The Go-between

In a world of spiralling legal costs, mediation has become a working alternative for resolving commercial disputes.

by
Last Updated: 09 Oct 2013

Quintin Cornforth's first direct experience of mediation came almost three years after, as he puts it, 'the shit hit the fan', and his firm, a Midlands-based car company, went into head-on dispute with another firm over a warranty claim. Cornforth was brought in to pursue his company's demand for more than £6 million and quickly found that the dispute had taken over his life.

'I got completely immersed in the detail of the case and soon I had become virtually an installation at the solicitor's office,' he says.

When his lawyer, Richard Whittingham of Cobbetts Lee Crowder, suggested that they go to mediation, Cornforth had little idea what this would involve, but willingly agreed to try, since costs were already £400,000 and were likely to double if it went to court.

One day in May 2002, at a neutral venue in London, two eight-strong teams squared up to each other. They kicked off with a spokesman for each side politely outlining the substance of their case. Some 12 hours later, after a great deal of horse-trading, the former combatants walked out clutching a piece of paper bearing a settlement.

Cornforth took away some crucial lessons from this experience. 'We left feeling that we perhaps could have done better, but then so did the other party, so I think the settlement was probably about right,' he says. 'One of the things I learned is that, for it to work, both parties must have the will to mediate and must recognise that the other party's case has some merit. If you think you are 100% right, you'll never get anywhere.'

Alternative Dispute Resolution (ADR) has become a hot topic in a world of spiralling legal costs, and mediation is its powerful weapon. Just as separating couples are now encouraged to sit down with a third party and resolve who will have the kids at weekends, mediators are extending their influence into an increasingly wide spectrum of commercial disputes, ranging from partnership bust-ups and contractual disagreements to employment claims.

The advantages are readily apparent. By staying out of court, you not only save potentially huge legal bills and keep your company's dirty washing out of the public eye, but in many cases you can resolve your differences in a way that allows you to continue working with your supplier or partner on a platform of greater mutual understanding.

There is a concerted effort to get companies to make greater use of mediation.

In 1999 Lord Woolf introduced new rules that allowed judges to refer cases to mediation, a power that is increasingly being put to use. A number of county courts, for example, now run an experimental scheme in which cases can be referred to fixed-time, fixed-cost mediation. And there is a further powerful incentive to give it a go: under the same Civil Procedure Rules, if a case comes to court without the two contestants having tried mediation, the judge is entitled to penalise the winning side when awarding costs.

New rules are also being introduced in employment tribunals, which should lead to a much greater use of mediation in employment cases. They will allow tribunals to reduce or increase awards if a proper grievance procedure has not been followed.

So who are the mediators? Two national organisations are responsible for training and accrediting individuals as mediators: the non-profit making Centre for Effective Dispute Resolution (CEDR) and the commercially run ADR Group. In the past, most of those they trained were lawyers, but mediators are now drawn from a range of professions. Full-time mediators are a small minority; most continue to practise their own profession.

Terry Jones, a director of CEDR, is one of the latter. He came into mediation after 35 years working for Barclays, latterly as director of corporate affairs, where he was given responsibility for sorting out disputes with business customers. 'I took 80 cases into mediation over three years, and the outcome was that the bank learned a lot of lessons and the customers got results,' says Jones.

The way it usually works is that one or both of the lawyers involved in the dispute suggest referring the case to mediation; when the agreement of both parties has been obtained, the mediating body takes details of the case and then offers them the CVs of three potential mediators.

After the preparatory work has been done, a date and venue - preferably neutral - is fixed for the mediation. The usual objective is that a settlement will be achieved on the day. Each side is given the opportunity to present their case in five minutes, perhaps outlining their view of possible solutions, and then the parties retire to their respective rooms. A brisk period of to-ing and fro-ing on the part of the mediator and his or her assistant then ensues.

Before going into mediation, some basic principles need to be understood.

The first step on the day is for both parties to sign a mediation agreement that says the process is confidential and 'without prejudice'.

'What this means is that if you don't resolve the dispute on the day, then what is said during mediation cannot be repeated in the courtroom,' explains Jones. 'There is also a duty of confidentiality on the part of the mediator; they cannot repeat what they are told by one party or the other unless they are given the authority to do so.'

Either party can walk away from the proceedings at any time without prejudicing their right to go to court, but once a settlement is signed it is considered binding, as any other contract would be. Exactly what takes place between the beginning and end of the proceedings is different every time.

'In a textbook mediation, there are three phases,' says Jones, 'an opening, exploratory phase; a negotiation phase; and a settlement phase.' In practice, he adds, it often involves small working parties breaking out to address a particular aspect; for example, the two chief execs in a contractual dispute hammering out a new working arrangement; or the lawyers ironing out some legal issues. 'The mediator has to keep people thinking,' concludes Jones.

Recalls Cornforth: 'In my case, it was a bit like Camp David; there was a single document that kept going backwards and forwards. To start with, we were tip-toeing round each other, but by four o'clock everyone was starting to take it more seriously because we didn't want to go away empty-handed.'

How long it takes is likely to depend on the size and complexity of the dispute, but also on the degree to which the parties are entrenched in their positions. Simple mediations can take just a couple of hours; a working day is the norm, but more complex disputes may take two or three days.

It is generally claimed that about 80% of mediations are successful in reaching a settlement. James Christacos, commercial manager of ADR Group, says: 'Our figure last year was around 70%, but that doesn't take account of a further 10% that were settled within a week or so afterwards, often because some of the necessary paperwork wasn't available on the day.'

The fees paid to mediators range widely, with a small clique of star mediators who can virtually name their price. Yet it is a highly cost-effective solution in most cases.

At ADR, for example, costs range from £300 to £500 per party for a simple, three-hour mediation of a low-value dispute to between £800 and £1,150 per party for a mediation involving sums of £50,000 to £150,000. 'You have to compare that with lawyers' charges of up to £150 per hour, which can very rapidly mount up,' says Christacos.

When his company's dispute reached settlement - details of which must remain confidential - Cornforth says he and his colleagues retired to the Great Eastern Hotel for a slap-up dinner. Although the dispute had been highly disruptive, the mediation itself was a stimulating and worthwhile experience, he says.

And afterwards? 'The next day, we went back up to the Midlands and I thought: what shall I do now?'

FIRST STOPS TO SETTLEMENT

For those looking for help with alternative dispute resolution, the two national training and accreditation organisations are a good place to start.

The ADR Group, Grove House, Grove Road, Redland, Bristol BS6 6UN

Tel: 0117 946 7180

E-mail: info@adrgroup.co.uk

Web: www.adrgroup.co.uk

CEDR, International Dispute Resolution Centre

70 Fleet Street, London EC4Y 1EU

Tel: 020 7536 6000

E-mail: info@cedr.co.uk

Web: www.cedr.co.uk

HOW TO GET THE MOST FROM MEDIATION

CHOOSE YOUR MEDIATOR CAREFULLY. For the sake of perceived impartiality, it is vital that both sides are involved in selecting the mediator. Get someone qualified. As CEDR's Terry Jones puts it: 'There are a lot of people who think: I could do that, it's just a question of knocking heads together. It isn't. The best choice is someone whose style will appeal to your opponent. If they are someone quite cerebral, then a mediator who is really gung-ho is unlikely to be effective.'

UNDERSTAND THE MEDIATOR'S ROLE. 'One of the things people struggle with is the concept of someone who's really impartial, who can listen to their stories and absorb them without making judgments or saying where the fault lies,' says mediator and head of training at CEDR Frances Maynard. Says mediator Stephen Walker of law firm Bray Walker: 'People have to understand that the mediator is not a judge or arbitrator; they are not there to advise on what the figure should be. Nor are they there to persuade the other side. I think my role is to identify the real obstacles to settlement, then to try and get over them or around them.'

PREPARATION, PREPARATION, PREPARATION. 'The main reason for mediation not succeeding on the day is lack of preparation,' says Walker. 'Either they haven't done the figures, or they don't have up-to-date information. For example, I had a property dispute where the only valuation of the property was 18 months old.'

LINE UP YOUR TEAM. You will almost certainly want your lawyer to be there on the day to provide a comfort factor. You should also ensure that you have access to other key advisers, such as tax consultant, bank manager, etc, as they may be needed. Your team must include someone who knows the details of the dispute inside-out, and someone who has extensive authority to reach settlement.

GET READY TO COMPROMISE. 'In court, there is always a chance that you will win big or lose big,' says Richard Whittingham of lawyers Cobbetts Lee Crowder. 'That doesn't happen in a mediation.' Disputes where one side has a cast-iron case are the exception, notes Jones, and even then mediation can serve to show the other side just how strong your case is.

BE CLEAR WHAT YOU WANT. 'Too many people don't really know what they're looking for. They just say: I'll have the best I can get,' says Walker. 'It should be like an auction; you should set an absolute top price that you won't go beyond, and hope to do much better.'

EXPECT THE UNEXPECTED. One of the beauties of mediation is that it can yield outcomes that you won't get in court, such as an apology, a retraction, a new order or a trade reference. Jones cites one case where the former owner of a business was in dispute with the new owners over his earn-outs; he left the mediation having bought the business back for £1.

BEWARE OF TACTICAL MEDIATIONS. The other side may have no intention of settling, but simply want to see how good you will be in the witness box.

CONSIDER E-MEDIATION FOR SMALL DISPUTES. Mediation by e-mail might sound strange, but if only £400 or £500 is involved it is cost-effective.

THINK OF IT AS A BUSINESS DEAL. Research from BDO Stoy Hayward shows that business disputes eat up management time, distract from business objectives, and can even stunt growth potential. Think of these factors as well as the effect on your company's reputation rather than just the principle at stake, and try to reach a solution for both sides.

Says James Christacos of ADR Group: 'Mediation is a hugely powerful tool for SMEs. If you go to court, you are usually saying goodbye to any future relationship with the other party. In mediation, you are looking at the relationship going forward rather than the issues that got you there.'

DON'T EXPECT TO SIT BACK AND WATCH. 'The idea is to get the parties working in co-operative problem-solving,' says Maynard. 'It's a tough process - it can be tougher than being in court, where you can hide behind your legal team. In mediation, you have to face up to the opposition, but you also have to face up to things about yourself and your contribution to the mess. It's not for wimps.'

BE PREPARED FOR A LOW POINT. 'It usually happens in the mid-afternoon,' says Jones. 'Don't be surprised if you reach a point where you feel that the mediation is going nowhere. Stick with it.' But you should be wary of doing a deal just for the sake of it, says Whittingham. 'It's tempting when you are five or six hours in to say: let's just decide something. The danger is that you could wake up with the mediation equivalent of a hangover the next day.'

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today