Before filing a lawsuit, parties must be informed about mediation options

In the future, parties in court proceedings will be required to hold an informational meeting about mediation before filing a lawsuit. If one of the parties does not attend the informational meeting, financial penalties will follow. This is stated in the Draft Proposal of the Mediation Act, which builds on the current Law on Peaceful Resolution of Disputes (ZMRS). However, after the mandatory informational meeting about mediation, parties will not be obliged to engage in mediation, meaning they will have the right to choose whether it is worth attempting to reconcile with the other party or to proceed directly to court.

The introduction of the mandatory informational meeting about mediation is a result of the poor response from parties in the process, even though previous laws allowed for it. The voluntary nature of mediation has proven to be problematic, as parties in court proceedings were often unaware of this option, as mentioned in February this year by Judge Iva Buljan of the Commercial Court in Zagreb (TSZG) in an interview with Lider: ‘As the head of the Mediation Department at TSZG, I can say that we have about 4-5 such cases annually. I cannot say that the success rate is 100 percent, but we have reached settlements in mediation processes, reflecting the awareness that one cannot always get everything in this process. Mediation at TSZG is completely free of charge; our department is well-equipped, and we have experts from all fields. The case file reaches the Mediation Department within two to three days, and the judge immediately calls for a meeting.’

The Ministry of Justice and Administration explains in the Draft Proposal of the Mediation Act why this innovation is being introduced…

Namely, in the two years of applying the Law on Peaceful Resolution of Disputes (ZMRS), it has been established that the expansion of the law’s application area has not contributed to a more frequent use of peaceful dispute resolution methods, and the application of regulations in practice is unclear. Therefore, the new provision on the obligation of an informational meeting about mediation aims to guide parties towards the possibility of resolving disputes peacefully, with all extrajudicial tools for peaceful dispute resolution available to them (informational meeting about mediation, mediation, negotiations, etc.).

Cost Penalties

In the event that parties do not act in accordance with the above and initiate court proceedings without having previously attempted to resolve the dispute peacefully, they do not incur penalties for not attempting to resolve the dispute peacefully. However, this does not mean that there are no cost penalties for the party that does not attend the informational meeting about mediation. Specifically, the Ministry explains that a party that fails to fulfill this obligation loses the right to claim reimbursement for further costs of the court proceedings regardless of the outcome of the proceedings. In addition to the cost penalty, as an incentive for parties to fulfill the obligation to attempt to resolve the dispute through mediation, a financial relief is prescribed in the form of exemption from paying court fees for a lawsuit that would potentially be filed in the event of an unsuccessful attempt to resolve the dispute through mediation.

Mediation itself could not be imposed as mandatory because it is fundamentally based on voluntariness; therefore, the Ministry decided to prescribe a mandatory informational meeting after realizing that citizens and entrepreneurs were not even aware of this option. After the informational meeting, parties decide for themselves whether to attempt to resolve their dispute through mediation or to resolve it in the appropriate court proceedings. In any case, by attending the informational meeting about mediation, this obligation is fulfilled under the conditions regardless of what the parties decide afterward.

When selecting the types of disputes covered by the obligation to attempt to resolve disputes through mediation, special attention was paid to ensure that the obligation is prescribed specifically for those types of disputes that are inherently considered suitable for resolution through mediation, while also taking into account the existing organizational capacities available to the system.

The law also further strengthens the National Mediation Center, whose role is to provide parties with a secure legal environment and access to tools for fulfilling the prescribed obligation. The Center is headquartered in Zagreb, but also has branches in Rijeka, Split, and Osijek, ensuring territorial coverage across Croatia.

Civilizational State

The law regulates mediation in a way that retains existing good solutions and further strengthens them by detailing the existing institutes that have proven to be effective but are still underutilized.

Experience has shown that the most challenging part of improving mediation is finding ways to inform parties about mediation, encouraging them to use it more frequently, and making them trust mediation. It has been shown that misunderstanding and insufficient information are the main causes of rejection and distrust among parties.

Therefore, the main innovation of this law compared to previous normative regulations is the prescription of the obligation to attempt to resolve certain types of disputes through mediation exclusively before initiating litigation, with the consequence of a cost penalty for the party that does not fulfill this obligation, along with a detailed prescription of the informational meeting about mediation as one of the ways to fulfill this obligation.

By regulating the informational meeting about mediation in a way that makes the meeting an accessible, functional, and legally secure means for parties to fulfill the obligation to attempt to resolve certain types of disputes through mediation, more frequent use of mediation in practice will be encouraged.

Additionally, the Ministry believes that the new law will ensure conditions for informing citizens and business entities about the advantages of resolving disputes through mediation, encourage more frequent use of mediation, and consequently reduce the number of cases in courts. Furthermore, the new regulation of mediation will create added value at the societal level in a broader sense, as the law establishes positive activities directed towards citizens, encouraging them to contribute to the development of a non-conflict social environment, mutual understanding, and conflict avoidance with support and assistance.

Moreover, Judge Buljan of TSZG also stated in the aforementioned interview with Lider that ‘the number of mediations is in some way a reflection of the civilizational state of a society.’

Court vs. Mediation

In addition to the fact that cases at TSZG are processed very quickly, within two to three days (as shown by previous practice), our interlocutor also spoke about other advantages of mediation. For instance, in court proceedings, the judge is guided solely by facts; it is not their role to determine absolute truth nor can they know what actually happened between business people. In the end, they make a decision that one party is not satisfied with. ‘In mediation, the situation is entirely different. If entrepreneurs are in a long-term business relationship, and if we see that it can continue, it is our duty to bring them closer to their interest without debating who is right and who is wrong. Here, we do not investigate facts. It is more expensive to lose a business partner than to win a lawsuit. If you keep them, you continue to do business, and that is an immeasurable asset in the business world, especially in sectors where there are not many companies operating. Mediation is a process that is confidential, informal, and secret. What you will not say in front of a trial judge, you will say in front of a mediator,’ said Buljan. Another thing, she added, is that a party in the process sues for what they can, not for what they actually need. For example, a party knows that part of the claim is time-barred in court proceedings, and for that part, they will not sue the opposing party to avoid increasing the value of the subject of the dispute, which would lead to higher procedural costs. ‘But when you sit down for mediation, you can tell the other party that they know the goods were delivered, but they did not sue because it is time-barred, yet you can still demand money for that goods. Or, they can agree to continue their business cooperation because a court settlement is often, interestingly, not compatible with the lawsuit at all. A court settlement can be a new contract. We can close some obligations and arrange further business cooperation in a different way than before,’ Buljan said in the interview with Lider in February this year.

She noted that construction disputes are particularly suitable for mediation. Namely, she explained, when a lawsuit is filed, it can compel the other party to negotiate because they must respond to the court. Builders issue guarantees for every major job, and every day of delay on large projects incurs million-dollar penalties. Regardless of the outcome of the dispute, the first thing that happens is that everyone goes and activates the other party’s guarantee, collecting penalties. Out of spite, and a lack of awareness that things need to start being resolved, they push each other into blockades and consequently into bankruptcy, while the jobs stand still, and in the end, the investor sues both parties.