Mediation as an instrument to solve conflicts in compliance related issues and international contracts

Summary: Companies with international projection and global presence can count on mediation and its benefits in the different contexts of their business, both in the compliance of the code of conduct and internal rules as well as in the compliance of contracts and projects with third parties or public authorities. In the same way, it facilitates access to a saturated justice system, while at the same time improving the relationship between the parties, as they do not have to face the wear and tear of the judicial phase, which leads to emotional wear and tear.

I will focus on the intersection between compliance and mediation, as international corporations are increasingly interested in the potential of Mediation applied to compliance frameworks. Although there are a few important challenges that we need to mention, the benefits of international mediation are clear: costs savings, quick solutions and a good understanding between the parties. International mediation and compliance go hand in hand and, although they may not seem to have much in common, they complement each other. The purpose of this article is to illustrate with some practical examples the advantages of compliance mediation for small and medium-sized enterprises operating internationally, in order to demonstrate the potential that exists in this combination.

Mediation is a form of alternative dispute resolution (ADR) that involves the intervention of a neutral third party, known as the mediator, to help disputing parties reach a mutually acceptable agreement. Unlike litigation, which involves a judge making a binding decision, mediation allows the parties to control the outcome, facilitating a more collaborative and flexible approach to resolving disputes.

In the context of compliance issues and international contracts, mediation offers a unique advantage by addressing both legal and non-legal aspects of disputes, such as cultural differences, business practices, and organizational relationships. This flexibility is particularly important when dealing with international contracts, where cross-cultural understanding and respect for diverse legal systems are essential.

The key is still the same recipe as the initial negotiation of a contract. The parties objectively and in a neutral atmosphere and collaborative approach, find ‘solutions’ to their disagreements where both parties win. The so-called win-win is still the best scenario in which the parties should meet again in dispute resolution. I always insist on the word ‘reconnect’ because of its positive connotation in any relationship. Mediation allows the parties to negotiate a mutually acceptable outcome, preserving the relationship between them, with the additional value of cost and time efficiencies and confidentiality guaranteed throughout the process.

Mediation benefits compliance programmes in two keyways.

Resolving internal compliance issues

This is accomplished through facilitating communication and conflict resolution among employees, promoting a culture of dialogue, transparency and accountability. When a company uses mediation to resolve conflicts arising from internal compliance-related situations, it helps to prevent a conflict from escalating in proportions both in the form of legal action and disputes that may involve the public administration.

A clear example is conflicts related to the code of conduct, where disputes often arise at the HR level. Another example is that arising from conflicts of interest. In both cases the connection lies in the common goal of promoting ethical behaviour, improving communication and resolving conflicts in a way that helps the employee and the company to follow its internal rules and achieve the required standards.

Mediation opens a space for dialogue and amicable conflict resolution, facilitating employees’ professional and personal growth in a sustained way over time.

Another example can be conflicts related to cross-border labour issues applicable to the same company, whether private, non-governmental organisation or conflicts between private and public companies. The reasons for the conflict may be related to harassment issues or pay inequality issues. For example, the internal pay system within an international organisation should consider the following elements:

• Remuneration represents by far the most important and controversial element of the employment relationship and is of equal interest to the employer and the employee.
• The remuneration system should be based on and consistent with the principles of the organisation.
• The criteria for determining remuneration should be objective and measurable.
• The system should be equitable.

Conflicts often arise around these elements and companies should be transparent, through comprehensive policies, about their position on non-discrimination, harassment or inclusion of their employees within their organisation and the markets in which they operate.

Mediation can be a channel to help find solutions to equality and non-discrimination issues between employees within the same organisation. It also obliges companies to consider the standards of international legislation (e.g. CSRD) when implementing their policies. We are seeing that it is not a ‘nice to have’ but a ‘must have’.

Resolving disputes with external parties

Mediation can be used to enforce commercial contracts or in projects. It helps prevent disputes between companies or between companies and regulators, foster better relations, and ensure compliance standards are met without resorting to litigation. Mediation promotes cooperation between the parties and helps reduce the risk of future contractual violations.

A clear example of the benefits of the use of mediation in compliance arises in the international context where legal certainty is required for both parties, as well as fair and reasonable management of a long-term project. In some cases, there is a public-private element to the dispute as the public sector is involved (either in licensing issues or as a regulatory authority). This may create some confusion in the roles and rights of the parties, which makes perfect sense when the interests of the investor (private equity) and the community or private parties are very diverse.

For context, we might think of environmental, social and governance issues that are receiving serious attention from governments and regulators, given the impact on the planet and the people within the communities where they live. Mediation offers a way to resolve these conflicts by facilitating open communication between the parties involved. For instance, if a company is accused of breaching a country’s environmental regulations, mediation can provide a platform for the company and regulatory authorities to discuss the issues, share concerns, and negotiate a solution that satisfies both parties. Instead of pursuing punitive measures or resorting to lengthy legal battles, mediation can help parties find common ground and craft a solution that supports compliance while preserving business relationships.

A concrete example is mining activities, which contribute greatly to the involvement of foreign entities in resource-rich countries, involving, on a large scale, both foreign and domestic interests, and potentially resulting in pollution and damage to the environment. In addition, there are various problems, especially the use of land for mining activities, which causes friction between mining companies, communities and local governments where mining activities take place. Since these projects take place over a long period of time and involve various interests of both private and public actors as well as communities, mediation is undoubtedly a good way to prevent disputes during the whole process of project development and implementation, offering in conflict situations not only a quick solution for both parties but also a fair and reasonable management of a project in the long term.

Another tool, with elements of mediation, which is recommended for the successful completion of large projects, as for instance construction projects, are Dispute Boards, a panel of one to three members with extensive experience in the field of the contract, who accompany the execution of the contract until the work is completed on time and on budget. This method is not a pure and simple mediation, although it resembles it, because the Dispute Boards, in particular the so-called DAAB (Dispute Avoidance and Adjudication Board), permanently seek to avoid conflict and, if it arises, to encourage the parties to find a solution or to make it binding. I will go into more detail on this subject in another article.

Hereby, we can also mention internal control and auditability towards third parties, be they customers or suppliers. The EU directive (CSDDD) puts the emphasis on indirect suppliers in the supply chain. It is therefore important that when establishing a business or investment partnership, all parties involved have a similar level of compliance with standards. In this regard, framework compliance agreements, which are compliance agreements that regulate the compliance obligations of both parties’ subject to a service contract, are very common.

Aspects of compliance in such contracts may include, among others, anti-corruption policy, fee evasion, international sanctions, trainings, reporting requirements and ways to audit the compliance clauses agreed in the service contract, as well as the escalation clause to resolve disputes amicably, using the various existing ADR modes.

In the context of commercial contracts, mediation is used to resolve disputes related to non-performance, late deliveries, payment problems, interpretations of clauses or any other dispute arising from a commercial agreement, including any aspect of the compliance agreement as referred to above.

For an internationally developing company it would be advisable to promote mediation as the type of dispute resolution in conflicts with third parties. One way to promote mediation as an effective means of dispute resolution could be through a clause of voluntary submission to mediation in all transactions with third parties, followed by arbitration or submission to the courts of a certain jurisdiction, known as a tiered dispute resolution clause. These clauses provide for a gradual system of dispute resolution following various alternative methods of resolving disputes, usually culminating in arbitration if the outcome of the first alternative methods is unsuccessful.

The choice of conflict resolution through mediation is a ‘win-win solution’, whose confidentiality is guaranteed in the face of public attention. Based on these advantages, mediation is considered more suitable to be implemented (agreed, including with the escalation clause) in a contract.

Challenges of Mediation in International Contract Disputes

Despite its many advantages, mediation is not without its challenges. Some of the key obstacles include:

Lack of Enforcement Mechanisms: Mediation agreements are typically non-binding, meaning that parties are not legally required to adhere to the terms of the settlement. While mediation can result in a mutually agreed-upon solution, enforcing the agreement may require the parties to enter into further negotiations or even resort to litigation if one side fails to honour the agreement.

Cultural and Language Barriers: In international contract disputes, cultural differences and language barriers can complicate the mediation process. It is important to select mediators who have experience with cross-cultural communication and who understand the legal systems involved. Without such expertise, the mediation process may be ineffective.

Reluctance to Mediate: Some parties may be reluctant to mediate, especially if they perceive it as a sign of weakness or if they are unfamiliar with the process. This reluctance can be overcome with proper education and a clear understanding of the benefits of mediation.

Although we can say that there is a growth of mediation around the world and the level of satisfaction of the use of mediation is based on its core values, which are impartiality, confidentiality and self-determination, the promotion of the mediation is still an important challenge.

Conclusion

In the case of internal compliance, mediation usually takes a more reactive role, i.e. when the conflict has already surfaced within the company or organisation; whereas, in the case of third party compliance, mediation takes a preventive role, such as in the case of Dispute Boards, although it also helps to resolve a commercial conflict between parties who wish to continue to maintain a business relationship. In both cases the objective is the same, to try to find common ground between the interests of the parties in order to resolve or avoid a conflict that could lead the parties to a legal dispute.

As international trade continues to grow and the complexity of global regulations increases, businesses and organizations can benefit from adopting mediation as a strategic method for resolving conflicts. By fostering cooperation and understanding, mediation can help build stronger, more resilient business relationships and ensure long-term success in a global marketplace.

Companies need to adhere to their own compliance programmes, but also to the programme of their customers, suppliers or banks with whom they collaborate. Not only is there a need for expertise to know the legal framework applicable to the industry, but there is also a need for conflict resolution when conflicts arise or even to act pre-emptively. Legal battles are expensive, time-consuming and damaging to business relationships. Many jurisdictions and industries are already demanding an obligation for parties to exhaust alternative dispute resolution methods before moving to the litigation phase.