Why is mediation useful in dispute relations in the economy?

“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser — in fees, expenses, and waste of time.” – Abraham Lincoln in 1850 who recognized the importance of mediation.

Mediation is based on fundamental principles: leave the power, respect rights, believe in justice, but find your own interest. Mediation represents an alternative way of resolving disputes that allows the parties involved to reach an agreement, all with the assistance of a neutral third party – the mediator. The primary goal of mediation is to settle mutual rights and obligations through alternative solutions by approaching the problem constructively and reaching a mutually acceptable solution that both parties agree upon. Mediation can be the best solution as it offers the parties the opportunity to step away from their initial positions, allowing them to consider all the positive and negative aspects of the disputed relationship and the opposing party’s position, which is a prerequisite for finding a mutually satisfying resolution to both parties’ interests. Due to all of the above, mediation encompasses all key aspects of “negotiation”: defining the problem, proposing possible solutions, choosing a solution, making a decision, implementing the decision, and evaluating the success of the decision. Additionally, the mentioned ability to consider the broader perspective contributes to the potential peaceful resolution of disputes.

The process of mediation unfolds in several phases that follow a logical sequence. It is important for the mediator to adhere to the order of these phases to control the process and finalize it by reaching an agreement. Of course, this is not always the case because the mediator also has the big role in and directs the communication during mediation, so these phases can interchange without any problems while achieving the same effect. At the very beginning, the problem is presented, possible solutions are discussed, and assumptions are made about the type of conflict, possible consequences, and outcomes. The mediator then asks questions to clarify the facts of the disputed relationship, allowing the parties to gain a complete picture of the dispute so that they can engage in direct conversation and find solutions that would be in everyone’s favor. Once an agreement is reached, it is documented in written form. For an agreement, like any legal document, to have the force of an enforceable instrument, it must containe two conditions: it must be enforceable, and the signatures of the parties and the mediator must be authenticated by a court or a notary public. Even in the case of such an agreement, it will not be enforceable if it is contrary to public order, not suitable for execution, or if the subject of execution is impossible for that purpose.

Mediation can be used as an option before court proceedings and also during court proceedings. It is possible in all disputes except those in which there is exclusive jurisdiction of a court or other authority. If an agreement is not reached between the parties in the mediation process, the parties still have the option of continuing the court proceedings. The court, other authority, public service, employer, and the parties themselves can propose a settlement of the dispute through mediation before any instruction, however, in order for it to actually be implemented, there must be the consent of the parties.

The utility of mediation is reflected in the fact that it resolves three significant problems typically associated with court proceedings. Firstly, mediation can be a more cost-effective solution for the parties, primarily because it allows them to avoid incurring unnecessary expenses. This primarily refers to the exemption from paying court fees. Starting from January 1, 2019, parties in disputes in Serbia are exempt from paying all court fees if they resolve the dispute through mediation before the conclusion of the first hearing for the main trial. The enactment of this legal solution means that there will be no obligation to pay court fees, regardless of the fact that the parties have already initiated the dispute if they opt for an amicable resolution of the dispute. This represents a significant innovation brought about by the Law on Amendments and Supplements to the Law on Court Fees. This legal solution applies to both individuals and legal entities.

Furthermore, another significant problem that mediation can solve is the protracted nature of court proceedings. By law, mediation can last a maximum of 30 days (exceptionally, in justified cases, the court or another authority may extend the mediation process upon the request of the mediator or the parties). Therefore, the law itself directs mediation towards a minimized duration to preempt the problems of the uncertainty of the duration of court proceedings, which are inevitable in practice. Finally, mediation can also provide protection to the parties regarding the enforceability of the agreement reached. An agreement reached throughout mediation have the force of an enforceable instrument, witch allows the party the option of later enforcing it if the other party fails to comply. Of course, a prerequisite for this is that the agreement itself must be clearly time-bound and must define the timeframes and deadlines for fulfilling the agreed-upon terms.

For years, the judicial system has been grappling with a large number of cases, which burdens the courts and makes it difficult for citizens to access justice. One of the causes of this problem lies in the fact that alternative dispute resolution mechanisms have not yet been widely adopted. Objectively speaking, judges are buried with a lot of unsolved cases and the economy suffers as a result of expensive and protracted disputes, often leading to difficult or even impossible debt collection after their resolution. An additional problem is that legal proceedings often lead to the deterioration of business relationships, as initiating a lawsuit can mean the end of future collaboration.

Mediation was introduced into the legal system of Serbia as in as 2005 with the adoption of the first Mediation Act. The new Mediation Act, enacted with the aim of further developing peaceful dispute resolution, provides a legal framework for the practice of commercial mediation. However, despite these efforts, a review of the statistics from commercial courts in Serbia suggests that there is still significant room for the development of this method of dispute resolution. The existing regulations provide a legal basis for the growth of commercial mediation practices in Serbia.

Unfortunately, despite all the advantages that mediation offers, it is applied in a very limited number of disputes in Serbia. However, in recent years, there has been a noticeable trend towards improving the situation in the business sector. This indicates that mediation is recognized as a technique that can yield the best results, especially in the business environment, even though the capacity of mediation in the field of commerce has not been fully utilized up to this point.

When it comes to commercial disputes, parties are often willing to consider mediation only after they have exhausted their legal battle in litigation and become aware that litigation does not meet their expectations. Mediation is advisable for several reasons; In mediation, nobody decides for the parties; they remain in control and have full autonomy over the process; Mediation primarily seeks to determine what the parties genuinely want, rather than what they might legally win. It shifts the focus from rights to interests; Parties have the opportunity to express everything that is important to them, replacing unproductive confrontation with cooperation, which is key to finding a solution; There is a high likelihood of resolving the dispute in a single day, often during the first meeting, making mediation a speedy process; Mediation leads to significant cost savings as it minimizes the use of resources, and the costs are typically lower, one-time, and shared among the parties; Parties are more likely to voluntarily implement the solutions they create through mediation; Business parties can avoid the risks associated with litigation and preserve their business reputations; Mediation encourages a different mode of communication compared to what led to the dispute or what typically occurs in litigation. Through a single mediation process and the achievement of an agreement, the fate of ongoing legal proceedings can also be resolved.

Certainly, further development and promotion of mediation as an alternative dispute resolution method would benefit from clearer and more precise guidance from the courts. In practice, we often see cases where parties are simply directed to mediation with a single sentence, without providing them with a proper understanding of the advantages of mediation. This means that parties are only introduced to the term “mediation” without fully grasping its benefits.

It would be essential for judges to set aside time to educate parties on what mediation actually entails. The role of judges in relation to mediation should have an educational aspect, especially for many individuals and entities in Serbia who may not yet be familiar with what mediation is. Such a decision should ideally be regulated by potential new legal provisions, as the global trend is to expand the application of mediation.

By providing parties with a better understanding of mediation and its benefits, the likelihood of successful mediations and the broader acceptance of mediation as a valuable dispute resolution tool can be significantly increased.

In most advanced countries, mediation has been widely used as an alternative method for resolving disputes for over 40 years. According to research from the World Bank, developing countries are increasingly recognizing mediation as an efficient, private, and flexible alternative to the formal court process for resolving contractual disputes. In many countries, the formal court process tends to be slow and burdensome. The research also indicates that the time required for resolution through litigation averages 466 days, while the average time for resolution through mediation is only 2 to 4 hours. Mediation’s efficiency and focus on collaborative problem-solving make it an attractive option for many disputing parties and contribute to its growing recognition as a valuable tool for dispute resolution worldwide.

Mediation is indeed well-suited for insurance disputes, which can serve as a prime example. The causes of disputes between insurers and policyholders often stem from misunderstandings rather than strictly legal issues. In many cases, policyholders and insurance beneficiaries may not be well-versed in contract law, making it clear that their understanding of insurance terms and conditions may be limited. It’s possible that contractual clauses could be misinterpreted. In such circumstances, initiating litigation may not always be the best solution, especially if the financial stakes are not particularly high. A mediator should work to convince the parties to hear to each other and understand that pursuing a lawsuit could result in significant costs. The mediator’s role is to provide a space for discussion and mutual understanding of the situations and circumstances that led to the dispute. Considering all the positive effects of mediation, insurers have a vested interest in incorporating mediation as a method of peaceful dispute resolution into their business strategy.

In the end, it is necessary to follow nowadays trends that have already proven their existence in other legal systems, study them, and implement them even more in our legislation, in according to with the positive regulations of our country. Modern legal life is increasingly turning to other methods of regulating disputes in business, as there is no reason not to consider all the possibilities that exist for future legal solutions aimed at reducing potential litigation cases before the Commercial Courts of the Republic of Serbia.