Using mediation to resolve disputes
- Alex Kleanthous
- Updated: Fri, 23rd Dec 2016
Mediation is a method of dispute resolution which is becoming increasingly important, because of the:
- Benefits; and,
- Judiciary’s attitude.
Our mediation service includes but is not limited to:
Our team includes an accredited mediator – John Deane.
Range of problems solved via mediation
We tell you how to work the mediation process to secure the best outcome achievable. Mediation is the most common method of alternative dispute resolution and is successful in a great many cases.
We have experience in resolving disputes by way of mediation on a range of issues including:
- Agency agreements – we have acted for both agents and principals to resolve arguments relating to the agent’s performance and alleged lack of support from the principal.
- Directorships – disputes with directors are very common and in cases where the director is also a shareholder the position can quickly impact on the running of the business. We have acted for both directors and shareholders to pave a way through hostilities to find a solution. Often we agree departure terms for the director.
- Employees – surprisingly, disputes with employees are often resolved via mediation. Mediation helps both the employer and the employee focus on objectives and see a way of working together effectively.
- Breach of business contract – a breach may entitle one party to terminate the contract. However, that is always not the best route. Mediation can help preserve the business relationship so the parties can continue to trade with each other.
- Franchise disputes:- we act at a stage of the dispute resolution procedure with the aim of resolving the dispute before the next stage which is usually arbitration or litigation. We find issues usually relate to allegations by the franchisee that the franchisor is not delivering on support. We also deal with claims by the franchisor that the franchisee is failing to generate the profits expected or harming the brand.
- Framework agreements – we usually act before the issues are escalated to find a solution to litigation or arbitration. We handle a variety of problems which usually relate to the sub-contractor failing to deliver which puts the main supplier at risk of breach with the end user.
- Intellectual property disputes – mediation is particularly helpful where intellectual property is involved because the litigation route is very slow and often the damage is irretrievable by the time a case gets to court. We resolve disputes relating to copying, passing off, domain names and other design or patent based rights.
- Investment agreements – the disputes we typically resolve arise when the investor is disappointed with his investment and wants to recover his investment.
- Joint ventures – we find that mediation is very useful in ironing out difficulties which arise when two businesses come together to trade. We have achieved a number of successful mediations for joint ventures.
- Partnerships – this is an area where we frequently step in to resolve disputes and usually find a way to agree the departure terms of a partner. We act for individual partners or the partnerships. A partnership agreement may include a provision requiring the partners to mediate.
- Shareholders’ agreements – we find our in depth knowledge of company law and the rights of shareholders useful in resolving the disputes which do arise.
What is mediation?
Mediation is a form of non-determinative alternative dispute resolution. One attraction is that any agreement must be consensual. This is different to arbitration, where parties agree to be bound by an arbitrator’s decision. Mediation is a flexible process involving a neutral third party who actively assists parties in working towards a negotiated agreement on a dispute or conflict. Ultimately, the parties are in control of the decision and the terms of the resolution.
Mediation is voluntary. Although, as will be seen, failure to accept a reasonable offer of mediation can result in severe cost penalties come trial.
Choosing mediation as a method of ADR
Parties may choose to mediate before or during court proceedings. Here at Gannons, we use mediation as a tool for resolving disputes, depending upon at which stage it is best to initiate mediation.
With some cases, to preserve business relationships, mediation is appropriate from the outset. In other cases, mediation is inappropriate until the parties withdraw from unreasonable stances on liability and/or quantum. In the latter, the case will likely be in the court’s jurisdiction, at which point a timeline is put into effect. Parties are then more willing to negotiate to avoid the inevitable trial and costs.
Incorporating mediation provisions into commercial agreements
These days well drafted commercial contracts often contain mediation clauses. This is where the parties agree to the use of mediation where a dispute arises. This can benefit both parties where a business relationship is to be maintained or the parties have limited budgets for dispute resolution.
How does mediation work?
The basic idea is an independent third party assists:
- Each party understand the other’s point of view,
- By suggesting settlement options the parties may not have considered,
- In brokering an agreed settlement.
Mediators are often, but not always, trained lawyers. For example consider a banking dispute. Here an active or retired banker with appropriate mediation training and experience, might be ideal.
The Commercial Court leads the mediation movement and strongly encourages mediation across a range of banking and finance disputes. These days solicitors must discuss mediation and alternative dispute resolution approaches with their clients at the earliest opportunity. Preserving costs is at the forefront.
Selecting a mediator
Once the parties have agreed to mediate, the parties can either select a mediator themselves or request an ADR organisation, such as the Centre for Effective Dispute Resolution (“CEDR”), to appoint a mediator on their behalf. A venue will have to be selected and it is common for one of the parties’ solicitors to hold the mediation at their offices.
A mediator’s costs will usually be shared between the parties. The parties will also agree to pay their own legal fees in respect of the mediation. If the mediation fails, the costs may be considered as part of a party’s costs in the case come trial.
The process of mediation
Before the mediation, the parties’ solicitors will often prepare a bundle of documents to be submitted to the mediator in preparation for the mediation itself. Not only does this save time, it gives the mediator the opportunity to understand the merits of each party’s case from the outset. A joint case summary will often be prepared setting out the outstanding issues in dispute between the parties.
Mediation is flexible
There is no fixed format to the mediation. However, it is common for the mediator to meet both parties together and take opening statements. The opening statement is crucial and it is best for a solicitor to draft the statement. Each party will then be sent to a separate room and the mediator will go between each room taking instructions for settlement. The mediator is not a messenger. Mediators are skilled negotiators and advise parties on their respective positions. Mediators will often discuss various options available to each party. Mediators are neutral so parties often benefit from independent advice on settlement.
If an agreement is reached, the agreement must be recorded in writing and signed by all parties to the mediation. The agreement should be meticulously drafted to record all the agreed terms of settlement. Often, the parties’ solicitors will attend the mediation to ensure that an effective written agreement is in place. If the mediation takes place after proceedings have started, a consent order will be lodged with the court, detailing the terms of agreement. Again, the consent order must be clear to prevent any future dispute.
Advantages of mediation
Mediation is becoming an increasingly common method of dispute resolution, because:
- Confidentiality and privilege are fundamental to mediation. The private nature prevents court enforced precedents which are often unworkable;
- Mediators are known for their commercial acumen, and can often bring a “business brain” to a legal dispute, which a case hardened judge may not;
- A mediator can help the parties through deadlock that has been created by one or the other’s unreasonable stance;
- Communication between the parties can be facilitated through a neutral third party;
- Long-term relationships, arrangements in small or specialist markets, joint ventures and working relationships can be restored or enhanced;
- Mediation is inexpensive compared to immediate court proceedings;
- The process is flexible, culturally sensitive and adaptable. From our cross-border experience, this is crucial in restoring a party’s confidence in the prospects of reaching settlement; and
- The client’s commercial and technical interests and aims can be achieved through mediation.
Even if the mediation proves unsuccessful, the parties are likely to have benefited through having the opportunity to listen to each other’s views, which in turn narrows the issues in dispute. Tactically, mediation can be used as a weapon for disclosure.
Judiciary’s approach to mediation
Court of Appeal guidance indicates that a party who unreasonably refuses an offer to mediate risks an adverse finding on costs. If at trial, a party refused to mediate then if the party:
- Is successful, then their costs can be limited or reduced.
- If unsuccessful, the court may order the party to pay all the successful party’s costs rather than the usual rule of 75 – 80 per cent.
The rules surrounding unreasonable and reasonable refusals are complicated and Gannons can advise on the likelihood of cost penalties. A recent Court of Appeal case held that, as a general rule, failure to respond at all to an offer to mediate is itself unreasonable, regardless of whether there was a good reason for the refusal. Offers to mediate can be used as a tactical tool.
When to enter into mediation
Given such severe costs penalties, parties must be sure of their position before refusing to mediate. Over recent years the following, seemingly reasonable, arguments have been advanced:-
- It’s a win lose situation – there’s no middle ground;
- The parties are too far apart;
- It’s a black and white matter of contractual interpretation. This requires a judge to decide;
- The parties hate each other and won’t negotiate;
- The party wants his “day in court” to prove they are right;
- The other side hasn’t fully particularised their case and we haven’t seen all the documents;
- We reasonably believe the other side’s case has no merit.
These arguments are usually unsuccessful. Alternatively, it was strongly indicated these arguments would fail, if they were advanced.
Northrop Grumman Mission Systems Europe Limited v BAE Systems
This case is a striking example of the pressure now placed on parties to mediate, even though it’s reasonable to believe the opponent’s case lacks merit. The judge strongly suggested that even in these circumstances, it may be unreasonable to refuse mediation, because
- A mediator can bring a “new independent perspective”,
- The party with the merit-free case may see the light, drop their claim or admit liability.
Court warning: do not refuse to mediate
This case indicates a clear trend: Unless you can prove that mediation will fail, which is tricky without first trying, it’s difficult to justify refusing mediation.
Consequently, in almost every case mediation is, in effect, compulsory, whether you like it or not. Currently:
- Only in rare instances is there a cut and dried argument that mediation is unreasonable.
- For a grey area, given the cost penalties, only a brave litigant would refuse mediation.
Points to remember about the mediation process
- Mediation is a negotiation not a judicial process.
- Mediation doesn’t guarantee an outcome.
- Mediation can be a costly and time consuming process.
- Where mediation is compulsory but not consensual, it’s more likely that mediation will fail, wasting your time and money.
- There is a significant risk that you’ll lose the costs of a failed mediation.
- Usually, the upfront costs are equally split between the parties. So your costs may not be recoverable from the opposition, even if you win or lose, and no matter how the mediation is conducted.
- Without both parties agreeing to waive privilege in respect of the conduct of mediation a costs judge can’t rule as to whether costs have been reasonably incurred and so are recoverable.
Risk with mediation
Mediation can be a tactic for deep pocketed litigants against impecunious litigants. It is not unheard of for a deep-pocketed litigant to propose mediation which forces an impecunious opponent to pay its share of irrecoverable costs. The deep-pocketed litigant has no genuine intention of reaching a settlement, other than on highly advantageous terms. Unfortunately the deep pocketed litigant’s intentions are difficult to prove, particularly where there is no waiver of privilege.
Even if the impecunious litigant has a strong case, the additional and irrecoverable mediation expenses pressurise the impecunious litigant to settle on much less favourable terms.
Mediation is consensual
Note that mediation is a negotiation not a judicial process. The parties decide the outcome. There there may be other factors, such as outside impecunious litigants’ ability to pay legal costs, which limit the impecunious litigant’s bargaining position:
- One party may simply be more hard-nosed and savvy. They may be better able to force a deal on their terms. In the worst case, the impecunious litigant settles for a deal that doesn’t even reflect their legal rights.
- The mediator’s own ability and obligations to level the playing field is limited, compared to a judge. Hence any party entering into mediation needs robust legal advice.
Our mediation track record
- Departing shareholder: looking to maximise their share buyback price in consideration for entering into restrictive covenants.
- Prepared mediation documentation for a leading UK property development company in respect of dilapidations claims.
- Working for a timber manufacturer: secured breach of contract damages from a long-term client whilst preserving the business relationship.
- Employee: mediated post-termination restriction clauses within the contract of employment.
- Prepared mediation documentation for a cross-border dispute regarding breach of trademark for a leading toy manufacturer.
Our dispute resolution team will help you to prepare for and attend mediation. Even if mediation is not suitable, it can be used as a tactic on behalf of a party leading up to trial.