BBaannkkss--ddeebbt­toorrss mmeed­di­iaat­ti­ioonn pprrooc­ceessss nneeeed­dss aa rreet­th­hi­innkk

Financial Mirror (Cyprus) - - FRONT PAGE - By Niko­las Kouk­ou­nis

There is a grow­ing de­bate with re­gards to me­di­a­tion and its pos­si­ble ef­fects in the field of out-of-court dis­pute res­o­lu­tion and on the econ­omy in gen­eral. The con­cept has at­tracted in­creas­ing at­ten­tion re­cently, not only amongst lawyers, but also amongst mem­bers of the Cyprus Cham­ber of Com­merce and In­dus­try (KEVE). Nev­er­the­less, de­spite its in­her­ent po­ten­tial to min­imise cost and time in the dis­pute res­o­lu­tion process and max­imise the pos­si­bil­i­ties of set­tle­ment, Par­lia­ment has cho­sen to bur­den the me­di­a­tion process be­tween debtors and fi­nan­cial in­sti­tu­tions with coun­ter­ef­fec­tive el­e­ments that defy its pur­pose and con­tra­dict me­di­a­tion’s very na­ture.

In brief, me­di­a­tion is an out-of-court process dur­ing which a neu­tral third party-me­di­a­tor acts as an in­ter­me­di­ary in an ef­fort to fa­cil­i­tate the ex­change of in­for­ma­tion be­tween the par­ties and use his or her skills in or­der to as­sist them to find a mu­tu­ally agreed so­lu­tion, with­out propos­ing any so­lu­tion or tak­ing sides.

Me­di­a­tion is, by na­ture, a con­fi­den­tial, vol­un­tary and non­bind­ing process, since the par­ties choose to em­bark in this process them­selves and they are free to walk out at any stage, with­out any prej­u­dice to their rights. Fur­ther­more, the in­for­ma­tion ex­changed be­tween the par­ties through­out the process re­mains priv­i­leged and can­not be used in court. This process is quicker, less costly and in­volves less fric­tion than re­sort­ing to a time-con­sum­ing and cost-heavy court ac­tion. More im­por­tantly, me­di­a­tion pro­vides the par­ties with the op­por­tu­nity to find a win-win so­lu­tion that even the courts may not be ready to award. With­out a doubt, me­di­a­tion could also be a cat­a­lyst in re­duc­ing the courts’ al­ready heavy work­load and speed up the dis­pute res­o­lu­tion process.

In­stead of util­is­ing all the ben­e­fits that me­di­a­tion has to of­fer, Par­lia­ment has cho­sen to en­act the For­ma­tion and Op­er­a­tion of a Uni­form Ser­vice for the Res­o­lu­tion of Fi­nan­cial Dis­putes out of Court Law, L.84(I)/2010 as re­cently amended, part of which seems un­work­able, de­fies the pur­pose of me­di­a­tion and in­heres more dan­gers for the bank­ing sec­tor than the ben­e­fits it at­tempts to grant to debtors. Part VIA pro­vides for the es­tab­lish­ment of a pro­ce­dure ac­cord­ing to which a debtor who is not sat­is­fied with the re­struc­tur­ing pro­posal of­fered by a bank with re­gards to a loan not yet been re­paid, can re­sort to me­di­a­tion in pur­suance of a more prefer­able so­lu­tion, be­fore the case goes be­fore the court.

The mech­a­nism out­lined in the law clearly tips the bal­ance in favour of the debtor. Firstly, no ref­er­ence is made with re­gards to guar­an­tors. In the event that the out­come of me­di­a­tion be­tween the debtor and the bank is suc­cess­ful and the par­ties agree to amend the loan agree­ment through a sup­ple­men­tary agree­ment with­out the in­volve­ment or con­sent of the guar­an­tors, then it is pos­si­ble that the bank will be left ex­posed and un­se­cured. Ac­cord­ing to the Con­tract Law, Cap.149, any amend­ment to the loan agree­ment be­tween the debtor and the bank with­out the con­sent of the guar­an­tor, ab­solves the guar­an­tor of any re­spon­si­bil­ity with re­gards to any trans­ac­tion tak­ing place after the said amend­ment.

Fur­ther­more, as long as the debtor de­mands the dis­pute to be sent to me­di­a­tion, the bank has a statu­tory obli­ga­tion to par­tic­i­pate in the me­di­a­tion process, and if it failes to do so it loses the right to claim the costs and le­gal fees of a sub­se­quent suc­cess­ful ac­tion against the debtor. This is ar­gued to be over-the-top and comes in con­flict with the very na­ture of me­di­a­tion as a vol­un­tary process, whereby the par­ties are free to walk in and out at any time with­out prej­u­dice to their rights, in­cur­ring no sanc­tions for their choice to do so. Along the same lines, in case the debtor wishes to walk out of the process, he or she is statu­to­rily obliged to pay all the costs of the process, which may range up to EUR 500, es­sen­tially “pun­ish­ing” the debtor for the dead­lock reached.

Ad­di­tion­ally, the par­ties are al­lowed to bring the dis­pute to me­di­a­tion only if the case has not yet been brought be­fore the courts or if the fore­clo­sure pro­ce­dure has not yet been in­sti­tuted. As soon as the me­di­a­tion process kicks in, the bank is barred from bring­ing an ac­tion to court or in­sti­tute fore­clo­sure mea­sures against the debtor, un­til the me­di­a­tion process is over.

This pro­vi­sion clearly ig­nores the dy­nam­ics of the lit­i­ga­tion process, whereby the par­ties are more prone to find a so­lu­tion closer to the hear­ing date and at the same time it grants the debtor the op­por­tu­nity to fore­stall the debt col­lec­tion process, to the detri­ment of the bank.

Fur­ther­more, the bank is un­jus­ti­fi­ably pre­vented from claim­ing their rights and re­sort to the courts, plac­ing an in­sur­mount­able ob­sta­cle to the banks’ right of free ac­cess to jus­tice.

In light of the above, it is in­evitable that the cur­rent le­gal frame­work for me­di­a­tion in loan dis­putes be­tween debtors and banks is in ur­gent need of re­con­sid­er­a­tion be­fore the statu­tory me­di­a­tion mech­a­nism takes off.

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