International Development Law Organization

Mediation: Kyrgyz supermarket and supplier resolve dispute

19 Sep 2019

A disagreement between Kyrgyz retail suppliers and a large supermarket chain could have led to protracted and costly litigation had the dispute not been settled thanks to a mediation procedure supported by IDLO and the European Bank for Reconstruction and Development (EBRD).

The national Association of Suppliers, Manufacturers and Distributors initiated mediation to defend the interests of one of its members.

At stake was the question of vendor rebate, a form of incentive whereby the supplier re-pays a set percentage rate to the buyer – in this case the supermarkets – for acquiring a certain quantity of goods within a set period.

“Our Association consists mostly of representatives of small and medium-sized businesses that produce or import food and consumer goods,” explained the head of the Association, Gulnara Uskenbaeva.

“Naturally, they work with supermarket chains, but in commercial interactions certain disagreements arise, making both sides unsatisfied. A contentious issue is the percentage of vendor rebate. Supermarkets set the rebate at 10 per cent; these costs are burdensome for entrepreneurs.”

Finding an agreement

Sergey Ponomarev, Director of the Association of Markets in Kyrgyzstan, acted as the mediator in the dispute.

According to official data, the volume of retail trade in the Kyrgyz Republic has grown steadily in the past few years, with supermarkets and shopping centers increasingly forming the bulk of turnover. Traditional markets have seen a sharp decline in trade, as consumers’ preferences and habits change. But even the supermarket chains have to compete fiercely with each other, and some have recently been forced to shut down.

Having taken a course with IDLO and EBRD, Ms. Uskenbaeva was confident mediation could help resolve the dispute. Sergey Ponomarev, an entrepreneur and the director of the Association of Markets, was chosen to act as the mediator. He observed how the parties were looking for solutions in a difficult situation and how, despite their opposing stances, they understood that they needed each other.

“At the very beginning, on one side there was a sense of injustice that unfavorable conditions had been imposed. On the other, perplexity and resentment – why are they counting our money? Each side made its own arguments and counterarguments,” noted Mr. Ponomarev.

But once they began analyzing profitability and comparing data, including from an international audit of the supermarket chain, the parties softened their stances and developed greater flexibility. This, in turn, became the key to finding an agreement.

A viable alternative

Business communities all over the world are beginning to realize that it is much more convenient to resolve disputes through mediation or arbitration. Fred Huston, IDLO’s Country Manager in the Kyrgyz Republic, pointed out that “mediation has its own principles – confidentiality, speed, flexibility – and, most importantly, the decision is made by the parties themselves.”

Legislation passed in 2018 gave impetus to the roll-out of mediation in the Kyrgyz Republic, and mediators have since held their first congress and created a national network. However, commercial mediation is still considered a new institution, and has not yet gained wide popularity in the Kyrgyz business community. Ms. Uskenbaeva claims that “businesses are used to relying on the court to put the last point in the dispute”.

Another factor, according to Mr. Ponomarev, is the lack of information about mediation. “Businesses are not well informed about mediation, so few people turn to mediators. An imbalance has been created between supply and demand. And yet mediation would effectively resolve commercial disputes, preventing possible bankruptcies,” he commented.

To help mediation get off the ground in the country, the IDLO-EBRD project therefore decided to provide support not only by training mediators but also by sensitizing entrepreneurs and representatives of the banking sector. It also covered the cost of mediation to resolve commercial disputes, and mediators have now been successful in 35 cases on issues including labor, real estate and contracting.

(Top photo: Gulnara Uskenbaeva, Head of the Association of Suppliers, Manufacturers and Distributors in Kyrgyzstan, participated in a mediation training course run by IDLO and EBRD.)