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Winston Churchill liked to say that there are good laws, bad laws and irrelevant laws. For the last few years, it looked as if the European Union had chosen to emphasize the last category. Following the 2005 collapse of the European Constitution, which key member states such as France and the Netherlands failed to ratify, the European Union decided to focus on uninspiring minor legislation. This led to a landslide of European regulations on matters as diverse as government control of animal feeding to wine labeling. None of these regulations seems likely to leave a lasting impression on international legal practice, with one possible exception. For the past three years, E.U. member states have been negotiating intensively a directive on mediation. Although the directive may not enter into force until the late summer of 2007, the draft has already been widely circulated by the European Union, a clear indication that the inexorable process moving to enactment is reaching an advanced stage. Although the directive was proposed by the European Commission on Oct. 22, 2002, it is being debated now by the Council of the European Union and the European Parliament. (The proposal can be found at http://eur-lex.europa.eu/ LexUriServ/site/en/com/2000/com2000_0511en01.pdf.) E.U. directives are legally binding instructions that must be implemented through national legislation within a prescribed time frame. Unsurprisingly, this type of legislation has been criticized for giving rise to inconsistent results. On the one hand, directives harmonize the law of E.U. member states. On the other, there are no standards (and just as many controls) on how directives are implemented or transposed into domestic legislation by E.U. member states. (The matter of directive implementation very seldom reaches the European Court of Justice, which is an E.U. supreme court of sorts, and customarily remains largely unmonitored.) Should the mediation directive be implemented, U.S. companies doing business in Europe would find a more accommodating attitude toward alternative dispute resolution (ADR) in the European Union. Unfortunately, it is highly unlikely that they will be able to rely on a uniform, E.U.-wide ADR legal framework. “The use of mediation in Europe is in its infancy,” explains the back cover of a well-known mediation handbook. Commercial Mediation in Europe (Nancy Nelson, ed., International Institute for Conflict Prevention & Resolution, 2006). There are several reasons for this. First and foremost, European governments and their judicial systems don’t trust mediation. In many European countries, a perception remains that mediation is an obscure and unfair dispute resolution mechanism. If the parties want to mediate, some jurists appear to think, why don’t they do it in court before a judge? One may counter this argument by saying that confidentiality and an out-of-court approach are two of mediation’s greatest assets. Yet not everyone would agree. In jurisdictions ranging from Portugal to the Czech Republic (all E.U. members), mediation agreements are rarely enforced by the courts. The official reason is that the law does not provide for such enforcement. Unofficially, however, these agreements are seen by many as a threat to the (almost monopolistic) regular, in-court dispute resolution mechanisms. Half-hearted embrace During the past few years, E.U. member states including France, Germany, Italy and Spain have passed legislation making court mediation mandatory for various matters (family matters, small claims, etc.). Thus, the message was telegraphed by some authorities in Europe that mediation was good-provided that it was restricted to simple cases and stayed within the supervision of the courts. The results have been far from encouraging. There now are more cases and delays in court and also less enthusiastic judges and court officials, who complain that they have to deal with dispute resolution techniques for which they were not trained. (As experienced practitioners know, it is one thing to adjudicate a dispute and another to assist the parties in reaching an agreement to solve that dispute.) Realistically, such a court-supervised approach discourages the parties from mediation. If they are going to be in the courthouse anyway, why not do so in a full-scale litigation, rather than in a mediation process featuring none of the techniques available with traditional cases? Exacerbating the problem, E.U. member states have consistently failed to back up mediation by providing for the speedy enforcement of settlement agreements stemming from mediation proceedings. In so-called “continental Europe” (where civil law, as opposed to common law, prevails), the breach of a settlement agreement is not sufficient to institute enforcement proceedings against a debtor. Rather, creditors need to initiate procedures for breach of contract (not always easy) in hopes of obtaining a judgment that then can be enforced. In these cases, the mediation, plus the subsequent several layers of litigation, can delay the collection of the debt by years. These two aspects of the current status of mediation in the European Union-an attitude of “Why bother?” and a slow enforcement mechanism-clearly serve to discourage use of the process. A predictable consequence is that there are fewer trained mediators in Europe than in the United States. With the notable exceptions of the International Chamber of Commerce, International Centre for Dispute Resolution and the London Court of International Arbitration, there are few institutions that offer permanent mediation facilities. With the mediation directive, all that could be about to change. It is against this backdrop that the European Union has decided finally to try to make mediation a more realistic dispute resolution option for companies doing business in Europe. As a prelude to this step, in 2002 the European Union enacted a directive on mediation that was limited solely to insurance matters. Now a full-scale regulation is being launched. Unless substantial changes occur during the final stages of the negotiation process, the proposal of the directive focuses only on mediation. Other forms of ADR, such as mini-trials and conciliation, remain unaddressed and, in some E.U. jurisdictions, virtually unknown. The specifics Article 2 of the proposal of the directive defines mediation as “any process . . . where two or more parties to a dispute are assisted by a third party to reach an agreement.” The proposal does not indicate who the “third party” might be (and does not specify whether the mediator should hold any professional qualifications) but amounts to just a general undertaking by E.U. member states to ensure the quality of mediation (Article 4). However, it seems clear under the draft that there can just be one mediator. This might well conflict with the usual practice in several jurisdictions of allowing complex disputes to be brought before co-mediators. Even more troubling for U.S. businesses, rather than emphasize the free-will component in any mediation, the proposal of the directive establishes in Article 2 that mediation can be initiated by the parties, “ordered by a court or prescribed by the national law of a Member State.” And this comes from a directive that is due to apply only to “civil and commercial matters” (Article 1) and not to labor law matters or conflicts with governments. Clearly, U.S. companies doing business in the European Union should be aware of this potential exposure to mandatory mediation when disputes arise with their business partners. On the positive side, the mediation proposal contains a clear command for courts of E.U. member states to enforce an agreement to mediate. In the presence of such an agreement, a court must suspend the course of the main proceedings and refer the parties to mediation. Obviously, the courts would retain their jurisdiction to order emergency relief or other measures aimed at avoiding damage to the parties (Article 3). Another positive aspect is that resorting to mediation “suspends” the limitation periods applicable to the dispute and the parties’ actions (Article 7). This is a major breakthrough. There are several jurisdictions in which the parties have been dissuaded from attempting mediation for fear that it would put them in violation of the statutes of limitation. The proposal of the directive contains two more salient features. The first has to do with the enforcement of agreements reached in mediation, and the second with the confidentiality of the process. With respect to the first issue, there is both good and bad news for U.S. companies. The good news is that settlement agreements stemming from a mediation should now be directly enforceable “in the same manner as a judgment under national law” (thereby putting an end to legislation that states that failure to fulfill a settlement agreement only gives rise to an action for breach of contract) (Article 5). The bad news is that the route leading to the enforcement of these agreements is somewhat bumpy. First, the settlement agreement must be confirmed by a court; however, the proposal of the directive refrains from setting forth the procedures and manner by which this can be done. Second, when enforcing the judicially confirmed settlement agreement, the court still retains the power to revisit the underlying dispute and decide whether the settlement agreement is “contrary to European law or to the national law in the State where the [enforcement] request was made.” In other words, the enforcement of settlement agreements reached in mediation is not exactly a hurdle-free procedure. With respect to the second issue, confidentiality, the general rule is that, unless the parties agree otherwise, neither the mediator nor “any person involved in the administration of mediation services” can give testimony on whether the mediation took place, how it took place and what its outcome was (Article 6). The general rule, however, does not apply when the mediator’s testimony is needed to enforce a settlement agreement, or “for overriding considerations of public policy.” The latter exception opens the door to widespread confusion and debate. Moreover, Article 6 could be criticized not only for what it says, but also for what it fails to say. U.S. companies doing business in Europe and agreeing to mediation should note that, under the proposal of directive, neither they nor the other side are under a general duty to maintain confidentiality or secrecy with respect to the mediation. The proposal of directive does not indicate any confidentiality rules that apply to the parties, and apparently leaves the matter to be agreed upon between the parties in their mediation agreement. Splitting the difference Perhaps driven by a desire to satisfy all the potential interests involved (legal practitioners, parties, national court systems, governments), the E.U. mediation directive is a middle-of-the-road solution for some of Europe’s most pressing dispute resolution problems. Thus, on the one hand, the intent of the proposed directive seems to be to encourage mediation and remove the burden of a significant caseload from the courts. On the other hand, it affords national courts several means with which to interfere with the mediation process and its outcome. Certainly, the new directive will increase mediation awareness and develop an ADR culture in Europe. Yet things may not run smoothly. Any dissatisfied party may resort to the E.U. national courts to hinder a mediation process. And even ADR-savvy companies might be discouraged from engaging in a dispute resolution process in which the outcome may be delayed for years. To a large degree, the success of the imminent directive hinges on the ability and the common sense with which courts apply it. C. Mark Baker is a partner at Houston-based Fulbright & Jaworski. He is a co-chairman of the firm’s international department and also of its arbitration and ADR practice group. An�bal M. Sabater, an attorney, is an international arbitration adviser at the firm. They can be reached, respectively, at [email protected] and [email protected].

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