The Growing Need of Deal Mediation in Complex Business Transactions
By Mehak Oberoi – Legal Head: Hydro Power, APAC – GE Vernova
Imagine[1] a huge conference hall with parties on each side of the table.
Party X: I cannot transport the goods to the site; the last mile to the site is inaccessible.
Party Y: That is your problem; don’t drag me into resolving your problem.
{Tempers are flaring. One can see the nostrils of Party X expanding by the minute. Party Y is not far behind, getting redder by the minute}
Enter: a sharp-looking woman wearing a crisp black suit and a calming smile.
Let’s call her “the lady in black.”.
The lady in black: I think we all need some room to breathe. Would one of you like to join me for a coffee?
Party X stomps his feet and goes to sit in another room at the far end of the corridor.
After a bit of chitchat, the lady in black finally gets to the point. “I see you were a tad uncomfortable out there; would you like to tell me more about it?
Party X: How am I expected to deliver goods to the site if there is no road for the last mile to the site?
The lady in black smiles evenly.
And the conversation flows..
Party Y walks in, and Party X exits the room.
The same question is posed to Party Y.
Party Y: Do they actually expect us to unload goods midway and then carry them to the site? Absurd.
Once again, the conversation flows….
After some back and forth, Party X and Y shake hands. Party Y agrees to build a road to the last mile. Party X agrees to deliver goods 15 days prior to schedule and thus facilitates a tad acceleration of schedule.
Who do you think the lady in black was?
She wasn’t a magician, for sure. She was just a lady who had the insight to be able to understand the concerns of the parties and was determined to find a way for the parties.
This is the role of a deal mediator! He or she is “counsel to the deal,” not to any of the parties[2]. This is often the difference between the success and failure of business transactions. The key lies in selecting an individual with a combination of interpersonal abilities, relevant business acumen, and unwavering persistence. Further, to maximize the benefits of this process, it’s crucial to keep in mind the ethical considerations that accompany it, including neutrality and impartiality.
In fact, cross-cultural deal Mediation as a New ADR Method for International Business Transactions is picking up pace [3]
After 16+ years of playing the tug of war in negotiations, I have come to realize that we respond from our limbic system, which makes us hardwired to seek instant gratification. Metaphorically speaking, we are “blink it” lawyers. We measure our wins with what we get out of the deal instantly. Did I win the argument on indemnity, or did I knock their argument over on limitation of liability?
Now, deal mediators are here to make you realize that:
- Only you don’t have to win; instead, you should try to win more of your interests in the deal.
- More for you and less for others doesn’t make for a successful deal.
- Communication and trust help all parties feel validated and ensure that everyone stays invested in the game.
Note that deal mediations may not be suitable for all transactions. You obviously cannot take advantage of this process for criminal activities or matters of public policy. However, it must and most certainly be used in deals where the power dynamics are lopsided and one party is not in a position to lay down all its terms.
Harnessing the Potential of Deal Mediation in Complex Transactions
Since delving into the renewable sector, I’ve become a staunch supporter of this process, particularly due to the extensive negotiations between private entities and government bodies. Unfortunately, these negotiations often result in unequal power dynamics, leaving private parties at a disadvantage. For instance, in hydroelectric projects, government contracts frequently fail to acknowledge the necessity of utilizing appropriate sample or model contracts tailored for specific project types.
To put it simply, in hydroelectric projects, the government typically uses contract forms published by the International Federation of Consulting Engineers (FIDIC) that are widely used in the construction industry globally. Some specific FIDIC contracts include the FIDIC Red Book, Yellow Book, Silver Book, and others, each tailored for different types of construction projects. The fact that these are tailored for different kinds of construction projects is not appreciated by government departments, which thus typically end up using the silver book or the yellow book by default. This causes multiple issues with the operational efficacy and interpretation of the contract.
This is where a deal mediator can prove to have a dominant role. A deal mediator with the right kind of expertise will be able to facilitate the parties to address:
- Unique requirements and risks are associated with the project, leading to disputes and disagreements over responsibilities, liabilities, and obligations.
- Identify legal challenges that may come up if disputes arise and parties seek resolution through arbitration or litigation.
- Identify provisions in the contract that may be ambiguous in the context of the project, leading to confusion over roles and responsibilities.
- Accurate allocation of risks between parties based on the type of project.
Imagine if this approach were adhered to during negotiations. How many disputes could potentially be averted throughout the project’s duration, which spans years?
Given that the approach mentioned above remains unfamiliar to many in India, or even if it is known, there is resistance to it, we continue to encounter disputes that could have been avoided if the contracts were tailored to suit specific requirements.
With respect to construction projects, it seems that all parties share a common objective: timely completion and delivery according to the guaranteed parameters outlined in the contract. However, achieving this goal becomes challenging when the selection of outcomes and risk allocation heavily favor the employer.
Recently, we had a nightmare trying to explain the basis and quantum of our claims to an independent engineer appointed to a project because of his lack of ability to appreciate the technical nuances of the project. How I wish I could turn back time to make things right.
There is another unique scenario where I believe the presence of a deal mediator could streamline the process and accommodate the needs of both parties. Being in a large organization, we often encounter situations where we segregate a particular business from one entity to another within the same organization. While the organization remains unchanged, the interests of the businesses may diverge, presenting a complex situation. In such cases, businesses may be reluctant to involve lawyers or may only seek legal assistance for drafting without delving into commercial decisions. Here, a deal mediator can facilitate more productive commercial discussions, ensuring that the interests of both parties are considered.
Deal Mediation for Future Success
I think the idea of deal mediation for any professional is one successful deal mediation away.
Speaking from a lawyer’s point of view, most may dismiss the idea altogether on grounds of added expense or overcomplicating the negotiation process under the guise of hiding their own apprehension for a diminished role in the transaction. To the contrary, businesspeople often view lawyers are seen as deal killers whose continual raising of obstacles, without commensurate effort at finding solutions, ultimately causes transactions to collapse under their own weight[4].
Frankly, the inclusion of a deal mediator doesn’t supplant the transaction attorney; instead, it empowers them. By alleviating your dual responsibilities of finalizing the deal and advocating for the client, you can advocate more fervently on behalf of the client and leave the niceties and the creative solutions to the mediator.
I think it is time for lawyers to embrace newer, more evolved ways.
Deal mediation is the future, a coming wave that cannot be stopped.
So, let’s welcome the winds of change and let them guide you.
[1] This is an imagined, simplified, and superficial example, and in reality, such conversations entail many more complexities.
[2] Deal Mediation: A New Use for an Old Friend, By Joan Stearns Johnsen
[3] https://scholar.smu.edu/cgi/viewcontent.cgi?article=1089&context=lbra – Cross-Cultural Deal Mediation as a New ADR Method for International Business Transactions – by Garrick Apollon
[4] https://scholar.smu.edu/cgi/viewcontent.cgi?article=1089&context=lbra – Cross-Cultural Deal Mediation as a New ADR Method for International Business Transactions – by Garrick Apollon