Cross-Border Disputes and the Potential for Resolution via Mediation

Potential for Problems

As in all types of corporate finance, of course, there are issues in cross-border deals that may give rise to potential disputes among well-meaning businesspeople. These can include disagreements over the interpretation of contractual terms, questions about the intentions of the parties in entering into the deal, matters of compliance by the parties with specific contractual requirements, and, of course, issues arising from the fulfillment of the parties' various payment obligations.

In international deals, though, there are a number of special issues that may lead to disputes among the parties. First among these is the matter of language, whether spoken or written. What language was the deal negotiated in? What language is it written in? Did everyone who participated in the negotiation of the transaction fully understand what was being said, or were they represented by counsel who were fluent in both the language of negotiation and the language of the written contract?

Many technical and business terms have precise meanings in the context of their frequent use, but they may not have the same meanings to every party in a cross-border deal. If an agreement drafted by a UK lawyer includes covenants that require the maintenance of certain “gearing ratios,” is it clear to the parties from the United States or Latin America what is required of them? Or if a U.S. retailer talks about “turnover” to a German supplier, do they both have the same understanding of the meaning of that term? When disputes invariably arise, how do the parties determine which meanings are the ones they'll use, or even what the various meanings actually are?

With the increasing regulation of business and finance in many countries, including the United States, is there agreement among the parties as to the application of regulatory standards, reporting requirements, and compliance issues? If a change in interpretation of a U.S. FASB ruling leads to a restatement (or even repricing) of a long-term financing transaction, what are the implications of those changes on the international participant(s) in the deal? What if the U.S. company demands that the international partner disclose certain information that is required in the United States under Sarbanes-Oxley but is considered highly confidential in the other country? And have the parties agreed as to the accounting treatment to be used in determining compliance with various financial covenants? U.S. GAAP? European GAAP? Other standards? Any standards? Given the potential language issues involved, have the parties even understood one another in trying to decide the best way to deal with the potential regulatory issues?

And always overlaying these possible technical problems are the many cultural and personal issues that may arise in the world of cross-border financing, particularly in relatively small or middle market transactions that are not thoroughly vetted by international counsel and accountants. Parties may enter into international deals via the Internet, without ever meeting their counterparts in person or having the means to check them out in detail. In today's world, the deal may be closed by e-mail, fax, and telephone, giving the parties little chance for due diligence or to develop a personal feel for the people they're dealing with in another country and culture. Without these personal contacts, various cultural differences may lead to misunderstandings or false expectations, which in turn may trigger contractual, technical, or payment disputes.

What to Do?

When disputes arise under international or cross-border leases or secured financings, the parties may react as they would to a problem with any domestic dispute. First, try to work out the issues with the other party or parties; see if they are willing to negotiate a mutually acceptable resolution to a compliance issue, or if they will agree on revising the meaning of a disputed regulatory term, or if a mutually acceptable payment plan can be worked out to cure a default.

But what if these steps don't result in a satisfactory resolution of the problem, and the deal (or worse, the long-term relationship with the international party) is threatened? Perhaps the language issue exacerbates the problem, or the difference in time zones among the parties makes communication difficult, or the international party simply won't cooperate. Then the most natural recourse is to call the attorneys and start thinking about a lawsuit.

In the cross-border context, though, this step may not be as straightforward as it is for a domestic deal. In addition to the inherent language and cultural problems, there may be issues of choice of law, selection of forum, or even the basic availability of legal recourse in certain kinds of transactions. In today's regulatory environment, there may also be concerns about the disclosure of certain kinds of legal actions and the public reporting of their progress and results.

There is actually a better, more cost effective, and more discreet way of dealing with cross-border disputes: private dispute resolution ' mediation ' facilitated by an experienced corporate finance mediator.

In addition to its overall merits in privately and cost-effectively resolving leasing and financing disputes, private dispute resolution provides an especially effective and efficient means of addressing and disposing of cross-border and international problem issues or deals involving the complexities described above.

Mediation As Collaboration

The process of private, confidential dispute resolution (typically through mediation under the guidance of an experienced neutral third party) is by nature a collaborative undertaking. Settlement is reached through mutual exploration and joint resolution of specific misunderstandings and problems. In meeting privately and confidentially with the neutral mediator throughout this process, the parties and their counsel are encouraged to review and discuss particular issues and disagreements openly and candidly.

In this setting, language or cultural issues can be thoroughly aired out and addressed in detail. Problems arising from simple misunderstandings or miscommunication can be put to rest quickly, leaving the parties and counsel open for the negotiation of more fundamental business and technical issues. It may even be discovered that cultural or language difficulties are the only issues separating the parties.

In international situations involving time zone, language, legal, and cultural differences, and where the parties, or even counsel, may not have communicated adequately (if at all) over an extended period, this collaborative approach to problem resolution can be the key to opening fresh dialog, finding areas of mutual agreement, and exploring opportunities for settlement. Adversarial combat can be effective in certain situations, but collaboration may often be the key to resolution when disagreements turn in large part on miscommunication and misunderstanding.

Mediation As a Sounding Board

Although the disciplines of leasing and corporate finance revolve primarily around objective and quantifiable factors, emotion and frustration may often play a complicating role when a deal turns bad. Parties whose original business objectives are thwarted, whose finances or even businesses are at risk, or who, despite what they view as their best efforts, cannot settle disagreements with the other parties, may lose their objectivity and, consequently, their ability to work out a reasonable settlement of difficult issues on their own.

The process of private dispute resolution often provides a crucial but unforeseen benefit in such situations ' the chance for parties (and often counsel) to air their frustrations and concerns in a private and confidential setting. Through confidential caucuses with all parties, a professional mediator, particularly one with experience in leasing and corporate finance, can evaluate these non-technical concerns and help translate them into settlement opportunities. Without disclosing any confidences, the skilled mediator can often use such underlying frustrations and demands as the basis for crafting dialog with the other side or as points of emphasis in structuring possible workout or settlement options.

In international deals particularly, where the level of frustration can be especially high due to inherent time delays and cultural difficulties, the mediator can serve as a sounding board for the parties. Points of view and frustrations that might otherwise go unstated and become sources of serious resentment (and thus obstacles to settlement) can be aired out and channeled into constructive components of a workable resolution of the business problems.

Mediation As a Think Tank

Given the intricacies of financial, corporate, accounting, and securities disclosure rules and other regulations in a globalized deal, when problems arise the parties may find there is no common ground for direct negotiation of a settlement because the underlying groundwork is different for each side. Besides the lack of common regulatory ground, the parties or their litigation counsel may also be reluctant to disclose their concerns about these issues for fear of “giving away” an advantage at a later trial; why let the other side know now that they're not in compliance with certain rules that will come back to bite them later.

As a setting in which such matters can be disclosed and discussed privately and in confidence with a neutral third party, mediation provides the means for addressing and working out these details. Without giving up any “competitive” or negotiating advantage, parties can review in detail with the mediator and their own counsel (and perhaps with specialized outside counsel or other experts) their views on complicated and potentially harmful regulatory or reporting issues. Sometimes such a detailed review may even help fill out or clarify the party's own points of view and provide guidance for a workable settlement with the other side without disclosing important work product or interim technical details.

In fact, this confidential review of issues that may ultimately affect the viability and longevity of a proposed settlement may be one of the most important benefits of private dispute resolution. With the freedom to explore options and evaluate various alternatives, but without the risk of exposing inchoate or partial solutions until they're ready for discussion with the other side, a party can use private mediation caucuses as an inexpensive and safe way of shaping ideas and approaches. With the help of the mediator, who is aware of the expectations and desires of the other side, settlement proposals may be crafted that have a much better chance of acceptance and endurance than would be the case if a party had to negotiate “in the dark,” without any insight into the thinking of the other parties to the dispute.

Combined with the mediator's ability to assess and integrate the many cultural and other non-technical issues involved in the resolution of cross-border disputes, this opportunity for the parties to explore various complex technical details and alternatives creates in mediation a unique overall environment for the development of a workable settlement plan.

Mediation Pre-Dispute

In the increasingly globalized world of leasing and corporate finance, with transaction sizes for cross-border and international deals becoming smaller and involving a greater variety of participants and their counsel, the private resolution of issues through mediation may serve as an important and valuable pre-dispute resource. Parties who do not have ready access to international law firms or the means to bring teams of specialized attorneys, accountants, and other experts to bear on an international deal of only modest size may find the use of an experienced neutral third party to be helpful in negotiating a deal or working out a problem before it becomes a major dispute. The growing field of “deal mediation” provides parties with the participation of an experienced neutral party to facilitate and structure the resolution of difficult issues as they arise in the course of putting a deal together.

Almost from the beginning of a transaction, the cultural, technical, language, and other difficulties of an international financing or leasing deal may threaten to derail the project, despite the best intentions of the parties and their counsel. By using a neutral facilitator, with the benefits of private caucuses, confidential meetings, and an impartial third-party perspective, issues can be negotiated and resolved well before they are allowed to fester or become deal-killing problems. A professional mediator, with experience in leasing and international transactions, may be the best insurance the parties can have against losing an important deal even before it gets closed.

How to Assess a Mediator

Dispute resolution professionals may be found across a wide array of experience and knowledge levels. For the highest likelihood of success in resolving a cross-border leasing dispute, or in facilitating the negotiation of an international financing deal or project, a third-party neutral should be selected who has broad experience both in general commercial mediation and in the specific issues that are likely to arise in corporate finance and equipment leasing. It is this combination of hard- earned mediation and negotiation skills together with specific experience in leasing and secured financing that offers the best chance of successfully avoiding complicated international litigation or of satisfactorily closing your next cross-border deal.

Paul Bent is a professional mediator whose experience includes 25 years as a corporate transaction attorney and investment banker. A member of The Alta Group, international consultants in finance and leasing, he specializes in disputes involving large ticket equipment leasing and complex corporate finance. He may be contacted directly at [email protected]. The Alta Group (www.thealtagroup.com), established in 1992, provides a broad array of strategic consulting and advisory services, education and training programs, merger and acquisition and dispute resolution services for companies in the global equipment leasing and asset finance industries.

The world is rapidly becoming a smaller place in which to do business. And as international borders and boundaries become less of a barrier to business, participants in equipment leasing and finance find their world getting smaller, as well. “Globalization” is now an accepted and well-understood concept in most industries and markets, and it is no longer limited to large multinational corporations or institutions. With suppliers, vendors, and customers in many countries on several continents, all linked through the omnipresent Web and Internet, even small, independent businesses may successfully operate across borders.

With the greater opportunities available in this shrinking business world come greater needs for cross-border and international financing. Companies based in the United States must find ways to acquire capital assets for their non-U.S. manufacturing facilities; they must finance the growth of international affiliates or subsidiaries; and, if their products are themselves long-term capital assets or equipment, they must have access to various forms of vendor or customer financing. As a result, there are increasing demands in leasing and corporate finance for cross-border transactions or deals involving non-U.S. jurisdictions.

In today's globalized economy, cross-border deals may include equipment leases, secured loans, lines of credit and related credit enhancements, including letters of credit, and international trade, inventory, or receivables financing. Deals may range from relatively simple trade or receivables discounting to highly structured, leveraged transactions. Given the notable imagination and creativity of leasing professionals, accountants, and attorneys, there are as many variations on cross-border equipment leasing and secured financing as there are international problems to be solved.

Potential for Problems

As in all types of corporate finance, of course, there are issues in cross-border deals that may give rise to potential disputes among well-meaning businesspeople. These can include disagreements over the interpretation of contractual terms, questions about the intentions of the parties in entering into the deal, matters of compliance by the parties with specific contractual requirements, and, of course, issues arising from the fulfillment of the parties' various payment obligations.

In international deals, though, there are a number of special issues that may lead to disputes among the parties. First among these is the matter of language, whether spoken or written. What language was the deal negotiated in? What language is it written in? Did everyone who participated in the negotiation of the transaction fully understand what was being said, or were they represented by counsel who were fluent in both the language of negotiation and the language of the written contract?

Many technical and business terms have precise meanings in the context of their frequent use, but they may not have the same meanings to every party in a cross-border deal. If an agreement drafted by a UK lawyer includes covenants that require the maintenance of certain “gearing ratios,” is it clear to the parties from the United States or Latin America what is required of them? Or if a U.S. retailer talks about “turnover” to a German supplier, do they both have the same understanding of the meaning of that term? When disputes invariably arise, how do the parties determine which meanings are the ones they'll use, or even what the various meanings actually are?

With the increasing regulation of business and finance in many countries, including the United States, is there agreement among the parties as to the application of regulatory standards, reporting requirements, and compliance issues? If a change in interpretation of a U.S. FASB ruling leads to a restatement (or even repricing) of a long-term financing transaction, what are the implications of those changes on the international participant(s) in the deal? What if the U.S. company demands that the international partner disclose certain information that is required in the United States under Sarbanes-Oxley but is considered highly confidential in the other country? And have the parties agreed as to the accounting treatment to be used in determining compliance with various financial covenants? U.S. GAAP? European GAAP? Other standards? Any standards? Given the potential language issues involved, have the parties even understood one another in trying to decide the best way to deal with the potential regulatory issues?

And always overlaying these possible technical problems are the many cultural and personal issues that may arise in the world of cross-border financing, particularly in relatively small or middle market transactions that are not thoroughly vetted by international counsel and accountants. Parties may enter into international deals via the Internet, without ever meeting their counterparts in person or having the means to check them out in detail. In today's world, the deal may be closed by e-mail, fax, and telephone, giving the parties little chance for due diligence or to develop a personal feel for the people they're dealing with in another country and culture. Without these personal contacts, various cultural differences may lead to misunderstandings or false expectations, which in turn may trigger contractual, technical, or payment disputes.

What to Do?

When disputes arise under international or cross-border leases or secured financings, the parties may react as they would to a problem with any domestic dispute. First, try to work out the issues with the other party or parties; see if they are willing to negotiate a mutually acceptable resolution to a compliance issue, or if they will agree on revising the meaning of a disputed regulatory term, or if a mutually acceptable payment plan can be worked out to cure a default.

But what if these steps don't result in a satisfactory resolution of the problem, and the deal (or worse, the long-term relationship with the international party) is threatened? Perhaps the language issue exacerbates the problem, or the difference in time zones among the parties makes communication difficult, or the international party simply won't cooperate. Then the most natural recourse is to call the attorneys and start thinking about a lawsuit.

In the cross-border context, though, this step may not be as straightforward as it is for a domestic deal. In addition to the inherent language and cultural problems, there may be issues of choice of law, selection of forum, or even the basic availability of legal recourse in certain kinds of transactions. In today's regulatory environment, there may also be concerns about the disclosure of certain kinds of legal actions and the public reporting of their progress and results.

There is actually a better, more cost effective, and more discreet way of dealing with cross-border disputes: private dispute resolution ' mediation ' facilitated by an experienced corporate finance mediator.

In addition to its overall merits in privately and cost-effectively resolving leasing and financing disputes, private dispute resolution provides an especially effective and efficient means of addressing and disposing of cross-border and international problem issues or deals involving the complexities described above.

Mediation As Collaboration

The process of private, confidential dispute resolution (typically through mediation under the guidance of an experienced neutral third party) is by nature a collaborative undertaking. Settlement is reached through mutual exploration and joint resolution of specific misunderstandings and problems. In meeting privately and confidentially with the neutral mediator throughout this process, the parties and their counsel are encouraged to review and discuss particular issues and disagreements openly and candidly.

In this setting, language or cultural issues can be thoroughly aired out and addressed in detail. Problems arising from simple misunderstandings or miscommunication can be put to rest quickly, leaving the parties and counsel open for the negotiation of more fundamental business and technical issues. It may even be discovered that cultural or language difficulties are the only issues separating the parties.

In international situations involving time zone, language, legal, and cultural differences, and where the parties, or even counsel, may not have communicated adequately (if at all) over an extended period, this collaborative approach to problem resolution can be the key to opening fresh dialog, finding areas of mutual agreement, and exploring opportunities for settlement. Adversarial combat can be effective in certain situations, but collaboration may often be the key to resolution when disagreements turn in large part on miscommunication and misunderstanding.

Mediation As a Sounding Board

Although the disciplines of leasing and corporate finance revolve primarily around objective and quantifiable factors, emotion and frustration may often play a complicating role when a deal turns bad. Parties whose original business objectives are thwarted, whose finances or even businesses are at risk, or who, despite what they view as their best efforts, cannot settle disagreements with the other parties, may lose their objectivity and, consequently, their ability to work out a reasonable settlement of difficult issues on their own.

The process of private dispute resolution often provides a crucial but unforeseen benefit in such situations ' the chance for parties (and often counsel) to air their frustrations and concerns in a private and confidential setting. Through confidential caucuses with all parties, a professional mediator, particularly one with experience in leasing and corporate finance, can evaluate these non-technical concerns and help translate them into settlement opportunities. Without disclosing any confidences, the skilled mediator can often use such underlying frustrations and demands as the basis for crafting dialog with the other side or as points of emphasis in structuring possible workout or settlement options.

In international deals particularly, where the level of frustration can be especially high due to inherent time delays and cultural difficulties, the mediator can serve as a sounding board for the parties. Points of view and frustrations that might otherwise go unstated and become sources of serious resentment (and thus obstacles to settlement) can be aired out and channeled into constructive components of a workable resolution of the business problems.

Mediation As a Think Tank

Given the intricacies of financial, corporate, accounting, and securities disclosure rules and other regulations in a globalized deal, when problems arise the parties may find there is no common ground for direct negotiation of a settlement because the underlying groundwork is different for each side. Besides the lack of common regulatory ground, the parties or their litigation counsel may also be reluctant to disclose their concerns about these issues for fear of “giving away” an advantage at a later trial; why let the other side know now that they're not in compliance with certain rules that will come back to bite them later.

As a setting in which such matters can be disclosed and discussed privately and in confidence with a neutral third party, mediation provides the means for addressing and working out these details. Without giving up any “competitive” or negotiating advantage, parties can review in detail with the mediator and their own counsel (and perhaps with specialized outside counsel or other experts) their views on complicated and potentially harmful regulatory or reporting issues. Sometimes such a detailed review may even help fill out or clarify the party's own points of view and provide guidance for a workable settlement with the other side without disclosing important work product or interim technical details.

In fact, this confidential review of issues that may ultimately affect the viability and longevity of a proposed settlement may be one of the most important benefits of private dispute resolution. With the freedom to explore options and evaluate various alternatives, but without the risk of exposing inchoate or partial solutions until they're ready for discussion with the other side, a party can use private mediation caucuses as an inexpensive and safe way of shaping ideas and approaches. With the help of the mediator, who is aware of the expectations and desires of the other side, settlement proposals may be crafted that have a much better chance of acceptance and endurance than would be the case if a party had to negotiate “in the dark,” without any insight into the thinking of the other parties to the dispute.

Combined with the mediator's ability to assess and integrate the many cultural and other non-technical issues involved in the resolution of cross-border disputes, this opportunity for the parties to explore various complex technical details and alternatives creates in mediation a unique overall environment for the development of a workable settlement plan.

Mediation Pre-Dispute

In the increasingly globalized world of leasing and corporate finance, with transaction sizes for cross-border and international deals becoming smaller and involving a greater variety of participants and their counsel, the private resolution of issues through mediation may serve as an important and valuable pre-dispute resource. Parties who do not have ready access to international law firms or the means to bring teams of specialized attorneys, accountants, and other experts to bear on an international deal of only modest size may find the use of an experienced neutral third party to be helpful in negotiating a deal or working out a problem before it becomes a major dispute. The growing field of “deal mediation” provides parties with the participation of an experienced neutral party to facilitate and structure the resolution of difficult issues as they arise in the course of putting a deal together.

Almost from the beginning of a transaction, the cultural, technical, language, and other difficulties of an international financing or leasing deal may threaten to derail the project, despite the best intentions of the parties and their counsel. By using a neutral facilitator, with the benefits of private caucuses, confidential meetings, and an impartial third-party perspective, issues can be negotiated and resolved well before they are allowed to fester or become deal-killing problems. A professional mediator, with experience in leasing and international transactions, may be the best insurance the parties can have against losing an important deal even before it gets closed.

How to Assess a Mediator

Dispute resolution professionals may be found across a wide array of experience and knowledge levels. For the highest likelihood of success in resolving a cross-border leasing dispute, or in facilitating the negotiation of an international financing deal or project, a third-party neutral should be selected who has broad experience both in general commercial mediation and in the specific issues that are likely to arise in corporate finance and equipment leasing. It is this combination of hard- earned mediation and negotiation skills together with specific experience in leasing and secured financing that offers the best chance of successfully avoiding complicated international litigation or of satisfactorily closing your next cross-border deal.

Paul Bent is a professional mediator whose experience includes 25 years as a corporate transaction attorney and investment banker. A member of The Alta Group, international consultants in finance and leasing, he specializes in disputes involving large ticket equipment leasing and complex corporate finance. He may be contacted directly at [email protected]. The Alta Group (www.thealtagroup.com), established in 1992, provides a broad array of strategic consulting and advisory services, education and training programs, merger and acquisition and dispute resolution services for companies in the global equipment leasing and asset finance industries.