Introduction
It is vital for businesses today to take up a proactive approach towards legal risk management. A core part of managing risk is assessing the likelihood of disputes to arise from business relations and the consequent fallout of potential disputes. In a fast-moving business environment with exceedingly short deadlines, changing stakeholders and ever more common cross border trade and commerce, it is inevitable that disputes will arise. Quantitative modelling and the wide-spread availability of data combined with ever-increasing data mining by corporations, allows business actors to quantify the likelihood of certain kinds of contracts or contract clauses that end up in a dispute, [1] both at the level of individual companies and at the level of industries once macro insights are drawn. Taking this approach sheds light on the stark reality of how much money and time are wasted [2] on laborious litigation. Further, there is significant value in assessing which business models and practices open companies up to the risk of litigation. Thus, allowing for pre-facto checks to be put into place that could range from changing business practices to allocating a budget for potential disputes, would create a more risk-tolerant business environment.
It is highly likely that in a business relationship a dispute would arise. This necessitates a resolution mechanism that is conducive for businesses to partake in without experiencing heavy monetary, relational and reputational losses in the process. In this article the authors aim to understand the implications of mediation as a potential preferred resolution mechanism and its transformational effect on the way in which conflict scenarios are addressed in business settings. We also seek to posit the benefits of pre-institutional mediation at the level of the individual firm and analyze how this has a cascading effect on the business environment in a particular jurisdiction.
Mediation clauses as a necessity action
Most contracts that are premised in the context of an extended working relationship benefit from incorporating mediation as the preliminary form of dispute resolution as there is a chance to convert adversity into opportunity.[3] In a world where multiple transnational transactions take place, it is expected that disputes are commonplace. The objective of including a contractual clause necessitating mediation is to provide for a pre-decided method of non-adversarial dispute redressal before taking recourse to other forms of dispute resolution.
This seeks to facilitate a communicative process to solve the dispute at hand at the first instance as opposed to more coercive forms of resolution. This way, the emergence of a dispute does not automatically expose a party to an expensive and time-consuming litigation procedure. Rather it equips parties with the tools to attempt resolving the matter in an informal setting while looking for a mutually beneficial solution that often involves aligning incentives. This, in turn, creates an environment that is solution-oriented and free of the procedural intricacies that form a major part of the litigation process. If mediation does not provide the parties with satisfactory results, they can always switch to arbitration or litigation.
Another important aspect of choosing to opt for mediation is that on a psycho-social level it signals an inclination to resolve a dispute amicably.[4] This, however, flies in the face of the emotions an individual feels when they have been wronged. Thus, a way around falling prey to the inevitable anger/stress that frustrates reasonable decision making at the time of a dispute is to opt for a 'mediation first' approach. The mindset of an individual entering into a business relationship is significantly different from their mindset when such a relationship has been strained. Thus, a sensible approach is to allow for a relatively soft resolution option (mediation) to either be mandated by law or adopted at the stage of entering into a contract. Regardless of the success of the process, mediation enables parties to adequately discuss issues, identify positions and allocate priorities.
Thus, a culture of pre-institutional mediation is propitious on two fronts; first, is at the level of an individual firm; and second, is the overarching effect it has on the business environment of the country. In the subsequent paragraphs, we will attempt to analyze both these phenomena.
Pre-institutional mediation and individual firms
Firms find a foothold within the relationships they form and maintain. These extended interactions find their basis in mutual trust, communication, and cooperation. The outcome of a conflict, when parties take the litigation route, more often than not ends in termination of the relationship and an atmosphere of animosity. Taking a high-level view, this fallout harms economic growth and the potential for rapid scalability of business ventures such as blitzscaling. This because high-risk, high-impact strategies for growth can only be adopted in environments where firms have established trust and are confident that disputes resulting in long drawn out litigation would not arise. While it is impossible to prevent all potential disputes, effective and non-adversarial modes of resolution such as mediation mitigate the fallout from such situations and increase the likelihood of multiple high growth businesses in each sector of the economy.
Philosophically, mediation as a method of dispute resolution does not attempt to arrive at a win/lose outcome, rather it breaks this binary and attempts to unite the parties to find an agreed-upon solution to the problem at hand. It seeks to create a positive space for parties to take control of the situation and rebuild the relationship rather than terminating it in the interest of short-term gain. Parties play a proactive role in the resolution process which provides them ample opportunity to voice their issues. Since proceedings are devoid of legalese, parties often get the chance to talk about their real priorities. This provides the necessary assistance in the rejuvenation of a trust deficit.[5] A meditation setting seeks to even the playing field by amalgamating differing interests and objections into a mutually beneficial and agreed upon solution, in order to further and foster the existent relationship.[6] In cases where businesses look to terminate the relationship, mediation aids amicable separation rather than one that harbours resentment.[7] Thus, it allows businesses to find new partners and create less deadweight loss as a result of wasteful and time-consuming litigation.
Over time this translates into greater ease of doing business, which is a result of increased trust in the economic climate. Increased trust is a necessary component of a mature economy and is the only way of enabling economic efficiency apart from overwrought regulation.
Conclusion
Mediation as a method of dispute resolution caters to the loss-minimization goal of businesses in the face of a conflict. This is served in terms of the expense, time and the relationship between the parties. Additionally, it facilitates a communicative resolution that is free from the rigid legal procedure that accompanies litigation. Preserving business relationships using pre-institutional mediation would be a step in the right direction in correcting the massive trust imbalance in the Indian economy and would go a long way towards providing businesses with a financially viable way of resolving disputes. The adoption of mediation at the preliminary stage will therefore provide for a pre-decided first step, eventually altering the default recourse to dispute resolution thus leading to the furtherance of a more positive solution-
oriented approach.
[1] Little, M., 2018. How to Measure and Manage Legal Risk. [online] Berkman Solutions. Available at < https://www.berkmansolutions.com/articles/risk/how-to-measure-and-manage-legal-risk >.
[2] The Office of The Victorian Small Business Commissioner, 2007. Forming and Maintaining Winning Business Relationships. [online] Available at: < https://www.vsbc.vic.gov.au/wp-content/uploads/2014/09/vsbc-winningbusinessrelationships-finalreport.pdf >
[3] Tarman, Z., 2016. Mediation as an Option for International Commercial Disputes. Available at < https://dergipark.org.tr/en/download/article-file/853265 >
[4] Hoffman, D, and Wolman, R., The Psychology of Mediation, Cardozo Journal of Law. Available at: < https://blc.law/wp-content/uploads/2016/12/The-Psychology-of-Mediation.pdf >
[5] Bhalotia, S., 2016. Let Mediation Help Your Business. [online] Mediate.com. Available at: < https://www.mediate.com/articles/BhalothiaS1.cfm >
[6] Feehily, R., 2015. Commercial Mediation: Commercial Conflict Panacea or an Affront to Due Process and the Justice Ideal? The Comparative and International Law Journal of Southern Africa, [online] 48(2). Available at: < https://www.jstor.org/stable/i24583512 >
[7] Cenkus, B., n.d. Mediation vs Litigation in Resolving Business Disputes. [online] Cenkus Law. Available at: < https://cenkuslaw.com/forget-litigation-arbitration-mediation-best-option-resolving-business-disputes/ >
