectively move the process towards resolution.
The joint discussion is a business negotiation between the parties. Accordingly, the parties undergo the three stages of a business negotiation that take place at the table: information bargaining, proposal and concession-making, and commitment.
Information-bargaining allows each party to ask the other questions about their positions, objectives and interests. Moreover, the mediator also has the opportunity to ask questions but has the unique ability to frame the negotiation by what and how she asks the questions of the parties. In so doing, the mediator proactively defines the dispute in terms that allow for multiple options for resolution for the parties to consider. After the question-asking, parties have the opportunity to make proposals to each other.
While in a business negotiation, parties may reach an impasse that they can not overcome during the proposal-making stage. Contrastingly, in a business mediation the mediator has the ability to help the parties overcome the impasse by meeting privately with each party and their attorney. This meeting is referred to as a private caucus.
Often parties reach an impasse because they do not want to reveal information that might weaken their position or diminish their objectives of the mediation. In a private caucus, each party (outside of the hearing of the other) can speak openly to the mediator about their reservations and concerns about a proposal. This informs the mediator and equips her with factual information, which may remain confidential per the disclosing party’s request, but which helps the mediator help the parties overcome the impasse. How? The mediator can propose a compromise that addresses the disclosing party’s concerns without revealing the confidential information shared by that party.
If the mediator meets with one party and his attorney, then she must meet with the other party and his attorney. Typically, equal time is afforded to the meeting with each side so as to maintain fairness and objectivity within the process.
This fifth stage of a business mediation is the crux of proposal and concession-making stage. Once again in this stage the parties may reach an impasse, and without a third-party to “assist” their negotiation, they might more readily walk away from the table without a resolution. In a business mediation the mediator can propose a resolution (“the mediator’s proposal”) to the parties. Having had the benefit of observing, listening and interacting with the parties jointly and independently, having access to confidential information about each party’s concerns, all equip the mediator to structure a proposal that meets both parties’ objectives. Moreover, in light of the mediator’s perceived impartiality, a proposal coming from the mediator often garners more trust and favor from a resistant party and may more readily lead to consensus.
At all times, from the beginning of the business mediation to the end, the mediator is engaging the parties in the generation of options to resolve the dispute. The mediator’s proposal lays a framework for the parties to either, consider the proposal as a settlement, or to revise the proposal to meet both parties’ concerns.
Once the parties agree on a proposal, the final stage of a business mediation is at hand. Here is when the mediator performs one of her most valued services for the parties: she ensures both parties’ understanding of the terms and conditions of the proposal, the language used in the proposal and identifies issues the proposal may not include but which the parties should consider for inclusion. The mediator does this–all to ensure the successful resolution of the dispute but ultimately to ensure that the parties’ written agreement will accurately reflect their intentions and each party’s commitment to settlement.
Given that participation in a business mediation is voluntary, it may not come to mind as the first dispute resolution option to resolve your dispute. However, due to the significant time and money saving benefits, it is important to consider the business mediation option throughout the course of your dispute- before litigation and during litigation. A party who refuses to participate in a business mediation in the early stages of your dispute, may become much more amenable to doing so after months of protracted litigation and consequent court costs and legal fees. The offer of participating in a business mediation should emphasize the opportunity to engage in a process that is confidential, private and cost-effective. Moreover, if there is no settlement at the end of a business mediation, both parties’ retain their right to file a lawsuit or a complaint for arbitration. The key is for both sides to be aware and informed of a business mediation as a legitimate dispute resolution. The benefits of participation are too great to by-pass this option.
Cite: Mediation Stages