MEDIATION IN CIVIL AND COMMERCIAL DISPUTES
“Top 5 Things Everyone Should Know About Mediation”
APPG on ADR
25th May 2016
Michel Kallipetis QC FCIArb (Arbitration and Mediation)
INTRODUCTION
1.
Alternative Dispute Resolution (“ADR”) provides an extended range of options to
those who wish to avoid being locked into the traditional adversarial litigation or
negotiation processes.
2.
ADR defines the method by which a dispute might be resolved other than by a binding
process imposed by someone other than the parties themselves. There are various
ADR processes “arbitration, early neutral evaluation, expert determination,
mediation and conciliation”. Strictly speaking, arbitration is not true ADR as it is
basically a trial presided over by an arbitrator, or, in the case of most ICC arbitrations,
three arbitrators instead of a judge.
3.
ADR is not a new phenomenon. Mediation and Conciliation are by far the most
commonly used processes. Mediation has been used in the East for centuries. It is a
natural part of the eastern social order. Equally Greece has used mediators throughout
history to resolve international and domestic disputes.
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4.
In the field of industrial relations in the UK, conciliation has been in existence since
the middle of the 19th century. The attempts by Pitt the Younger to introduce a regime
to avoid industrial disputes or their resolution by industrial action by a series of
statutes between 1867 and 1872 were ridiculed as the ‘pretentious legislation’. In
America ADR has developed because of the economic pressures of the cost of
litigation. It has seen its greatest advances in America, Canada, Australia and New
Zealand, where ADR in general and mediation in particular has been part of the legal
landscape for decades, and, in some jurisdictions, mediation schemes have now
become mandatory. More recently ADR has been introduced into most common law
countries, and, as a result of the EU Directive, in all the civil law countries of the
European Union as well.
5.
However, mediation has still has not made a great impact upon the resolution of those
commercial disputes which have traditionally resorted to international arbitration.
Mediation generally is still regarded with considerable suspicion by many lawyers
and with profound ignorance by some commercial organisations. Nevertheless it has
become increasingly more popular as it comes to be used more regularly as part of
the litigation process and by businesses as a way of resolving disputes without
recourse to litigation.
6.
In the UK the Woolf Reforms gave a great impulse towards ADR in general and
mediation in particular. Currently there are more civil and commercial disputes being
resolved through some form of ADR than there are being litigated. Insurers have
embraced mediation in most cases in preference to the traditional method of
‘litigating until the last minute’ as a quicker and more sensible way of resolving all
claims with minimal legal cost.
7.
The European Directive on Mediation has been implemented by all member States
since the 21st May 2011. That directive applies to all cross border civil and
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commercial disputes and applies equally to disputes traditionally submitted to
arbitration as it does to those which are normally dealt with in the courts. As far as
international arbitration is concerned there is slow but growing awareness that
perhaps mediation offers a quicker, and dare one say, less expensive route to
resolving disputes. A comparison of some of the advantages and features of each
might provide a reason why disputants may prefer to mediate their disputes rather
than arbitrate them.
[SLIDE 1]
Need to Advise Clients on ADR
8.
The Court of Appeal in England1 said that all members of the legal profession who
conduct litigation should now routinely consider with their clients whether their
disputes are suitable for ADR. It is my view that for some years legal advisers should
have made themselves fully aware of mediation in order to advise their clients about
its benefits and suitability for the dispute, and, as a matter of professional obligation,
ought to give appropriate advice at every stage of litigation. However, there remains
considerable ignorance about the subject. As a result of the Court of Appeal
judgment, legal advisers must ensure that they not only know about mediation but
that they are able to and do advise their clients before and during litigation (including
arbitration) whether to use mediation and, if so, when to do so. Equally legal advisers
must be in a position to protect their clients (and themselves!) against an adverse costs
order or suit if they decide not to try to resolve the dispute by mediation. The Bar
Council of England and Wales, as well as the Law Society have made it a matter of
1
Halsey v Milton Keynes [2004] EWCA (Civ) 576
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professional obligation for litigators to be able to advise their clients properly on
mediation.
9.
I suspect it is only a matter of time before other Member States enact similar
provisions, and all lawyers need to be prepared. I note with interest that the Italian
lawyers’ (advocates, notaries and judges!) reaction to their Government’s decision to
make mediation compulsory in all civil and commercial disputes was to go on strike
for a week! The fact that the strike encompassed a public holiday was, I am sure,
purely coincidental!
10.
I would offer the following List of Top 5 Things Everyone Should Know
About Mediation for all those engaged in dispute resolution:
1. Unlike litigation, mediation is not a spectator sport;
2. Unlike litigation, the client and their advisers fashion the solution rather than a
judge or arbitrator;
3. Unlike litigation, there are no rules and anything and everything which the
disputants wish to discuss and resolve is open to them if they choose;
4. Unlike litigation, the parties to a dispute can choose the mediator and speak to the
mediator privately before or during the mediation, confident that all that they
discuss is confidential and privileged, and will not be revealed to the other parties
unless they choose so to do;
5.
Unlike litigation, the disputants control the speed of the process and, most
importantly, the cost. [SLIDE 2]
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Judicial observations on the Importance and Advantages of Mediation
11.
Brooke LJ in Dunnett v Railtrack [2002] 1WLR 2434 observed:
“Skilled mediators are now able to achieve results satisfactory
to both parties in many cases which are quite beyond the power
of lawyers and courts to achieve. This court has knowledge of
cases where intense feelings have arisen, for instance in
relation to clinical negligence claims. But when the parties are
brought together on neutral soil with a skilled mediator to help
them resolve their differences, it may very well be that the
mediator is able to achieve a result by which the parties shake
hands at the end and feel that they have gone away having
settled the dispute on terms with which they are happy to live.
A mediator may be able to provide solutions which are beyond
the powers of the court to provide.”
[SLIDE 3]
12.
In similar vein, Jacob LJ in Reed Executive plc v Reed Business Information Ltd
[2004] EWCA (Civ) 887 said:
“… RBI refused a number of offers to go to mediation. Mr
Howe told us there were serious settlement discussions, but
they are not the same as mediation.
A good and tough
mediator can bring about a sense of commercial reality to both
sides which their own lawyers, however good, may not be able
to convey.”
[SLIDE 4]
13.
The Court of Appeal in Halsey identified two crucial advantages of mediation over
litigation. First, that it is usually less expensive than litigation which ends in
judgment. Second, that it provides litigants with a wider range of solutions than those
available in litigation e.g. an apology, an explanation, the continuation of an existing
professional or business relationship, perhaps on new terms, and an agreement by one
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party to do something without any existing legal obligation to do so. Both
observations apply equally to international arbitration.
15.
There are other advantages of mediation which those experienced in mediation will
appreciate. For example, a mediation can be arranged at short notice, it is usually
resolved in a day, it is informal, it involves the lay clients and it can involve those
who are not yet (or who might never be) parties to existing litigation.
16.
In terms of international disputes there needs to be awareness among lawyers that
global and national organisations are gradually coming to the conclusion that
expensive and protracted litigation or arbitration is not the only way to resolve
disputes and mediation often provides a quicker, less expensive and more imaginative
route to an acceptable solution.
[SLIDE 5]
10.
In my experience even the most intractable disputes have resulted in a settlement once
those in dispute recognise the advantage of being able to fashion a solution which
litigation or arbitration may not be able to grant. Cost alone is often a driver towards
a consensual solution. Time before obtaining judgment or the final Award and desire
to preserve a continuing relationship are others. However, in many cases the ‘real’
causes of the dispute can be addressed.
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11.
It is quite common in my experience for parties in dispute to use a combination of
litigation or arbitration and mediation. I have mediated disputes prior to the
commencement of arbitration, after arbitration pending an appeal and sometimes in
combination or ‘med/arb’. It is not uncommon for me to be appointed to act as
arbitrator to determine any disputes arising out of a settlement agreement especially
where part of the settlement agreement requires the parties to enter into other
agreements or documents to give effect to the settlement. In several major
construction disputes, which traditionally have been the subject of arbitration, I have
held ‘mini-mediations’ with the experts under mediation terms of confidentiality,
which have produced agreed positions for the purposes of the mediation which have
then enabled the clients to mediate and achieve resolution in a day or two’s mediation.
12.
One further observation. In February of 2013, the American Arbitration Association
(AAA) undertook a major research study aimed at examining the attitudes and
experiences associated with the use of non-judicial dispute resolution. The study
examined how these techniques and practices are employed by a broad sample of
businesses, one that included Fortune 1000 companies, mid-size public companies,
and privately-held businesses.
13.
The study suggests two critical new findings:
14.1
First, it is possible to identify companies that can be described as “dispute-
wise.” The composite picture of a dispute-wise company’s legal department is
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outlined by an eight-item index of key characteristics. Its legal group is more likely
to be:
(i)
highly integrated into the general corporate planning process,
understanding of the broader business issues facing its company and
industry,
(ii)
spending a lot of time on highly complex and technical issues,
(iii)
involved in cross- border, international disputes (the apparent goal
being to avoid the risk involved in the uncertainty of judicial processes
outside borders of the home country), and
(iv)
working in an environment where senior management is focused on
preserving relationships and settling disputes rather than just on winning
cases and, therefore, less concerned about aggressively litigating every case.
[SLIDE 6]
That same dispute-wise legal department is less likely to view its role as:
(v)
being focused primarily on reviewing contracts and agreements,
(vi)
being part of a culture that favours litigation over ADR, and
(vii)
aggressively litigating every case.
[SLIDE 7]
14.2
Second, the survey results make it quite clear that dispute-wise business
management practices appear to be associated with positive business outcomes.
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Among the key benefits of dispute-wise business management techniques, the study
found that the “most dispute-wise” companies are more likely to:
(i)
have stronger relationships with customers, suppliers, employees,
and partners, describing these relationships as excellent/very good,
(ii)
appreciate and value the fairness and speed of ADR processes in
resolving disputes with customers and suppliers while turning away from
what, in many instances, had become a single-minded focus on litigating at
almost any cost approach,
(iii)
experience lower legal department budgets (with “least dispute-
wise” companies having significantly higher legal department expenses) and
manage their in-house legal costs with a higher degree of efficiency, and
(iv)
utilise legal resources well (A common complaint heard from legal
departments is a feeling of being forced to operate lean and being stretched
to the limit. However, despite their lower legal department budgets, highly
dispute-wise companies are much less likely to describe their departments
as “lean” or “stretched to the limit”
[SLIDE 8]
14.
Relative to the stronger relationships findings outlined above, it is interesting to
note that the price/earnings ratios (often thought of as a measure or indicator of
stockholder confidence in the management of a company) for the “most disputewise” companies averaged 28% higher than the mean for all the publicly-held
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companies in this survey and 68% higher than the mean for companies in the “least
dispute-wise” category. These outcomes suggest that the “most dispute-wise”
companies are particularly concerned with maintaining good relationships with all
of their stakeholders.
[SLIDE 9]
15.
It is important to point out that the “dispute wise” companies were those which
preferred to use both arbitration and mediation in preference to litigation. Beyond
the dispute-wise indicators identified, the following were among the key findings
regarding the use of and attitudes toward mediation and arbitration for the entire
group surveyed:
16.1
The overwhelming majority of all companies surveyed say they use both
mediation and arbitration, but mediation is favoured somewhat over arbitration.
The frequency of usage varies.
16.2
“Most dispute-wise” and “moderate dispute-wise” companies tend to use
arbitration more than those in the “least dispute-wise” category while the use of
mediation is fairly consistent across the three groups.
16.3
There is greater use of mediation and arbitration among Fortune 1000
companies than in mid-size and private companies.
16.4
The primary reasons for using mediation or arbitration include saving
money and saving time. Companies also report using mediation because it allows
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parties to resolve disputes themselves. Arbitration is often used because it is
provided for as part of the dispute resolution provisions in contracts between the
parties.
16.
It is now becoming the norm for the larger international corporations to include a
dispute resolution clause in all their contracts which requires the parties to attempt to
mediate any dispute before resorting to arbitration or litigation. Such clauses have
been held by the English Commercial Court to be binding and enforceable. The one
criticism of such clauses is that they tend to impose strict and unrealistic deadlines
which do not give mediation a chance to resolve the dispute. Flexibility is one of the
keys to a successful mediation and therefore it would be better for the parties to agree
that the time limits which one finds in such clauses could be less rigorously applied.
There is a risk of course that any flexibility might be exploited by one side or the
other, but nonetheless, given the clear commercial benefits of resolving disputes
sooner rather than later, that might be an acceptable risk.
17.
Summarising therefore and attempting to list the top five things everyone should know
about mediation, I would offer the following List of Top 5 Things Everyone
Should Know About Mediation for all those engaged in dispute resolution:
6. Unlike litigation, mediation is not a spectator sport;
7. Unlike litigation, the client and their advisers fashion the solution rather than a
judge or arbitrator;
8. Unlike litigation, there are no rules and anything and everything which the
disputants wish to discuss and resolve is open to them if they choose;
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9. Unlike litigation, the parties to a dispute can choose the mediator and speak to the
mediator privately before or during the mediation, confident that all that they
discuss is confidential and privileged, and will not be revealed to the other parties
unless they choose so to do;
10. Unlike litigation, the disputants control the speed of the process and, most
importantly, the cost.
[SLIDE 9]
Michel Kallipetis QC
[email protected]
© Michel Kallipetis QC
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