Working it out: what to do when a contract goes sour.

Contractual disputes can prove to be a messy and time-consuming process for businesses. It can be expensive and ruinous to lose such a dispute. And the "winner" can also end up losing money and prestige.

But contractual problems need not necessarily end up in court. Arbitration and mediation are among several alternatives that businesses can turn to in order to resolve differences.

The benefits of such alternative methods to resolving disputes was the topic of a recent AMCHAM/MEXICO seminar and attendees were offered a crash course presented by experts in several fields of dispute resolution.

The panelists and speakers emphasized the importance of having arbitration or mediation clauses in all business contracts. This can go a long way toward ensuring that any conflict that arises will be settled amicably and fairly. But any such contractual clause must be well written and thoroughly understood by both parties so that the arbitration or mediation process can function properly. Specialized contract lawyers should be consulted.

Several types of arbitration are available and the procedure is winning global recognition as an effective way to resolve disputes. Standard rules and regulations have been established by the International Court of Arbitration of the International Chamber of Commerce. The American Association of Arbitration and, in Mexico, the National Chamber of Commerce of the Federal District and the Centro de Arbitraje de Mexico (CAM) are well-respected centers of arbitration.

Flexible, Quick And Efficient

Sofia Gomez Ruano of the CAM explained that court cases often take a long time and can compromise confidentiality. She summed up the advantages of arbitration thusly: greater flexibility in procedure; settlements in timely fashion; greater certainty since there are no appeals; impartiality guaranteed since arbiters are independent specialists; confidentiality assured; not as expensive as court cases; and efficiency.

"This mechanism for resolving disputes must begin with prior agreement among the parties to definitively resolve the conflict within accepted rules and regulations," she said.

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Gomez Ruano admitted that arbitration is not necessarily ideal for everyone or every dispute. "The complexity of the dispute and the amount of money in dispute may make judicial action preferable."

Miguel Estrada--a consultant with the law firm Curtis, Mallet-Prevost, Colt and Mosle--warned that arbitration is not a magic wand.

"The best advice is to begin with specialists," he said. "Never cut corners because the complexity of issues at dispute as well as the specifics of regulations can cause headaches."

"It is fundamental that capable arbiters are selected," he said, emphasizing that there are plenty of impartial and experienced arbiters operating in Mexico. "And the best way to ensure a fair arbitration process is to clearly define the question at hand."

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Jose Maria Abascal, the director of Arbitraje y Conciliacion Internacional, detailed a number of successful arbitration procedures in Mexico, and Federico Scheffler of PricewaterhouseCoopers shared anecdotes about effective arbitration.

Measured Mediation

Thomas Heather--the president of the Instituto Mexicano de Mediacion--outlined the evolution in Mexico of formal mediation, which dates back five years. He pointed out that the goal of mediation is to help both parties reach a satisfying solution. He described mediation as an instrument of support to productive investment.

"It is an assurance that steps will be taken to resolve the dispute," he said. "And the principal of self-determination--no party can be forced to participate--can be attractive to business partners."

Mediation also offers benefits similar to arbitration--swiftness of process; protection of confidentiality; and certainty of resolution. Heather also pointed out that 81 percent of mediated disputes around the world have been resolved.

Later, renowned litigants Claus von Wobesor (of Wobesor y Sierra) and Luis Enrique Graham (of Jauregui, Navarrete y Nader) underscored the growing acceptance of arbitration settlements in Mexico. The internationalization of arbitration rules is the primary reason for this, von Wobesor said.

"The result is that arbitration lends security to the global economic system," he said. "It may not be perfect, but it is clearly the best option and it continues to pass all the tests."

Graham echoed von Wobesor and also praised the contribution businessmen made to establishing an effective arbitration mechanism within Nafta.

The speakers on this second panel concurred that the principal problem was inevitably a poorly written arbitration clause or poorly selected arbiters.

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The seminar ended with a presentation of the technical mechanisms found within international trade agreements, with a specific examination of Nafta protocols related to double taxation and transfer of assets across borders offered by Eduardo Revilla of the Calvo, Gonzalez Luna, Moreno y Revilla law firm.

Tom Buckley is the former editor of BUSINESS MEXICO.

Photos by Eduardo Gomez