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Twenty-twenty dispute resolution: Why and when to mediate

This article was originally published on Lloyd's List

Early dispute resolution can save time and money

"The existing judicial system is too costly; too painful, too destructive, too inefficient for a truly civilised people ---. Reliance on the adversarial process as the principal means of resolving conflicts is a mistake that must be corrected---. For some disputes, trials will be the only means, but for many claims, trial by adversarial contest must in time go the way of the ancient trial by battle and blood."
US Supreme Court Chief Justice Warren Berger, 1982

If I ask you to invest in a 100-year-old business producing products which over 50% of its clients are dissatisfied – your answer would be predictable: are you joking?

Some say this is the civil justice system today.

In days of old some thought ADR stood for an Alarming Drop in Revenue; now Alternative dispute resolution may be the key to survival.

The litigation model has each party building a fortress with the client locked inside. There are all the facts and then simply the legally relevant facts; the evidence to support those facts; the cause of action; and the damages claimable.
 
In mediation the model is different and the focus is on needs and interests.

Imagine two parties in dispute over an orange. In court the judge can only award the orange to the one or other of the parties or divide it between the two in some proportion.

In mediation, the skilled mediator discovers that one party wants the fruit of the orange to make orange juice whereas the other needs the rind to make marmalade and therefore both their interests can be accommodated from one and the same orange.

 

Why mediate?

Speed is one of the biggest reasons for opting for mediation instead of arbitration or litigation. If a court case can take years to resolve a mediation can be concluded within a matter of weeks or months.

Cost and speed of course go hand in hand given that most lawyers charge on an hourly rate or task basis.

Clients can also benefit from outcomes based on needs rather than positions.

I have already mentioned the dispute relating to the orange – which may sound fanciful. So how about an example from real life?

It involves a contract for the hire of a ship – a voyage charter party – between a charterer or hirer (oil major) and the owners of a modern, well run tanker vessel.

In a falling freight market, the charterers cancelled the charter party alleging that the ship had arrived late. The shipowner denied this – but had to recharter the ship at a reduced freight and presented a claim for in excess of US$1m.

The power of any judge or arbitrator would be limited to allowing the claim (in whole or in part) or to rejecting the claim. After proceedings had been started the matter came to mediation. The shipowners' claim was 'parked' and what came out of the mediation was a brand new agreement whereby the oil major gave the shipowner first refusal on specified voyages with specified cargoes with an agreed formula for freight. In a depressed shipping market (where many vessels are being laid up or even scrapped) this new agreement was worth much more to the shipowner than the original claim.

Importantly, it is a result which no judge or arbitrator would have had the power to order.

There is often scope for such innovative solutions which not only present an intelligent way out of the dispute but also, and even more importantly, serve to preserve the relationship between the parties.

When I started in practice in 1975 the dispute resolution clause in the contract often said no more than "arbitration in London as per English law". in my latter years in practice it became increasingly common to see much more sophisticated dispute resolution clauses often in the form of multi-tiered clauses. Commonly, the first paragraph will provide for good-faith negotiation or 'friendly discussions' between named directors of each party; the second paragraph may provide for mediation; and the third paragraph may provide for court or arbitration proceedings.

I won't go into the potential traps in such clauses and would only comment that there is High Court authority for the proposition that the commitment to mediate is enforceable.

There are by now numerous High Court and Court of Appeal decisions in which the court has imposed costs sanctions on a party who unreasonably refused to mediate or unreasonably refused to engage with a mediation proposal from the other party or, indeed, who initially agreed to mediate but then dragged their feet to the point that the other party then had to continue with the court proceedings.

Such costs sanctions are a powerful incentive to parties to engage in mediation.

Finally, mediation works. It may be counter-intuitive but, although the mediator has no coercive powers, approaching 90% of cases settle at or shortly after the mediation hearing.

 

When to mediate

Solicitors and sometimes barristers are the main gatekeepers when it comes to the decision to mediate. Therein lies the problem but potentially also the solution.

Firstly, the problem.
Lawyers are understandably cautious. Therefore, they will raise questions such as:

  • What will the defendants say in their defence?
  • What useful may we learn when we see the other side's documents?
  • What will the witnesses have to say?

If one goes through all these stages then, of course, a considerable proportion of the overall costs of litigation/arbitration will have been incurred.

If one takes the overall costs to trial as 100%, it has been said that 20% of these costs are incurred to obtain 80% of the evidence and the remaining 80% is spent to dredge up the balance of the evidence - hardly a successful economic model.

So, the question is: how can we safely mediate at the 20% stage or even earlier and thereby avoid dissipating the speed and cost advantages of mediation?

The answer lies in an early resolution procedure. Once parties are in dispute, either or both can enlist the services of an ‘early resolution neutral’.

The early resolution neutral's role is to speak with each party (and there may be more than two parties) on a strictly private and confidential basis. The first task is to identify the key issues. The second task is to establish what information and documentation is strictly necessary with a view to discussing these issues; what is already in the parties' possession; and what additional information and documentation needs to be obtained – and then set a timetable for that. Generally, that will be a period measured in weeks or at most a few months.

It must be borne in mind in this context that business people are perfectly content to discuss issues with far less than the kitchen sink of documentation which their lawyers will take into court.

Once the identified information and documentation is available there will be a second meeting to discuss the route map to resolution. In many cases the next step will be a mediation but there are other possibilities as well.

Disputes cause parties to retreat into separate fortresses and the early resolution neutral's key role is to get the parties out of these fortresses and open up the possibility of constructive dialogue.

This is particularly useful when there is a chain of more or less back to back contracts and multiple partners – but it can also serve to break the deadlock and bring a halt to escalating costs in the more common two-party dispute.

 

Conclusion

Judges and arbitrators have the power to penalise a party who unreasonably refuses to mediate with an adverse costs order. Given that the costs of fighting a heavy commercial case in court or arbitration can easily amount to a six- or even seven-figure sum, this is indeed a powerful incentive. This means that parties, even with little initial enthusiasm, can no longer afford to ignore mediation.

The early resolution neutral can assist lawyers in preparing a case so that mediation can take place early and safely, thereby ensuring substantial savings of both time and cost. This is 20:20 dispute resolution.

02/02/2018
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