Mediation is defined in Black's Law Dictionary as ``a private, informal dispute resolution process in which a neutral third party, the mediator, helps disputing parties to reach an agreement.''
In contrast, arbitration is a formal, quasi-judicial process where a neutral third party, `the arbitrator' renders a binding award on the basis of material placed before him. Arbitration proceedings closely mirror proceedings in a court of law.
In a voluntary effort, the mediator facilitates communication between parties and encourages settlement. There is, unlike in arbitration, considerable latitude available to the mediator, as he can privately discuss the merits of a dispute with each party individually -- unthinkable in the adversarial arbitration process.
In this context, there seems to be a considerable lack of clarity as to the scope of the words `mediation' and `conciliation'. There is, for example, no consistency in the use of these terms worldwide, and a number of ADR systems perceive them to be synonymous. The US and Australia use the term `mediation' while `conciliation' is commonly used in China, Japan, Thailand and Singapore.
Black's Law Dictionary also fails to resolve this distinction, if any, by defining the word `conciliation' as ``the adjustment and settlement of a dispute in a friendly, unantagonistic manner, used in courts with a view to avoiding trial and in labour disputes before arbitration.''
It is interesting that the United Nations Commission on International Trade Laws (UNCITRAL) has rules for conciliation and not for mediation, while the World Intellectual Property Organisation (WIPO) has rules for mediation but none for conciliation. Even the CPC (Amendment) Act incorporates, for the purposes of mediation and conciliation, the language used in the UNCITRAL Rules for Conciliation, thus perpetuating this verbal ambiguity. One is also, of course, tempted to ask why a reference to both conciliation and mediation is made in the CPC (Amendment) Act, if both are the same.
As the French arbitrator Professor Charles Jarrosson says, there is a subtle difference between mediation and conciliation -- one of degree rather than nature. Mediation is a more proactive form of conciliation, the latter being more passive in the sense that the conciliator has an evaluative role as opposed to the facilitative role of the mediator. Unlike a mediator, who has to be active and see that justice is done, the conciliator is a withdrawn neutral.
Why mediate?
The primary reason for mediation is always that litigation is time-consuming and expensive, and a litigant typically has little control over the litigation and the final orders passed. Mediation, by comparison, has certain inherent advantages that are particularly useful to a financial institution (FI).
First, the process can be slotted into a specific time period, as the FIs and banks may deem fit. Second, the conduct of a borrower in the mediation process is a good indicator of his conduct in future dealings. A promoter's reluctance to participate and co-operate in the mediation process or to repay dues, and his actions in the course of mediation, are indicative of his actions in future litigation and thus help chart the institution's future strategy, such as the timing of its recovery actions.
Moreover, the institution typically blocks up a portion of its resources to grant reliefs and concessions to its borrowers. Reschedulement of loans; waivers of compound interest and liquidated damages; and reduction in the rates of interest are extended to most defaulting borrowers. The conduct of the promoters in mediation helps identify the promoter/company to whom such concessions should justifiably be extended.
When to seek it
Ideally, mediation should be resorted to before litigation, when positions are more flexible and before substantial sums have been spent. Typically, there is a time difference between an account becoming irregular and recovery suits being filed against a company. It is in this period that mediation may be resorted to by companies between whom channels of communication have broken down.
It could be a handy tool to assess the promoters' commitment, preparedness to meet eventualities, capacity to bring in additional contribution or enhance security, before the company slips further and finally becomes a non-performing asset (NPA) or before a hostile atmosphere sets in.
Every FI has a certain component of defaulters whose businesses have failed or who are in distress on account of legitimate reasons. There is yet another class of wilful defaulters, who typically render their businesses sick after siphoning off funds from the company. Financial distress in these companies is induced. In both types of cases comes a stage when entreaties asking the companies to pay up no longer generates a satisfactory response. It is at this stage when the institution could consider inviting both sides to try mediation.
Mediation also proves useful when it is used to help sides take positions in complex financing arrangements. While negotiating structured financial deals, there could be times when mediators are required to assist the parties analyse competing positions. Given the fact that every representative can at best appreciate his own position, a mediator sometimes helps one side perceive the inherent logic in the opposite point of view.
Effectiveness
The success of mediation always depends on goodwill and a willingness to resolve disputes. Its voluntary and informal nature allows parties to evaluate the progress made in resolving their dispute and offers them the option to exit an unfruitful exercise; such freedom is not available to those involved in litigation or arbitration.
Despite the factors limiting the efficacy of mediation, it undoubtedly remains as a strong tool in the hands of participating institutions, to devise a mutually acceptable and workable reschedulement of debt in potentially stressful cases. By and large, mediation tends to succeed, and personal commitment and involvement in finding solutions could be more effective than Court orders.
Some Case studies
The Microsoft anti-trust case is a fascinating study of the mediation process (http://www.pcworld.com/news/article/0,aid,68407,00.asp, accessed Febr. 8th, 2006, 3:30 p.m. GMT, and for more on the case: http://www.mywiseowl.com/articles/Microsoft_antitrust_case, accessed Febr. 8th, 2006, 2:30 p.m. GMT).
Judge Thomas Penfield Jackson hearing the matter referred it for voluntary mediation to Justice Richard A. Posner, a sitting Federal US Judge, in November 1999. The entire process of mediation took four months as opposed to two- to three-year period it was likely to take in the courts. Expressing his disappointment at the failure of the process, Judge Posner made certain observations about the criticality of success in such matters and how the success of mediation would have been in national interest.
According to Justice Posner, almost twenty drafts of the consent decree were prepared in the matter, but disagreements, between the parties concerning the likely course, the outcome and consequences of continued litigation as well as the implications and ramifications of alternative terms of settlement, were too deep seated to be bridged (see: http://www.pbs.org/newshour/bb/cyberspace/jan-june00/posner_4-3.html, accessed Febr. 8th, 2006, 5:20 p.m. GMT)
The last word about the mediation came from Bill Gates himself who, while insisting that the details of the mediation were confidential, pointed out that ``it was unfortunate that a settlement wasn't possible. Microsoft had offered concessions beyond what a court would have requested, and mediation failed because of the difficulty in finding a common ground among so many parties.''
In 1999, Afro-American farmers filed what became the largest civil rights class action lawsuit in US history (http://usinfo.state.gov/journals/itdhr/1299/ijde/pitts.htm, accessed Febr. 8th, 2006, 2:00 p.m.).
The suit, namely, Black farmers v. The Department of Agriculture, alleged discrimination by US Dept. of Agriculture (USDA) in delaying or denying loans and withholding technical assistance crucial to the farmers' livelihoods. The parties agreed to mediation pending litigation, with the USDA taking the lead. Though in the early stages eight attempts failed, mediation finally succeeded, making it the largest recovery in a civil rights case in the history of the country and set a precedent, avoiding long and costly court proceedings in future civil cases. Asked why the Government agreed to such a large settlement, an official responded saying that as the USDA decided it could not win the suit in a court -- as there had been discrimination -- they thought it best to arrive at a settlement through mediation rather than pay the huge damages which a court order would have entailed.
by jose pascal da rocha, josepascal.darocha@proconsensus.org
