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Seeking the best possible compromise through mediation

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Mediation, a different approach to court-ordered liquidations

par Isabelle DIDIER

One often reads about a company’s court-ordered liquidation in the papers. The economic and social drama of such liquidations goes without saying—for the workers who lose their jobs, for the company executives whose reputation is tarnished, for the entire economic environment of subcontractors, shareholders and creditors… The company may have been around for generations and has come to symbolize a city or a region. When court-ordered liquidation occurs, all too often it unfolds as if the outcome had been predetermined, as a systematic annihilation over a period of months according to an implacable legal process.
As an officer of the court, I am at the center of this human, economic and legal vortex. Over and over again, I have seen the shipwrecks pile up as the result of hasty legal action. Ponderous and costly, legal proceedings fail to create adequate dialogue among stakeholders from the start to prevent the company from being auctioned off piecemeal and ultimately completely dismantled. Aside from being critical of the futility of this type of litigation, I have become convinced of one thing: court-ordered liquidations will always turn sour if they are performed without social or economic vision. Liquidations account for 90% of all bankruptcy proceedings today, yet most of the time the majority of creditors go unpaid, the tax authority recovers only 5% of the amount due at best, and the case winds up in a pit of frustration and failure.

But another outcome is entirely possible—a more sensible one, one that is more sensitive to the interests of all parties and to the company’s value. This alternative is called mediation. It offers a different approach to litigation by holding the litigants accountable, thus making them masters of their own fates and of their case. Having used mediation effectively in the field several times, I am promoting it and working to expand its potential applications in the hopes that it will become a normal and customary venue for companies in distress. My experience as an officer of the court has taught me that mediation probably offers the best utilization of available resources, whether human, technical or financial.
The neutral third party who listens to all stakeholders

Regardless of the specific circumstances, mediation brings in a neutral third party, i.e., a person who is not involved in the dispute. The third party’s job is to listen to all stakeholders and to create a neutral zone for dialogue when dialogue has broken down or become burdened with tension. He/she is a facilitator who “releases speech.” The third party’s legal status and the exact scope of his/her mission may take various forms, depending on the nature of the dispute and the socio-economic context in which it takes place. In its most basic form, for simple disputes, the third party is nothing more than a logistical platform or administration to help initiate dialogue. In that case, the third party is not a person but an automated system where stakeholders fill out a questionnaire stating their differences. eBay, the auction platform, does this on the web when there is a dispute between a buyer and a seller. In other situations, the third party’s job may be limited to listening, or he/she may be called upon to go further, to offer solutions or even formulate an agreement. In extreme cases, the third party may be an actual arbitrator who makes decisions that are binding on the parties. In the case of bankruptcy and reorganization lawsuits, the mediator is truly a neutral third party in the sense that he/she, as the creditors’ agent, takes part in the process without being involved in any disputes or quarrels. He is benevolently neutral in this capacity, a position that gives him the necessary latitude to smooth things over and adopt a fresh, integrated approach to the problem.

Adaptability to a variety of disputes

As I mentioned earlier, mediation can be used in very different situations. It definitely has a role to play in major conflicts among banks, investors, developers and corporations in the real estate field, for example. But it is also useful in consumer affairs, when there is a dispute between a company and consumers, or between management and employees. Mediation can also be used in private life to resolve family conflicts or disputes between neighbors. Obviously, this is just a partial list. Take the example of the Internet, which is particularly suited for mediation when conflicting interests spring up between one or more web users. As a worldwide web, the Internet brings extremely different national legal systems into play and any legal action quickly becomes a Chinese puzzle for anyone bold enough to attempt it. Faced with the legal uncertainties in a perpetually changing virtual world, mediation offers the advantage of letting the e-consumer take matters into his own hands when a dispute arises on the web. In so doing, the cybernaut remains a citizen in his own right with autonomous decision-making capabilities, the very incarnation of the spirit of the net.
Mediation offers strategic advantages for all parties, regardless of the type of dispute. Curious as it may seem, the insurance sector is the embodiment of a rather impractical administrative approach to bankruptcy and reorganization lawsuits. Absent mediation, the process is often reduced to exchanging expert opinions and documents, a course of action that can be drawn out for more than twenty years and once again shows a lack of any economic vision. Yet the insurance sector is well positioned to benefit from mediation procedures that rely on a broad-based approach not uncommon in the insurance business and because early valuation of resources—real property, personal property, human resources, and others—is of strategic importance.

The bad faith boundary

Having just reviewed the advantages of mediation—its sensibleness, its ability to reinstate dialogue when things fall apart between parties in conflict—we must also point out its limits. Mediation can only work in a well-defined framework where parties act in good faith, are willing to find a peaceful solution, and are open to compromise and discussion. It is not very effective when one of the parties to the dispute deliberately violates the other’s rights or if outright fraud is involved. More conventional, rigid and severe measures by an appropriate court of law are necessary in that case.

Mediation = discount justice?

Is mediation a sort of cut-rate parallel justice? I wish to stress the relationship—though some view it as an ambiguous one—between mediation as one option and conventional legal action as another. The question is a valid one, as it helps to determine where the boundary lies between these options, with their different approaches to conflict. But first, I must make it clear that mediation does not deliver binary responses—who is right and who is wrong—in terms of the law.
Mediation has long been practiced in France. Tracing its origins to the Old Regime, mediation was kept after the Revolution, proof that it has always had a role to play in resolving disputes among multiple parties, though its methods may change. The justices of the peace instituted in each township in 1790 by the new government had a clear-cut mission, one that survived until 1958: to judge in equity, and not just in law. So mediation did not appear ex nihilo on the French scene; rather, it belongs to a tradition, also found in other countries, of resolving differences through alternative means, and not necessarily procedural ones. As for the question of turning to the courts once a mediator has been brought in, one might look at it from this perspective: mediation is a liberating process founded on a personal desire to resolve the dispute without any party feeling like they are under the sword of Damocles. By no means should it be considered a required first step to a legal proceeding. However, it is worth noting that, in recent English case law, legal expenses are chargeable to the winning party if it did not previously request mediation. On the other hand, parties involved in mediation cannot be required to forego access to the courts at a later date.
Mediation proves to be just the opposite of “discount justice” in the case of bankruptcy and reorganization proceedings. It is qualitative, circumstance-specific, truly individualized justice, and it is precisely these qualities that give it the incomparable ability to resolve complex situations.

A simple approach, a demand for information

For all that, can mediation do without formalism? Does embarking on mediation mean we suddenly enter an uncertain world, a non-legal zone dependent on the vagaries of interpersonal psychology? Every citizen action falls within a specific legal framework, even if this ever-present link to the law is not apparent. Similarly, mediation is obviously de facto governed by contract law. But the contract can take a variety of forms, from the verbal agreement to a more formal written agreement. The latter has the advantage of protecting the parties when a mediation issue arises, but it can also create a new problem: a formal written contract may be equated with a settlement. According to the new Code of Civil Procedure, it would appear that an agreement that may be equated with a settlement would, de facto, deprive the parties of potential recourse to the courts, since the settlement resolves the dispute… Here, we are treading on uncertain ground, and once again there is a risk of distorting the spirit of mediation through an excess of formalism. I think we must vigilantly preserve the authenticity and trust inherent in any mediation. Stiff formality deters from the true meaning of mediation just as much as overzealousness does. This is where the third party plays an extremely important role, for it is up to him/her to trace a course of action towards resolution. It is also up to the third party to inform the parties very clearly about whether or not an agreement will constitute a settlement of the dispute and about the legal consequences of using mediation.

Mediation has proven to be the path of wisdom, one that seeks the best possible compromise among stakeholders and differing points of view, whether economic, financial, social, human or others. In a word, mediation is the most intelligent possible interpretation of the law. In this spirit, the choice of a good mediator, a good “guide”—one who is capable of giving enlightened information—will avoid many dead-ends. The benevolent neutrality of the mediator and his/her power of action devoid of self-interest opens up horizons waiting to be explored.

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