Mediation of business disputes – a solution for court backlog

Georgia’s business community should, in theory, be one of the biggest consumers of mediation – a cheaper and faster form of alternative dispute resolution than litigation. This is particularly beneficial in Georgia where there is a shortage of judges and cases are often delayed, costing businesses time and money.

Mediation allows parties to discuss their disputes in a private, confidential setting and arrive at an agreement that both sides find acceptable. In court hearings, winners and losers are determined by the court. But in mediation, parties have an opportunity to decide for themselves the best outcome, with the resulting agreement providing a partial or full resolution of the dispute.

Mediators are the main players in the mediation process. Although the mediator does not decide the outcome, he or she advises and guides the parties, helping them to understand the important issues for reaching the resolution. This is why the mediators have to meet rigorous professional development and ethical standards.

In countries that have developed systems for mediation and arbitration, the majority of commercial disputes never reach a court but are instead mediated or arbitrated. For example, in the UK, more than 16,000 commercial cases were mediated in 2020 alone with an 86% success rate, totaling approximately $21 billion in disputes. The reverse is true in Georgia.

Georgian businesses and lawyers alike have highlighted the need for more timely court procedures and provided many examples of how the delays and long timelines have damaged business and even encouraged dishonest behavior. According to the Views of Businesses on the Court System in Georgia survey commissioned by USAID in 2021, a large number of businesses cited extended timelines for court cases and delays in trials among the primary challenges in doing business in Georgia.

Despite these problems with the court system, Georgia’s businesses rarely use alternative dispute resolution mechanisms. The main reason for this is low awareness within the business community of the advantages of mediation and arbitration. This low awareness consequently results in low trust in these mechanisms.

Georgia’s government, in partnership with international donors, has taken steps to increase access to alternative dispute resolution mechanisms. For example, USAID’s rule of law programming in Georgia has prioritized the development of mediation for more than a decade. It helped design the first court-annexed mediation pilot, trained judges on the referral of cases to mediation, and trained the first pool of internationally accredited Georgian mediators. The European Union has also supported training for mediators and mediation trainers to expand the number of mediators who can offer these services across the country and provided technical assistance in the drafting of the Law on Mediation.

Several recent developments in Georgia pertaining to business dispute mediation should catch the attention of the business community. In September 2019, the Parliament of Georgia adopted the Law on Mediation, which had several important outcomes. It led to the creation of the Mediators’ Association of Georgia (MAG), which is a membership-based self-regulatory body that develops standards for the certification and accreditation of mediators, administers the system for entry into the profession, and defines and ensures the implementation of ethical standards. MAG unites over 140 certified mediators across the country. The Law on Mediation also led to the High Council of Justice’s adoption of the Court Mediation Program, which made the expansion of mediation possible. As a result, there are now 14 mediation centers co-located with regional courts throughout Georgia. The law also provides for suspension of limitation periods during mediation proceedings and the enforceability of mediated settlement agreements – two aspects that are often important for businesses and lawyers.

While courts can require parties to mediate (parties can also choose to mediate themselves), the number of cases referred for mediation is still low. However, there are reasons to be optimistic.

Statistics from the longest-standing and largest court-annexed mediation center at Tbilisi City Court show that the average settlement rate over the years has been around 60%, and that the ratio of parties honoring the agreements is over 90%. Most mediations conclude within 45 days of the appointment of a mediator, and in cases that do not end in a settlement, the judges sometimes prioritize the timely scheduling of court hearings for parties who attempted mediation.

Apart from court-annexed mediation, as soon as a business faces a potential problem requiring negotiation with a business partner, the entities themselves can suggest engagement of a skilled mediator to help facilitate the discussion before lodging a claim in court. The list of the accredited mediators can be found on the website of the Mediators Association of Georgia, which can also be asked to appoint a mediator if the parties are unable to do so on their own. Another triggering mechanism for mediation is the use of the multi-step dispute resolution clauses in contracts. The inclusion of a multi-step dispute clause makes mediation a necessary step before any court or arbitration proceedings may be filed. Such clauses often ease the process of engaging in a consensual dispute resolution process without the invitation being perceived as a weakness.

By managing and resolving their problems swiftly without lengthy and costly legal proceedings, companies can focus all their resources on their own business rather than the ‘business’ they are not into – dispute resolution.