Mediation in various disputes: from bankruptcy to disputes with the state

Mediation has existed in Ukraine for over 25 years and is attracting more and more attention from the legal community every year as an effective tool for resolving conflicts. Such positive dynamics are primarily due to too long judiciary reform which encourages lawyers to look for faster, more economical and effective alternatives to litigation for themselves and their clients.

In addition, mediation can be used not only in legal disputes, but also in various conflicts that have no litigation perspective. More and more conflicting parties are participating in mediation. This step by step contributes to the fact that Ukrainian society trusts this procedure more. Mediation is not a magic pill for all disputes, but there are few disputes in which it is impossible.

Undoubtedly, the most understandable and logical areas for using mediation are family and other civil relations. However, many other categories of disputes acceptable for mediation (bankruptcy disputes, disputes involving the state, etc.) cause not only doubts about the possibility of mediation among lawyers, but some resistance as well. Therefore, we propose to figure out in which areas of legal relations and categories of disputes it is possible and appropriate to use mediation as a means of resolving the conflict, and under what circumstances it may be impossible.

Possibility of mediation

There is such a term as mediability – the criteria of the dispute based on which appropriateness of mediation is determined. The main criteria include, in particular:

• spatial (possibility of contact with both parties to the dispute);
• legislative (direct ban on mediation);
• subjective (capacity, addictions and mental disorders, psychological characteristics of the parties);
• subject (subject matter and content of the dispute).

Thus, it is not only the category of dispute that affects the possibility of mediation. Quite often, despite all the prospects of the subject matter of the dispute to be resolved via mediation (divorce, determining child's place of residence, etc.), the dispute is unmediable because of too escalated conflict or personal characteristics of parties to it.

Before conducting mediation, the mediator must make sure that there are no circumstances that make it impossible to conduct it.

The place of mediation in administrative disputes

One of the most controversial categories is disputes in which one of the parties is an authority. There is an opinion that it is impossible to use mediation in this category. This view is related to scope of the authority's discretion. However, we propose to dispel this myth.

In Europe, proliferation of mediation in resoling administrative disputes is linked to Recommendation (2001) 9 of the Committee of Ministers of the Council of Europe on alternatives to litigation between administrative bodies and private parties, which states that “widespread use of alternative means of resolving administrative disputes can allow these problems to be dealt with and can bring administrative authorities closer to the public."

The question arises: are disputes in Ukraine that need to be resolved through administrative proceedings mediable? Procedural legislation is favorable for conciliation of the parties, including through mediation. This made it possible to launch pilot projects on mediation in disputes with authorities in framework of which there were many instances of successful mediation. Information on the project implemented by the Vinnytsia District Administrative Court is available via link.

Despite positive experience of pilot projects, conciliation in disputes involving the authority is isolated. First of all, this is due to the fact that any concessions of the authority (under the CAJU, conciliation is the settlement of the dispute based on mutual concessions) are perceived as acting ultra vires and, according to law enforcement agencies, may indicate corruption. This perception can be changed by giving authorities enough discretion to determine the conditions of reconciliation with individuals and/or legal entities, introducing transparent and clear criteria for determining the "scope of concessions". We hope that the adoption of the Law on Administrative Procedure will help resolve these issues.

Thus, mediation in administrative disputes is possible, but in order to increase the number of recourses to mediation, a number of issues should be resolved regarding the criteria for "safe" determination of the terms of reconciliation with an individual by an authority.

Another promising area of mediation is the settlement of disputes on public service. Such disputes require a civilized way of settling relations between the state and the person who served as public servant. Of course, mediation does not apply to all categories of administrative disputes. For example, it does not apply to disputes related to the elections and to challenging regulations.

"A breath of fresh air" for bankruptcy

At first glance, it may seem that there is no place for mediation in bankruptcy proceedings. But this is not true. After all, bankruptcy is globally perceived as a way to solve solvency problems so that the creditor does not suffer a total loss of funds and the debtor has the opportunity to save face and solve all financial problems legally.

The Code of Ukraine on Bankruptcy Procedures has recently entered into force in Ukraine. It is a comprehensive document that establishes the conditions and procedure for restoring the solvency of a debtor-legal entity or declaring it bankrupt in order to satisfy creditors' claims and restoring the solvency of an individual. Despite the fact that the new Code, unlike the previous law, does not contain provisions on amicable agreement, the analysis of its norms shows that at certain stages it is possible to reach agreement between the parties on certain issues (for example, on repaid creditors' claims).

Mediation as a way to reach an understanding is expedient both during the debtor's sanation before commencing bankruptcy proceedings (on the terms of sanation plan, the candidacy of the reorganization manager and the need for his appointment, as well as determining the scope of his powers), and in court reorganization proceedings (introducing amendments to sanation plan and its approval at creditors' meeting in order to prevent the debtor from being declared bankrupt and the timeframe of the reorganization procedure to be extended), and in other court proceedings applicable to the debtor.

A novelty of the Code is the procedure for restoring the solvency of an individual, according to which any individual who is not a business entity can initiate bankruptcy proceedings in respect of himself. Mediation helps to work out mutually acceptable solutions regarding the restructuring or repayment procedure of an individual's debts (honest debtor).

Mediation is that very effective mechanism that allows us to focus on solving the problem and lead the parties to a mutually acceptable solution on certain issues at certain stages of the bankruptcy procedure. Using this tool will give the bankruptcy procedure a lacking "breath of fresh air", will change the paradigm of focusing solely on creditors' interests.

Prospects for expanding the scope of mediation

Today it is evident that mediation is not used to its full potential in various legal relations because of poor awareness and lack of proper mechanisms for interaction between the authorities and mediators. An example of this can be given – land commissions which can be established under para. 3 of Art. 158 of the Land Code of Ukraine, according to which local governments within settlements shall resolve land disputes on boundaries of land owned and used by citizens and citizens' compliance with the rules of neighborliness, as well as disputes over the delimitation of districts in cities.

It is in this category of disputes that the use of mediation as a tool for dispute resolution is a promising direction because the decision taken by the local municipality (land commission) will satisfy only one side of the conflict and will not satisfy the other, i.e. the dispute remains unresolved, that as a result will lead to the party unsatisfied with the decision of the land commission going to court. Unfortunately, today the land commission does not have the authority to refer these cases to mediation or conduct it on its own.

Another promising area for developing mediation is construction. Mediation can be a good tool both for resolving existing conflicts and as a measure to prevent them, not only in private law disputes, but also in disputes involving local municipalities, also in order to prevent future conflicts. Even at the stage of drafting documentation in local municipalities for allocating land for construction or building permit, it is a promising idea for local municipality to agree with the developer on all potentially debatable issues through mediation.

Thus, the possibilities to use mediation are almost limitless – it can be used wherever the parties wish to resolve the dispute through negotiations, which corresponds to the willingness of these parties to take responsibility for working on a mutually acceptable solution. For Ukraine, this is a fairly new institution (compared to Europe and other countries), but there are many vectors for broadening areas to apply it. In conclusion, it should be noted that mediation is a fairly universal tool that has proven its effectiveness in various areas of legal relations. At the same time, the majority of the population of Ukraine is not aware of such a procedure, many areas are still underdeveloped. The spread of mediation directly depends on lawyers and other stakeholders usually consulted if a dispute arises perceiving and understanding its features. The parties to the conflict should be able to choose how to resolve their conflict, but whether they will turn to mediation depends largely on the quality of information about its nature and features.

You can find more details on the areas to apply mediation, the legal basis and the main directions of its development via link to the full text of the GAP-analysis on implementing mediation in Ukraine prepared by a team of national and international experts of EU Project "Pravo-Justice" in the framework of a comprehensive study.

Volodymyr Rodchenko, Luiza Romanadze, Alina Serhieeva, Svitlana Serhieeva, EU Project Pravo-Justice experts