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The Case for Corporate ADR

International ADR

By Maria Fernanda Pecora Gédéon December 2015

In the past few years in Brazil, conciliation and mediation have been gaining momentum as instruments for speedy and peaceful conflict resolution, both judicially and extra-judicially. Neither mediation nor conciliation are new to the legal framework. But they have always been applied very timidly.

The National Council of Justice, or CNJ, which aims at improving the operations of the Brazilian judicial system, has had a fundamental role in stimulating mediation and conciliation by publishing Resolution 125/2010.

This resolution created the Judicial Centers for Conflict Resolution and Citizenship, also known as CEJUSC, which are tasked with performing pre-trial conciliation and mediation sessions, whose hearings are carried out by tribunal-accredited conciliators and mediators.

In 2015, conciliation and mediation received a further boost due to two new statutes:

  • (i)the new Civil Procedure Code (Statute 13.105 from March 16th 2015), which brought forth several mediation devices, a clear incentive for the mediation use, and
  • (ii)the Statute of Mediation (Statute 13.140 from June 26th 2015), which deals mainly with mediation between private parties as a way of solving disagreements. [See the accompanying article at right.]

The introduction of mediation in national law is certainly a great encouragement to the practice. In actuality, however, its use as a manner of extra-judicial conflict resolution is independent of the existence of specific legislation.

Now, the parties can always negotiate and, to that end, their willingness to talk to each other does not depend on any specific legislation, although the Civil Code establishes, for instance, some law-of-obligations regulations on good faith in negotiation.

One should not “straitjacket” mediation, given that one of its basic principles is voluntary action and trust of the parties in the process, which cannot be forced down the parties' throats. The Statute of Mediation has done the right thing in determining that no one is obligated to stay in a mediation process, although one must be present at the first meeting where there is a contractual mediation clause.

The Statute of Mediation also was correct in establishing the guiding principles of mediation, namely: (i) mediator impartiality; (ii) equality of the parties; (iii) “orality;” (iv) informality; (v) freedom of choice of the parties; (vi) search for consensus; (vii) confidentiality; and (viii) good-faith (Art. 2, §1 and §2 of Statute 13.140/15).

The Statute of Mediation also determines that any person “who is trusted by the parties and is able to carry out mediation may act as an extrajudicial mediator, irrespective of being a member or registered with any kind of council, group entity or professional association.” The parties may be assisted by their attorneys or by public defenders (Arts. 9 and 10, Statute 13.140/15).

More than laws, however, it is necessary that mediation be well understood in order for it to be well applied as a pacifying and conflict-resolving tool, especially extra-judicially.

According to the Statute of Mediation, mediation is considered to be the technical activity exercised by an impartial third-party who has no decision-making power. The mediator is chosen or accepted by the parties and encourages and aids them in identifying or developing consensual solutions to their conflict (sole paragraph of Art. 1, Statute 13.140/15).

In practice, the mediator acts as a facilitator in interpersonal and intercorporate relations by using specific and multidisciplinary techniques so that the parties jointly build a solution for their conflicts.

In a preliminary phase of a conflict resolution process, it is common that the parties start negotiating without the mediation of any third party. Maybe this is enough, in most cases, to eliminate their disagreements.

But there are always those negotiations that reach an impasse over certain aspects, starting a conflict whose resolution is usually submitted to the adjudication by a third party, be it through the judicial system, or by sending the conflict to an arbitral tribunal, over which the parties have no control.

Many times, the strong and unwavering—even if mistaken—conviction of being completely in the right on the facts and the law, and the exhaustion of all means of convincing the other party of that view, is what leads a party to delegate decision-making power to a third-party.

That discards the mediation option, since it is truly believed that the judge or arbiter will validate that position.

A Hope for ADR Help

The premise: Mediation is the best bet for conflict resolution in Brazil.

The reasoning: The courts are overwhelmed. And, familiarly, just look at the arbitration costs the author details.

The mediation growth prospects: Strong, but not necessarily because of the nation's new law. The nation's political scandals and economic downturn are affecting existing business deals—re-opening contracts to negotiation and amendments.

Too late along the proceedings, that conviction starts weakening and disappointment sets in. Indeed, recourse to the courts or to the arbitral tribunal leads to unsatisfactory results to both parties in the vast majority of cases.

There is a Chinese saying that well expresses the frustration that is often felt at the end of litigation, even when a party has won: “Winning a lawsuit is getting a chicken after losing a cow.”

OVERWHELMING LITIGATION

First, examine the Brazil judicial system.

It is interesting to note that the first big push for the introduction of mediation came from the agency whose goal is to improve the Brazilian judicial system's operation, the CNJ. The agency itself acknowledges that the delegation of the decision-making power over a given cause should be an exceptional measure. The view is that it is more logical that the parties first seek amicable and non-adversarial ways of solving their conflicts.

The CNJ's 2014 report points out that there were more than 95 million lawsuits in the country, which will be heard by around 17,000 judges in proceedings with an average duration of eight years until the final verdict. On average, each judge will be responsible for judging 5,687 proceedings!

In 2015, the Brazilian Magistrate Association, referred to here by its acronym AMB, launched the “justice scoreboard,” a tool accessible through social networks for estimating, in real time, the number of suits entering the judicial system. A large display, commonly known as the “lawsuit-o-meter,” was also installed in front of the Tribunal of Justice of the Federal District (Brasilia).

According to the lawsuit-o-meter, at this writing, there are more than 106 million proceedings currently in the judicial system, of which more than 42 million should not really be there. With the goal of weakening the “litigation culture,” the AMB developed this methodology, which shows that a new lawsuit gets into the judicial system every five seconds.

You can see the AMB's “Placar da Justiça,” nicknamed “processometro,” here: www.amb.com.br/novo/?page_id=23202.

Arbitration as an alternative way to solve conflicts has become more effective in Brazil starting in 1996, with the enactment of the Statute of Arbitration (Statute 9.307 (Sept. 23, 1996)), removing jurisdictional power from the state by consensus. This was a great advancement because it allowed the selection of a qualified person who has the trust of the parties to decide a conflict.

But arbitration also creates some obstacles for the resolution of a dispute. The greatest one, beyond a shadow of a doubt, is cost. Regardless of the actual amounts being disputed in an arbitration or the particular Arbitration Chamber chosen to resolve the matter, the costs involved are quite high—and those costs don't count the opportunity cost, when the parties could be engaging in a productive activity instead of wearing themselves out in a litigation posture.

It is not worth it to resort to arbitration in order to solve small-case demands, inasmuch as costs involved can be much higher than the effective gains. Just as a reference, an arbitration before the Center for Arbitration and Mediation of the Brazil-Canada Chamber of Commerce, with a single arbiter, can have costs varying between Brazilian Real $125,000 to decide a BR$100,000 matter, and BR$150,000 for deciding a BR$4 million case.

In the case of a three-member tribunal, costs can vary between BR$275,000 for deciding a BR$100,000 cause of action, and BR$350,000 for a BR$4 million matter. Note that these values do not include other costs such as attorney fees, experts, or transportation, not to mention the opportunity cost.

A link to the CAM/CCBC calculator can be found at http://bit.ly/1SlMoJi.

Therefore, simply including an arbitration clause in a contract could represent a restriction on access to justice. Therefore, the parties should weigh the advantages and disadvantages before introducing an arbitration clause, with the understanding that their choice excludes the possibility of later resorting to the judicial system.

In this context, mediation becomes a rather attractive alternative to solve a fair portion of all conflicts, for several reasons. Besides offering a less traumatic result, since it is up to the parties to build their own agreement, it presents undeniable advantages as far as costs, promptness, and confidentiality, among many others.

In corporate conflicts, the parties commonly reject mediation based on the argument that they already have negotiated as much as they could, and resorting to mediation would be a great waste of time. Continued negotiation makes no sense if the other party's representatives are unable to change their minds. Parties also object because mediation is not legally binding.

But this option should not be so easily dismissed.

CLASSIC EXAMPLE

The classic mediation example involves two businessmen in fierce competition for buying an orange, in which causes the price to reach unthinkable values. Only after one of the parties has bought the orange for a price that was much higher than market value did they find out that one of them only wanted the skin, while the other only wanted the juice.

‘[S]imply including an arbitration clause in a contract could represent a restriction on access to justice.’ In the current context of Brazil's economy, mediation becomes an even more relevant tool, because the nation is undergoing a turbulent crisis caused by political corruption and an economic slowdown.

In effect, had the parties listened to each other, both would have profited in that they would have bought the orange for a reasonable price. That is the so-called win-win scenario.

Mediation doesn't always end in such perfect agreements such as this one. But mediation always enables the parties to perceive alternative solutions that they could not see simply due to having put themselves in impervious, and sometimes arbitrary, positions.

Mediation's great trick consists of opening a communication channel that is based on voluntariness, confidentiality, and trust, in a way in which the parties abandon their closed positions and start evaluating their real interests and needs.

This is not an easy thing. Mediation's success rests on the qualifications of the mediator who, besides inspiring the parties' confidence, must know, and properly employ, the many sophisticated facilitation techniques that enable dialogue.

In the current context of Brazil's economy, mediation becomes an even more relevant tool. The country is undergoing a turbulent crisis caused by political corruption and an economic slowdown that has sent the value of the Brazil Real into a tailspin, leading to downgrades of the nation's debt. See Reuters, “Standard & Poor Downgrades Brazil's Credit Rating to Junk” (Oct. 9, 2015)(available via Huffington Post at http://ow.ly/U5aAa). The crisis to a certain extent has been unexpected, and has made a great deal of uncertainty for the population.

This will affect contracts.

In such cases, the parties either negotiate a contract amendment, or they end up in a dispute where one of them claims the immutable and mandatory nature of contracts (“pacta sunt servanda”) and the other will try to make a change-of-circumstances theory (“rebus sic stantibus”) prevail, which allows the changing of an agreement in view of the unpredictable changes in the factors involved in its inception.

In a large portion of cases, a judge or an arbiter, even if gifted with Solomonic wisdom, will not be able to find a satisfactory solution at the speed that the business world demands. And the result, even if it agrees with one of the parties, might be more disadvantageous to the winner than a solution built by the parties themselves.

Mediation, on the other hand, results in replacing the clash of positions by the analysis of interests and a way of adequately combining them. To that end, the mediator might bring to the surface, with the appropriate techniques, some latent conflicts, some covert feelings, some more basic interests that the parties might not have wished to present so clearly in the negotiation phase.

The parties could also be embarrassed to clearly state their interests in front of each other, fearing that such revelations might be used against themselves. As the mediator gains the trust of both parties, he or she can have access to their true interests in order to help them reach their own agreement, or at least lessen the sticking points.

From that, a bridge emerges that enables the parties to find a solution that balances their interests, and which could even create new business opportunities.

One of the regular and virtuous results of mediation is making one side see the other's point of view, transforming conflicting relationships that are on the brink of being severed into relationships that foster new business. In short, it has the potential to produce a prosperous and lasting relationship between parties who previously litigated.

Then comes the question: “Would you rather be right, or happy?”

Mediation can be a good option for business executives and parties, generally, who prefer the path of happiness.

Biography

  • The author is a partner in the São Paulo office of Gouvêa Vieira Advogados, which also has offices in Rio de Janeiro and Paris. She coordinates the firm's corporate area, and is a mediator of the Conciliation, Mediation and Arbitration Chamber—CIESP/FIESP—Federation of Industries of the State of São Paulo, of the CBMA—Centro Brasileiro de Mediação e Arbitragem (Rio de Janeiro), and the Mediação Online.


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