Conflicts between economic agents are inherent in business relations. Dispute resolution is often achieved through negotiation in order to maintain partnerships and commercial trade. When negotiation between the interested parties is not enough to pacify and resolve the conflict, the rupture of the commercial relationship is inevitable and there may be a legal dispute.
In both Portugal and Brazil, dispute resolution through the court system could be a sluggish and ineffective journey due to the Judiciary’s inability to deal with the exponential increase of lawsuits and the judges’ lack of experience in settling commercial disputes. These countries have modernized their legislation to offer alternative options to safely and effectively settle commercial disputes. Among the Alternative Dispute Resolution methods are mediation, conciliation and arbitration. Mediation and conciliation are known as self-resolution methods as parties themselves settle the dispute with the support of a third party (mediator or conciliator). On the other hand, arbitration is a third-party remedy as is the outcome is decided by the arbitrator or arbitration court.
Mediation is widely used to resolve commercial disputes in the United States and, until recently, it was barely known in Portugal and Brazil. However, the new mediation statutes passed in both countries – Act No. 29/2013, April 19, from Portugal, and Act No. 13.140/2015 from Brazil – enable it to be used more frequently.
Mediation principles and the preservation of the business relationship
Portuguese and Brazilian statutes define mediation as a dispute resolution method in which interested parties seek to reach an agreement with the support of the mediator. The mediator is a neutral and impartial third party chosen by the parties – or appointed by the Court in Court-annexed mediation – who support them to reestablish communication and, wherever possible, reach a settlement. The parties must be treated equally by the mediator.
Willingness, or parties’ freedom of choice to participate, is the basis for mediation as it only comes to be if the interested parties so wish. Similarly to engaging in business relations, initiating mediation and reaching a settlement depend exclusively on parties’ freedom of choice. Once mediation has started, parties can freely withdraw from the proceeding and seek a judicial or arbitration solution.
Unlike a lawsuit, mediation is based on confidentiality which means the information must be kept secret by the parties, the mediator and other individuals who participated in the proceeding. Therefore, it prevents the exposure of sensitive information regarding commercial disputes. Information confidentiality is only not applied in exceptional circumstances.
In private (Portugal) or extrajudicial (Brazil) mediation, the mediator is freely chosen by the parties, who will prioritize selecting someone who has knowledge and experience in their business field. Thus, for example, in a conflict between an automobile company and a supplier of raw materials, an engineer or administrator can be appointed as mediator. In public (Portugal) or judicial (Brazil) mediation, the mediator must fulfill specific requirements stipulated by law.
Mariana França Gouveia and Joana Campos Carvalho summarize mediation’s advantages to business relations: “it is something that companies, in their commercial disputes, seek, inasmuch as it offers a quick and cost-effective solution to the dispute. Moreover, it enables, in contrast to regular litigation, which as a rule is more confrontational, the maintaining of commercial relations. In other words, once communication between the parties is re-established, frequently parties’ interests are easily reconcilable because both wish to maximize their commercial profits. This maximization involves, quite often, entering into new business that brings much more present and future benefit than indemnification.” (2017, p. 715).
Mediation and the lawyers’ role
Although mediation is a consensual dispute resolution method, lawyers have a central role in assisting interested parties as far as they could cooperate to research alternatives to reach an agreement and clarify doubts. Sílvia Ventura Mota explains that the lawyer “has a fundamental role of client assistance and counseling in different stages of the procedure” and “listens to his or her client to identify and define the real problem, ascertains facts and damages, analyzes the range of risk, costs and the probable duration of a lawsuit.” (2016, p. 26).
Considering that the mediator does not need to have a law degree, the participation of a lawyer is essential to draft the terms of agreement so that it follows the law and, consequently, is subject to enforcement by the judicial system in case of non-compliance.
Portuguese law authorizes the participation of a lawyer in commercial mediation, as well as Brazilian law in extrajudicial mediation.
An issue discussed in Portugal occurs in the situation where one party is represented by a lawyer and the other is not. Maria Clara Calheiros weighs that “it is natural that the second one has a feeling of a certain lack of protection” (2014, p. 60). The situation is particularly aggravated in cases of greater complexity because “without this assistance, many of the parties will not feel sufficiently confident to participate in a mediation procedure and will refuse it.” (CALHEIROS, 2014, p. 60).
Brazilian law, in turn, solves this problem by not requiring lawyer representation in extrajudicial mediation except if “only one party is represented by a lawyer or public defender, the mediator must suspend the procedure until all are properly assisted”. In a country that has substantially higher inequality than Portugal, the Brazilian lawmaker made the appropriate choice by ensuring that extrajudicial mediation does not take place when one of the parties is represented by a lawyer or public defender and the other is not. Whereas in judicial mediation the participation of a lawyer or public defender is mandatory apart from lawsuits with a value of less than 20 times the minimum monthly salary, which are within the jurisdiction of small claim courts.
Portuguese and Brazilian law have innovated by allowing mediation clauses in contracts or any other written agreements. In other words, parties can agree in advance that conflicts related to a specific commercial relationship are subject to mediation before filing a lawsuit or starting arbitration.
Firstly, we clarify that the clause does not impose an obligation on parties to reach an agreement in mediation, but only to attend the pre-mediation session, in which any of them can choose not to proceed with the mediation and, then, adopt the appropriate judicial or arbitration measure.
It is important that the mediation clause provides the criteria for choosing the mediator, the responsibility for the payment of his/her fees and other expenses, the procedure to start mediation and the place where it will be carried out. A more convenient option is to choose a mediation center, as it usually has a list of mediators, procedural rules and the parties can previously estimate costs and fees. Whether in Portugal or Brazil, there are several reliable centers that can be elected in the contract to conduct mediation.
The advantage of the mediation clause is that it establishes a neutral environment for negotiation, if direct contact between the parties is not sufficient to reach an agreement. It is also an opportunity for the lawyer to participate in the negotiation – with a more technical and less emotional view of the situation, without necessarily filling a lawsuit or an arbitration procedure which can intensify hostility. If an agreement is not viable, the Judiciary and arbitration doors remain open.
Agreement and mediation effectiveness
Mediation is an option to resolve the dispute that does not harm parties’ rights as the beginning of its procedure implies the suspension of the “statute of limitations” until the “conclusion of the mediation due to the refusal of one of the parties to continue with the procedure, the deadline set for the mediation is reached or when the mediator determines the end of the procedure ” in Portuguese law, and the statute of limitations “while the mediation procedure is underway” in Brazilian law. In other words, in the case that there is no agreement in mediation, parties will still have enough time to protect their rights through a lawsuit or arbitration.
As long as the mediator properly applies mediation techniques, combined with parties’ cooperation, it can result in the resolution of the conflict through the agreement.
In both Portugal and Brazil, an agreement in mediation is binding and enforceable, provided that it fulfills the requirements imposed by the respective legislation. An agreement not ratified in court has executive power in Portugal and constitutes an extrajudicial enforcement order under Brazilian Law.
Also, in both countries, the agreement can be ratified by the court and, in this case, it is treated as a judicial enforcement order. That is, it allows the agreement to be executed by the same judicial enforcement procedure. Depending on the nature of the dispute, the agreement may even be ratified by an arbitrator or arbitration chamber, whose decision has the same enforceability as a court ruling.
The new Portuguese and Brazilian Acts ensure that mediation could be a safe and effective method to resolve business conflicts as they provide general guidelines for judicial and extrajudicial mediation, judicial enforcement of the agreement, and define mediators’ role and responsibilities.
The option for mediation in business conflicts can be positive regardless of its outcome as it keeps the dispute confidential and under the parties’ control. If there is an agreement, it is likely that the parties will be able to maintain their business relationship because the solution was based on extensive dialogue during mediation sessions. Even if an agreement is not possible, there is no prejudice for them due to the suspension of the statute of limitations during the mediation and it will still be possible to start a judicial or an arbitration claim.