Misconceptions about commercial mediation

Enterprises' decision to choose a dispute resolution method is greatly influenced by what attorneys or in-house counsels advise them. In particular, commercial mediation is a method that brings high efficiency and has the potential for development. However, this method has yet to receive good recognition from many attorneys and has not been chosen by clients. The cause of this comes from several misconception, mainly as follows.  

Firstly, Mediation is not an effective method, as parties can quit the mediation process at any time. This attitude exists not only among clients but also among attorneys. If the attorney himself does not believe in the effectiveness of mediation, it will be difficult to persuade the client, not to mention the other party in the dispute, to agree to mediate. Even if the parties have agreed to mediation, each party may terminate the mediation process at any time. This belief is incorrect because the parties' freedom to enter and terminate the mediation process is a key feature of mediation; the parties can only be satisfied and properly implement the mediation settlement agreement if they voluntarily come to it. If the parties are forced to enter an agreement, as it is not the outcome they want, then the tendency to violate and undermine the mediation settlement agreement is more likely.

Secondly, Mediation is costly and time-wasting because if the mediation fails, the parties still proceed to Arbitration or the Court. During the mediation procedure, the statute of limitations for lawsuits at Arbitration or the Court is still counting; if the mediation process prolongs and the parties are unable to resolve, the parties might lose the right to initiate the lawsuit because the statutory deadline has passed. On the other hand, in case of unsuccessful mediation, the parties have to pay not only the costs of the legal proceedings but also the costs of the mediation. All of those is another misunderstanding because (i) the cost of mediation is the cost for the opportunity for successful mediation, and for a reasonable fee, the parties get a chance of a successful mediation at a rate of up to 70-80%; (ii) even if the mediation is unfruitful, the parties have gotten to know each other better, reduce confrontation and find things in common. Therefore, it will help minimize the scope of the dispute in the legal proceedings.

Thirdly, The attorney must submit all evidence during the mediation process. To show good faith, lawyers or parties initiating mediation tend to share evidence they obtain during negotiations, but nothing guarantees that the other party is vice versa in good faith. Therefore, it leads to the thought that when mediation fails, the other party can prepare evidence or counter-arguments detrimental to the party who provided the evidence. This belief is inaccurate because the mediation process is confidential, and the parties are not allowed to bring information and evidence during the mediation process submitted to the Court or Arbitration.

Fourthly, Due to mediation, attorneys will lose their income and perform a less significant role in litigation in Arbitration or the Court. From a practitioner's perspective, attorneys often believe that their duty is to represent clients to present their claims and opinions and provide evidence to prove that their client's claims are valid and that the opponent is wrongful. During the mediation process, the role of the attorneys will be insignificant, thereby causing attorneys to lose the income derived from jobs where they can play more significant roles in protecting the rights and interests of clients, such as litigation in Court or Arbitration. As further explained below, it is a mistake in enterprises' views and a violation of ethics in legal professions.

Proper understanding of attorneys in mediation

First, the role of attorneys is significant because they must be present in mediation sessions and even in separate sessions before and after. Therefore, participating in negotiation and mediation can provide potential income for attorneys than participating in litigation.

From the client's perspective, they always want to resolve the dispute without litigation, and mediation is one of the compelling methods to satisfy the client's needs. Clients claim they do not need an attorney in the mediation process because they do not consider an attorney's participation necessary. First, in mediation, attorneys are needed to clarify issues not only on substantive matters but also on procedural matters affecting clients' rights and interests. Attorneys need to explain and prove to clients that their presence is necessary. In fact, the mediation does not process quickly because when the parties mediate on their own, they have yet to understand the root of the problem and each other's objectives that they have to enter the mediation. As a result, the parties cannot solve the root of their conflict of interest. Therefore, the attorney's role in helping the parties understand the nature of the problem and providing advice to the client is crucial. Furthermore, lawyers can request a success fee if the client finds the mediation option appropriate and the dispute is resolved quickly.

In addition to the monetary values above, attorneys can gain a reputation in mediation activities. In the long run, the value of attorneys in mediation will be higher than that of attorneys in litigation because of the uncountable potential benefits the parties enjoy from mediation. In a successful mediation, the client will trust the attorney who wants the best for the client rather than pushing the dispute to a climax to charge high fees. Even in case of unsuccessful mediation, the client or even the other party in dispute will also recognize the attorney's opinion of cooperation, good faith, and improving business efficiency for clients, and they can refer the attorney to other clients.

In addition, attorneys participating in mediation also have an opportunity to add on new skills and expertise beyond advising in entering into contracts or litigation - jobs familiar to the practice of attorney. Psychologically, the attorney himself will feel more comfortable and satisfied when the dispute is resolved amicably and both parties are pleased with the results.

Effective Cost Strategy

“The nominal winner is often a real loser—in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man.” – Abraham Lincoln (ca. 1850).

If we compare the income and expenses spent on resolving disputes by mediation or proceedings, we can see that:

Regarding the income derived from winning the case/successful mediation, generally, to achieve successful mediation, the parties usually have to give up some benefits, so the income derived from successful mediation will not be as large as the income derived from winning the case (in case the entire claim is accepted). Let's take an illustrative example, assuming all of the client's claims are accepted, they will receive $50,000 according to the Court's judgment or Arbitrator's award, but in mediation, they will only receive $30,000.
Regarding the attorney's fee, because the role of lawyers in litigation is often more pronounced and the client even hires several lawyers to achieve maximum efficiency, the attorney's fee in litigation will be higher than the attorney's fee in mediation. On the other hand, because the mediation process is usually shorter than the legal proceedings, eventually, the hourly attorney's fee in mediation will also be less than that in the proceedings. Thus, if the attorney's fee when participating in the proceedings is about $16,000, the entire attorney's fee in mediation is only about $10,000.

Regarding administrative costs, these costs comprise court fees in Court proceedings, arbitration fees in Arbitration proceedings, and mediation fees in commercial mediation. With the same disputed value, the mediation fee will be lower than the fee for proceedings at Arbitration or Court. Assuming the administrative cost of the proceedings is $10,000, mediation costs only about $2,000.

Regarding costs for third parties, in legal proceedings, because the results of dispute settlement are not within the control of the parties as opposed to mediation and also carry higher risks; thus, costs for third parties in legal proceedings will also be higher, approximately $15,000 while that in mediation is only about $5,000. In total, winning the case in Court will result in a net income after deducting expenses of $50,000 - $16,000 - $10,000 - $15,000 = $9,000, and the process lasts for years. Conversely, successful mediation will produce a net income of $30,000 - $10,000 - $2,000 - $5,000 = $13,000, yet taking to account the great benefit of preserving good relations between parties and the dispute resolved in much less time.

Thus, although the income derived from successful mediation is not as high as the income derived from winning the case in legal proceedings, the cost that the client pays for mediation is less, and the final income is even higher in a shorter period of time (mediation takes about 1-2 months, while the proceedings can be months or even years). Mediation not only helps the parties resolve disputes faster and more cost-effectively but also can help enterprises gain other benefits from maintaining a good business relationship.

Business Philosphy and Ethics of Legal Profession

Compared to other dispute resolution methods, commercial mediation has many outstanding advantages. First, a prominent feature of mediation is a participation of a facilitator-mediator. Mediators play a critical role in mediation. Firstly, the mediator has the vital task of helping the parties so that the parties are aware of and understand the advantages of mediation. Secondly, a mediator is a person who has the skills and qualities to connect and stimulate, encouraging parties to meet and discuss in an amicable, open, and cooperative manner, better understanding the position of each party and the benefits that they can gain through mediation when compared to other methods such as Arbitration or proceedings at the Court. With the objectives and role of Mediators, who are professionally trained and have professional qualities, experience, and responsibility, mediation will help the parties achieve the wanted effectiveness.

In addition, time efficiency, cost-efficiency, and maintaining a good relationship between the parties to the dispute are three outstanding advantages of mediation compared to other dispute resolution methods. For example, VIAC is one of the International Arbitration Centers with the highest rate of dispute resolution time in the world, and the average rate is approximately 6 months; with complex cases, it can be up to 2-3 years. Meanwhile, with mediation, the time for the parties to prepare, discuss with the mediation center, meet and discuss with the mediator only takes a month; the cost is also saved quite a lot compared to settlement at the Court or Arbitration. If mediation is successful, the relationship between the parties is better as they are "win-win" than participating in proceedings where there will always be one side winning, one side losing, or both parties losing.

The other factor that attorneys must not neglect when advising a client decides to participate in mediation, as well as directly assisting the client during the mediation process, is the obligation of the lawyer to act in the client's best interests. This obligation is prescribed in the code of ethics of the legal profession of most countries in the world (1). There should be two approaches to this obligation:

Firstly, It is the attorney's duty to inform and The other factor that attorneys must not neglect when advising a client decides to participate in mediation, as well as directly assisting the client during the mediation process, is the obligation of the lawyer to act in the client's best interests. This obligation is prescribed in the code of ethics of the legal profession of most countries in the world. There should be two approaches to this obligation:explain to the client the mediation option and the benefits, costs, procedure, and result of the mediation to the client.

Secondly, Attorneys are obliged to provide dedicated support to clients, using their professional knowledge and skills to defend their clients' legitimate rights and interests in mediation. In particular, attorneys are not allowed to try to sabotage mediation or the outcome of the mediation to push the client into a position where they are forced to participate in litigation if such procedures are unnecessary.

The above obligations also demonstrate the business philosophy for the maximum benefit of the client and do not conflict with the economic interests of the attorney himself. In the long run, the business philosophy with a cooperative and good faith perspective, focusing on the financial interests of clients and parties, will bring many benefits to the mediation attorneys, and the overall business result will be better for attorneys than the business philosophy that is emphasizing on competitiveness, excluding the benefits of mediation and pushing disputes into legal proceedings to win favorable legal results in the Court or Arbitration.

Conclusion

Thus, in most commercial disputes, mediation effectively reduces the cost and time in resolving disputes and brings economic and other benefits to parties. Litigation attorneys are obliged to explain, guide and assist clients to choose and participate effectively in mediation while conducting other dispute resolution methods to protect the maximum interests of clients and eliminate redundant costs and time.

(1) For example, in Vietnam, it is stipulated in Rule 5 – Best protection of clients' legitimate rights and interests in the 2019 Code of Ethics and Professional Conduct for Vietnamese attorneys.