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Have you ever had a problem with a business partner? Or been "forced" to go to Court to look for judicial redress vis-à-vis a defaulting debtor? Or to look for a lawyer because of a serious breach of contract you were party to? How much will it cost you financially and, more importantly, in terms of time, if you were never unable to solve a domestic or even a cross-border dispute amicably?

According to the World Bank 'Doing Business' data, in Europe, in 2012, the length of a court action to resolve a commercial dispute (from the moment the lawsuit is filed until the decision is enforced), ranged from a minimum of 275 days in Lithuania and 280 days in Norway to a maximum of 1,210 days in Italy and 1,290 days in Slovenia. Total estimated cost of the claim: from a minimum of 9.7 percent of the debt value in Luxembourg to a maximum of 41.50 percent in Ukraine.

To better understand the data it must be noted that the World Bank factors in court costs and attorney fees, records time in calendar days and considers the total value of the claim to be equivalent to 200 percent of income per capita. Just a brief glance at these numbers provides ample evidence that the total cost of commercial disputes is enormous to enterprises. What's more, the problem appears to be even greater if we consider that SMEs voluntarily leave 25 percent of their disputes unsolved, thus giving up significant portion of their income.

Can this be changed? Yes.

Businesses could avoid time-consuming and costly legal procedures by systematically referring to Alternative Dispute Resolution (ADR) schemes (or out-of-court mechanisms) to settle B2B disputes. ADR is a method to solve disputes through a non-judicial procedure, such as conciliation, arbitration and mediation. Focusing on these three mechanisms it has to be pointed out that each of these methods has a different degree of procedural flexibility and each of them differs with regards to costs, decisional processes and enforceability of the final settlement.

Arbitration is a method where disputing parties voluntarily defer the case, not to the judge but to an impartial arbitrator (or a panel of arbitrators) that will determine the outcome of the dispute. Arbitration is definitely less expensive and more accessible than a trial, but compared to other ADR schemes such as mediation, it still has some disadvantages. An arbitration scheme always involves the adoption of formal or semi-formal rules of procedure and evidence, and therefore the risk is that the parties lose control over the decision. In arbitration there is little space for self-determined solutions as parties are normally limited to legal remedies.

Conciliation is characterised by the referral of the case to a conciliator that, as an independent and impartial third party, assists the parties towards a satisfactory settlement of the dispute. A conciliator has an active role in advising the parties about possible solutions and in proposing the terms of settlement during the conciliation process. Conciliation emphasises (more than arbitration) on building a positive relationship between the parties in the dispute and it is a much more negotiation-driven proceeding than arbitration. Conciliation is generally most used in civil law countries rather than common-law systems and (differently than mediation) is a method used to prevent possible conflicts from developing.

The third ADR scheme, mediation, differs from both arbitration and conciliation. It is the least expensive, and a more effective and faster way of solving B2B disputes. By referring a dispute to a mediator, parties do not divest themselves of the decision process. The mediator, indeed, is by definition a neutral and impartial third party (normally appointed jointly by both parties to the dispute) whose role is to facilitate a dialogue in a structured multi-stage process without proposing possible solutions. Mediators help parties to identify a mutually-acceptable settlement of their conflict through an agreement that will be binding on both of them.

Largely used in the US where it has become the predominant ADR process, mediation has not been yet fully exploited in Europe even if many studies have demonstrated that it is the best option for businesses. B2B mediation preserves good and long established business relations, allows parties to avoid late solutions that would freeze a part their financial assets (without taking into consideration all additional attorneys' and judicial proceedings' costs) and offers the advantage of time-saving, a crucial point for all businesses.

Contrary to the ease of access to mediation and its overall advantages, mediation is mainly used by large companies. From a survey’s findings on the use of B2B mediation in Europe (published in April 2013 by the European Commission) there seems to be a direct link between the company size and its openness towards ADR schemes (and in particular mediation). Half of the large companies surveyed (52 percent) have used at least one ADR scheme to settle B2B disputes, compared to 28 percent of SMEs. Among SMEs, medium enterprises were keener to choose mediation (32 percent) as compared to micro-enterprises (21 percent).

The advantages an SME would gain from referring its disputes to a mediator are incontestable. The difference between ADR schemes and court proceedings with regard to length and costs has been demonstrated to be significant.

On average, in Europe, to resolve a domestic dispute in a court takes 17.8 months, whilst a mediation style ADR scheme takes only 7.3 months. To solve a cross-border dispute through mediation takes 5.8 months, whilst taking the problem to court takes an average of 15.2 months.

If this is not enough evidence, consider this - when it comes comes to costs, the advantage of mediation is even more striking. To solve a domestic dispute through court, an enterprise can spend up to €11,500, as when compared to €2,700 spent when using a mediation scheme. For cross-border cases the average costs are €13,000 for bringing the case before a judge and €6,000 to settle the dispute through mediation.

So why is it that mediation is still not used to its maximum efficacy? Primarily due to a lack of awareness about ADR schemes in general. Many companies don't know about the existence of mediation, nor do they know how to begin an ADR procedure. Some companies think that mediation is expensive in context of the debt value and fear a negative outcome to their business relationships. And of course, many believe mediation will not solve the dispute.

But here is where your incubator can make the difference. Advise your incubatees about ADR available schemes, support them in including ADR and mediation clauses in their commercial contracts and give them all the data you can find on ADR, as well as a list of mediation centres (normally held by trade and sectoral associations) where they have access to a full overview of the ADR schemes best-suited to their needs.

Alexia Hengl is a lawyer with over ten years’ experience advising public and private clients on industrial relations and commercial and public contracts.
Published on 24-05-2013 20:43 by David Tee. 1196 page views

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