Commercial mediation: resolution revolution?

The aim of commercial mediation is to make peace not war – but is it up to the challenge? The government is putting increasing emphasis on mediation as it tries to reduce the justice budget. But, given the broad spectrum of litigation, can mediation help fill both the gaps created by the cuts in civil legal aid and the increase in the small- claims limit, and resolve hugely complex and costly disputes? And for cases in the middle, will the new cost budgets focus minds on mediation?

Commercial alternative dispute resolution (ADR) has clearly become a mature fixture on the legal landscape, prompting a significant cultural change in commercial litigation – just look at how many law firms have renamed their litigation practices as dispute resolution departments.

There has also been a cultural change in-house, with the Centre for Effective Dispute Resolution (CEDR) identifying a new trend in corporate counsel coming directly to it to find a mediator rather than through external lawyers.

Mediation is also being used to resolve cross-border disputes where parties find themselves subject to the laws of unfamiliar jurisdictions. CEDR is being asked to send people to mediate overseas because of London’s growing reputation for mediation expertise.

An idea of the scale of civil and commercial mediations can be found in CEDR’s 2012 audit, which estimated that the annual number of mediations has been growing 15% year on year since 2010, to about 8,000, with the amount involved, excluding the ‘mega’ cases, increasing by 47% to about £7.5bn.

However, alongside commercial mediation’s growing profile, there are also concerns over: regulation and quality control; training, with too many mediators chasing too few mediations; and whether moves in some jurisdictions to introduce compulsory mediation could gain traction here.

The change in April to double the small-claims limit to £10,000, with the prospect of it increasing again to £15,000, subject to evaluation, was expected to create a big push towards mediation.

While it is not a mandatory requirement, the government said all small claims would automatically be referred to the Small Claims Mediation Service – but in practice this is only being done by court staff if both parties agree, otherwise it has to go before a district judge for directions.

The government has also failed to put its money where its mouth is. It axed the National Mediation Helpline in 2010 for a saving of less than £64,000 a year, while the in-court mediation service has just 17 mediators.

In frustration, the National Mediation Helpline Providers Forum has morphed into the National Mediation Providers Association (NMPA), an umbrella body made up of most of the mediation provider panels in England and Wales, all accredited by the Civil Mediation Council (CMC). The NMPA has launched a new service to give lawyers, businesses and individuals access to accredited mediators and information about mediation.

How do practitioners and mediators view its development?

Seamus Smyth, immediate past-president of the London Solicitors Litigation Association, is a partner in City-based Carter Lemon Camerons’ commercial dispute resolution team. As a small firm, its business litigation is ‘not about oligarchs and trillions, but we can handle millions’, he says. ‘We adopt the approach that if you say “no” to mediation, you always have to be able to answer the question “why not?”.’

He recalls some ‘disasters’, including one very expensive occasion staged over three days in New York where the claimant had put in a massive amount of detail but the defendant had not put in its defence, and another where the mediator was far too judgmental.

‘But those are the exceptions and mediation is definitely worth trying, though the skill is in getting the timing right,’ he says. ‘You have to be cautious that neither you nor your opponent are using it as a cynical way of wheedling information about the other side’s case without any genuine desire to settle. And, most importantly, have the cheque book and the person authorised to sign it present.’

One trend identified by solicitor-advocate Richard Mattick, of counsel in Covington & Burling’s London practice, is clients seeking advice on three-stage dispute resolution clauses in their contracts. These start with high-level negotiations, with a time limit, followed by mediation and then arbitration or court.

‘The weakness of that is if there is a dispute which isn’t right for mediation, it can be used by a party to delay the case,’ he warns clients. ‘But, on the other hand, if it is an appropriate case, the clause provides a good peg on which to hang a potentially successful mediation.’

However, mediation is not a ‘quick and dirty option’ for bigger commercial cases, says Mattick, who qualified as a mediator so he would have a better understanding as an advocate in mediations of how mediators think. ‘You have to bottle up an army of lawyers and senior management for a day or two, plus all the preparation beforehand, which doesn’t come cheap. But it is useful as long as you go into it with a firm strategy and a bottom line.’

So can it work at any level of case?

Small-claims mediation has been praised as highly successful and popular with parties. But there are dangers, says the Advice Services Alliance,  the umbrella body for independent advice services, in putting too much emphasis on expediting cases and too little on the safety of outcomes in terms of justice.

At the other end of the spectrum, Merryck Lowe, partner in the forensic services practice at BDO, acts as an expert witness in high-value cases, where he sees little interest in mediation. ‘In the cases we do, our fees and the lawyers’ fees are immaterial compared to the scale of the damages being claimed, and litigation is par for the course.  

‘I am not sure mediation is any better at resolving costly and complex cases. Parties either have to get to the bottom of the issues, which requires investigation and experts, or they have to agree to ignore the complexities and just do a “horse trade” and to come up with something they both can live with.’

But barrister and mediator John de Waal QC, a property law specialist with Hardwicke Chambers, argues that no case should be too costly or complex for mediation. ‘I have a couple of cases worth £60m-plus where costs aren’t an issue because there is so much at stake,’ he says. ‘But they still ought to be mediated because the fact that you can afford to spend millions on the dispute doesn’t mean you should. Also, 80% or more of cases settle at mediation or shortly afterwards so it is a no-brainer when you have such a high strike rate.’

Solicitor David Smith, head of compliance at London firm Anthony Gold, qualified as a mediator during his training contract. He is co-author of a new book, Advising and Representing Clients at Mediation (see box, below), and believes there are ‘almost no cases that are congenitally unsuited to mediation. Sometimes people say they want to go to court because they want to set a precedent, but even the Court of Appeal has a mediation service’.

It is still too early to assess the impact of the new cost budgeting rules but Lord Justice Jackson clearly envisaged a vital role for mediation. The Jackson ADR Handbook, which is given to every judge who hears civil cases, includes detailed coverage of mediation.

However, the biggest push, says Smith, will come if cost budgeting is extended to the Commercial Court. ‘Business clients tend to consider mediation more readily because they see going to court as a gamble they could lose. Private clients tend to see litigation as a game they are going to win because they believe they are right. They want an “eye for an eye” and often only consider mediation when they have become fed up with the litigation process.’

What is not yet clear is how far the courts will go in pushing the mediation option. In family cases, parties have to attend mediation information and assessment meetings before they can issue proceedings. Looking internationally, there are moves to introduce mandatory mediation into civil justice systems across Europe, though these have not come without a fight, particularly in Italy where the initial scheme was ruled unconstitutional.

The principal argument against making mediation compulsory is the notion that you cannot force parties to negotiate.

In a typically colourful judgment, Lord Justice Ward spoke shortly before he retired from the bench earlier this year of his frustration over litigants who refuse to mediate.

The intractable case involved two businessmen who fell out badly. While you can drag a horse to water, you cannot make it drink, he said, adding: ‘I suppose you can make it run around the litigation course so vigorously that in a muck sweat it will find the mediation trough more friendly and desirable. But none of that provides the real answer.’

One option, he suggested, was to revisit the landmark 2004 Halsey ruling, in which he was one of the judges who said parties cannot be forced to mediate.

Recent High Court cases have warned practitioners of the risks of failing to consider mediation seriously. PGF 11 SA v OMFS Company and Bank of Scotland Plc [2012] EWHC 83 ruled that even a reasonable and timely part 36 offer cannot alone save a party from negative cost implications.

‘What we need,’ says Smith, ‘is a couple of big cases to hit the Court of Appeal on costs post-Jackson to give us an update of where the line now lies. Halsey set a marker but people have started fudging round it and it needs to be reset.’

For Seamus Smyth, the concern would be if mediation became compulsory before commencing proceedings. ‘I find it galling when people suggest mediators are the only people to achieve negotiated settlements when we resolve the vast majority of our cases that way,’ he says.

‘But I also feel very strongly that it is one of the functions of the state to provide an accessible dispute resolution system and that it is in the interests of society that the courts deliver judgments and set precedents. I think the balance has gone too far in trying to stop people going to court.’

For in-house counsel in regulated industries, consumer complaints and litigation must be referred to ADR and, once a scheme is in place, companies can choose to widen the scope of disputes referred to it.

Earlier this year, CEDR carried out a survey after noticing just over one-third of its cases in 2012 involved direct in-house engagement in the referral process. Historically, almost all requests for mediators came from private practice lawyers.

Of the 50 people who responded from 20 different industry sectors, nine out of 10 were lawyers. The results provide an insight into its use in-house:  dispute resolution was the second most time-consuming activity after contractual issues; 79% used ADR clauses in contracts, with the most popular clause being mediation; settlement by mediation was higher than all other ADR processes combined.

The survey certainly reflects what is happening in-house, says Nina Barakzai, chair of the Commerce & Industry Group and a qualified mediator. ‘Most in-house lawyers would much prefer to agree a working relationship than fight each other,’ she says. ‘It also has the effect of encouraging deeper business relationships, as the in-house team you may be mediating with will note how you engage with them.’

With so much interest in mediation, it is not surprising that questions over regulation and quality control are high on the agenda, given that anyone can call themselves a mediator.

The CMC appointed its first chief executive, Jon Siddall, in January. It is still discussing whether to go down the individual accreditation route with a more standardised approach, but there is understandable nervousness about ending up with a large, bureaucratic and costly organisation. However, he says ‘good progress’ is being made.

Under the Solicitors Regulation Authority’s Code of Conduct 2011, solicitors can provide ADR services, which are defined as permitted separate business activities, either through their firm or a separate, unregulated business. According to the SRA, the only issue that has been raised is one of conflict – can I mediate and then advise one of the clients? – and the answer is always no.

Individuals and small businesses can complain about the service provision by a solicitor-mediator to the Legal Ombudsman.

But for Smith, this highlights one of the biggest problems – regulation exists in silos, depending on the professional bodies, which makes it confusing for consumers. ‘If we are serious about bringing mediation forward, then it has to be professional,’ he says. ‘Most providers follow a common training structure but the ideal would be to have a common mediator brand with a common complaints process.’

What is also causing concern is training. There are about 7,000 accredited commercial mediators in the UK but the market is dominated by a select group of about 100 – 70% of them lawyers – who were involved in around 85% of all non-scheme commercial cases last year. The glut of mediators means some panels are not taking on any more members, while leading provider Mediation and Training Alternatives says on its website that it is no longer training new mediators because of the huge number who can find little or no work.

However, interest in training remains ‘pretty solid’, insists CEDR director and commercial mediator Graham Massie. ‘We run five open five-day mediator skills training courses a year with 24 places on each and they are fully subscribed. We wouldn’t stop training because you need new blood coming through. What I would like to see is people coming on the course for their own personal development.’

Traditionally, a little over half of those taking the course are lawyers. At a cost of £4,750, he accepts it is a big investment when those qualifying will find it very tough to break into the market. But there is growth in the middle and lower-value mediation market regionally, he says, with mediators banding together for marketing and quality control.

‘They are still not getting the work they would like to get,’ he acknowledges. ‘But probably half are lawyers so you could turn the question around – how many of them in their day jobs are referring clients to mediation?’

Smith believes being a mediator has made him a better lawyer. He was lucky to have a local charity nearby doing community mediation. ‘I volunteered and did a lot of evening mediations, gaining hardcore experience very quickly in enormously tough sessions with people who really hated each other in a way only neighbours can truly manage,’ he recalls.  

The focus on mediation has led to a push for it to be an integral part of legal training.

Nottingham Law School, which runs an annual commercial mediation competition, is launching a Centre for Mediation with specific mediation workshops for LPC students, as well as featuring it in LPC electives.

The centre’s director Joy Davies senses a ‘tipping point’ in the requests it is receiving for training at every level, from undergraduate to experienced lawyer, though she stresses it will not be training people to become mediators. That area is already well-catered for, she says.

What is clear is that, with so much at stake, the pressure is on mediation to show it can step up to the mark.

Grania Langdon-Down is a freelance journalist