Mediation vs. Litigation in the Oil and Gas Industry

Introduction

Business law is becoming increasingly complex, and oil and gas companies that face litigation suits from lessees dissatisfied with their contracts or experiences may find themselves confronting additional complexities in court — particularly since public policy favors an increase in the production of oil and gas and may be less patient with the traditional methods used in its production.¹ It is in this manner that parties and courts will face new issues in covenant litigation, whilst parties spend enormous amounts of time and money in endless legal proceedings before arriving at — or failing to reach — resolution, with potential future acrimony as a result. This is the conventional litigious procedure that mediation succeeds in circumventing.

The benefits of mediation are well known. According to Boulle,² surveys of those who have participated in mediation processes consistently reveal unanimous satisfaction with the service. This essay proceeds to describe mediation in all its complexity, detailing the process of mediation, stating its limitations, and describing alternatives. Finally, the essay concludes with a synopsis of the benefits of mediation to the industrial sector in general and to the oil and gas industry in particular.

Overview of Mediation

Mediation is presented here as a favorable option to litigation. Mediation is defined as a process in which a non-biased, third-party professional steps in to a conflict to formulate a win-win situation, enabling both parties to understand each other's position and arrive at mutually desirable and settled terms. Unlike similar interventions such as arbitration, counseling, or litigation, the mediator refrains from actively directing or advising the parties and acts in a purely facilitative capacity.³

The benefits of mediation include the following:

• Parties are made aware of each other's interests and priorities in a non-confrontational, open setting.
• Parties are enabled to healthily express their emotions in a protected setting.
• Parties work through an agreed-upon agenda with a professional guiding their progression through sessions.
• The roles of all constituents — such as other business partners — are identified.
• Parties arrive at knowledge of a constructive resolution that can be applied to future disputes.⁴

Increasingly popular, mediation is commonly used across a variety of fields, with the commercial sector typically representing one of its largest areas of application.⁵ It is therefore suggested that the oil and gas industry would profit enormously from adopting this medium.

What Is Mediation

Otherwise known as an alternative dispute resolution (ADR) mechanism, mediation is a process in which trained, neutral professionals help two or more parties negotiate and arrive at a self-determined agreement regarding their particular dispute. Mediation is used in a variety of situations including commercial, domestic, legal, diplomatic, family, and workplace matters.⁶ The Internal Revenue Service, for instance, regularly favors mediation as a method of resolving tax disputes.⁷

Confidentiality of sessions is assumed, with privacy allocated to concerned parties and leakage of information to unconnected members forbidden. As a non-adversarial strategy of dispute negotiation, sessions resemble a win-win process in which parties, through the help of a mediator, attempt to reach mutual benefit, rather than producing a win-lose outcome in which one party loses or a third party is compelled to intervene. The mediator must be wholly impartial and employs various techniques to help the parties negotiate their differences.

The style of mediation falls into three categories: evaluative, transformative, and facilitative. Evaluative mediation differs from the other two in that the practitioner assesses the strength and weakness of each argument in light of how it might appear in court, with settlement as its objective. Transformative mediation, by contrast, sees conflict as a crisis in communication and aims to help the parties improve their communication through conflict-resolution strategies.⁸

The benefits of mediation include prevention of the monetary expense of drawn-out court cases, as well as the stress associated with the legal procedure. Time is also conserved — a court case can drag on for years, whilst mediation may be resolved in several hours. Furthermore, the parties can generally reach a more amicable, less acrimonious agreement than they would through the legal system, where a third party — most often a judge — would impose a decision that would necessarily be unsatisfactory to at least one party. Mediation also offers strict confidentiality to the extent that the legal system cannot compel a mediator to testify in court. Finally, mediation offers the possibility of multiple and flexible resolutions to a dispute and grants parties the empowerment to arrive at the decision themselves — whereas in litigation, the decision is imposed by an external authority.

At times, however, mediation may prove unsatisfactory: complaints remain unresolved or other issues emerge. In such cases, issues not resolved by mediation are referred to court via litigation and addressed by a magistrate, judge, or jury. Similarly, parties demanding follow-up on mediation may also bring their complaint to court for resolution in a comparable manner.

References

Books

Barclay, T. New Methods of Adjusting International Disputes and the Future. London: Constable, 2008.

Boulle, L. Mediation — Principles, Process, Practice. Chatswood: LexisNexis Butterworths, 2005.

Simkin, W.E. Mediation and the Dynamics of Collective Bargaining. Washington DC: Bureau of National Affairs Books, 1971.

Articles

Cooley, J.W. "Arbitration vs. Mediation — Explaining the Differences." Judicature, Dayton L. Rev., 589, 69–263, 1994.

Hall, Keith. "The Continuing Role of Implied Covenants in Developing Leased Lands." Washburn Law Journal, 49, 313–327, 2010.

Parsely, D. "The Internal Revenue Service and Alternative Dispute Resolution: Moving from Infancy to Legitimacy." Cardozo Journal of Conflict Resolution, 8, 677–715, 2006.

Shade, J. "Oil & Gas and ADR: A Marriage Made in Heaven Waiting to Happen." Tulsa Law Journal, 18, 4, 1994.

Shapiro, D. "ADR and the Environment." Journal of ADR, Mediation and Negotiation, 1, 16–22, 2000.

Internet Sources

Thomas W. Walde. "Mediation/Alternative Dispute Resolution in Oil, Gas and Energy Transactions: Superior to Arbitration/Litigation from a Commercial and Management Perspective," 2008.

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