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Mediation

In the last year, the Dispute Resolution Team has resolved 5 major on-going pieces of litigation at mediation, resulting in successful, confidential resolution of claims totalling many millions of pounds. Whilst mediation has always been a cornerstone of MBM’s approach to litigation, and MBM has always striven to mediate disputes where we can, we have seen a significant rise in the uptake in mediation in the past 12 months. So what is mediation, and how does it work?

Mediation is often confused with processes such as adjudication and arbitration. Unlike both of these dispute resolution mechanisms, however, mediation is an extremely flexible process, and, crucially, mediation does not involve the appointment of a third party decision maker. Whilst a third party mediator is appointed, the mediator is best seen as someone appointed to assist the parties in negotiating with each other – and indeed mediation is sometimes – usefully – described as “assisted negotiation”. In this way, the mediator is not charged with reaching a decision on who is right, nor on how the dispute should be resolved. Instead he or she works with both parties to enable them to bridge the gap between them, and to move towards a consensual resolution.

Mediation in this jurisdiction is voluntary. This is both a strength and a weakness: the strength of the voluntary nature of the process lies in the fact that once both parties have freely elected to participate in mediation, the mediation tends to be conducted in a spirit of openness and good faith. No-one has been compelled to take part, which is important in informing the parties’ attitude to the process. The obvious weakness to making mediation voluntary is that parties cannot be compelled to mediate and therefore there will always be occasions where 1 party simply refuses.

However, times are changing and the approach taken in other jurisdictions has a bearing on how mediation is now viewed in Scotland: in England in particular significant penalties in terms of costs can attach to a party who unreasonably refuses to mediate and insists on proceeding with litigation – especially where that litigation is ultimately resolved via a settlement between the parties. Whilst specific English court rules dictate the imposition of such penalties, the general approach underlying these rules is beginning to be adopted in Scotland. At MBM we have secured agreement to mediate from the other side in a number of cases where the initial decision was not to mediate, by writing to the other side putting them on notice that we formally offer mediation, and may seek a penal rate of judicial expenses (the Scottish equivalent of costs) in the event that the other side unreasonably refuses to mediate, and the case is ultimately settled at a later date.

How in practice does mediation work? Typically, once parties have agreed to mediate, and agreed on the appointment of a mediator, the mediator will formally be engaged on an in principle basis and then dates will be canvassed and a date agreed between the parties and the mediator for the mediation to take place. A short time before the mediation, perhaps a week or so beforehand, parties will exchange “position statements” or “mediation summaries” to each other and to the mediator. These statements will set out the case at its best for that party. They may also exchange documentation on which they wish to rely too. Behind the scenes, however, in preparation for the mediation, parties will be working with their lawyers to identify the best and worst outcomes that might materialise if a settlement cannot be reached; this is important in order to be able to set the mediation discussions in the context of what a good outcome might look like, as well as the worst possible outcome. In particular, in Scotland, the best possible outcome will usually still involve a significant irrecoverable cost because generally a party litigating, even if wholly successful, will never recover more than around 50% of what it has actually cost to litigate to the end conclusion.

On the day of the mediation itself the process is very flexible, and will generally be driven by the mediator in discussion with the parties. Typically, the mediation will be attended by the decision makers on each side of the dispute, together with their solicitors, and on occasion, Counsel (advocates or barristers) as well – although it is very much up to each party to decide on their own “team formation”. The critical issue is to ensure that the decision maker who can make offers or approve settlement is in attendance on either side.

Mediations will generally conclude in one day, making them a significantly faster process than litigation – although on occasion that “day” may extend until the early hours: we have sometimes concluded mediations at 2am! Over the course of the day, the mediator will work with each side sequentially, to understand their position, where they are coming from, what is important to them, and how they feel about the dispute. The mediator will very often then bring parties together and ask them to listen to one another, in the mediator’s presence, although this is not always done and much will depend upon the relationship between the parties in dispute. As the day progresses, the focus will shift from the facts underlying the dispute to the comparative risks on both sides of proceeding with the litigation. Risk can be particular to the individual circumstances of the case or more general: general litigation risk arises in every case because no case, however good, will ever attract prospects of success of greater than 75%; litigation is an inherently uncertain process and as Senior Counsel once explained to us: “the bottom of the ocean is littered with unsinkable ships” – ie however strong one feels one’s case is, there is always the risk that ultimately a judge will subjectively see things differently. It is this type of risk that the mediator asks the parties to consider and explore.

From this point on, attention will be focussed on offer and counter-offer: sometimes, particularly where the lines of communications between the parties are not terribly good, this can usefully be channelled through the mediator; the process can also be conducted by the solicitors on each side; or the mediator may feel that the process of the decision makers from each side speaking directly to each other, in the presence of the mediator, may be more powerful. In each instance, the mediator will suggest what he or she feels may be most effective but ultimately, parties will be able to choose how they wish to negotiate with the other side.

It may sound simple, and indeed, there may seem to be little difference between the process described, and the more usual negotiation process that any party in dispute will go through in making offers and counter-offers. However, critically, all the statistics across multiple jurisdictions who regularly adopt mediation (Scotland, England, USA, and Australia to name but a few) show very clearly that this is a process which really works. In over 86% of all mediated cases, successful resolution is achieved. In our own history and experience of mediating cases on behalf of clients at MBM, we have only ever seen one case which did not resolve at mediation, putting our own “strike” rate significantly higher than the general average!

What then are the benefits, beyond a higher likelihood of resolution? Why is mediation considered to be a better form of dispute resolution that litigation? As we indicated earlier in this article, mediation is a much more rapid process than litigation: it can be arranged within weeks, as contrasted with litigation where the average lifespan of a case will be around 2 years – and may take as much as 8 years where appeals are involved. Mediation can be chosen at any stage in a dispute, whether right at the outset, or a significant way along the litigation track once proceedings have been raised. Those proceedings can be halted at any time to allow mediation to go ahead. Mediation also costs a fraction of the cost of litigation, and whilst a successful litigant may be awarded “judicial expenses” (i.e. costs), as we outlined above, judicial expenses will typically only amount to around 50% of the actual cost of running the case, leaving a successful party significantly out of pocket. Finally, and perhaps most importantly, the mediation process is confidential and generally, the mediation outcome, and the basis on which parties resolved the matter, will be confidential as between the parties and the mediator. This may be particularly important to parties such as a bank or insurance company who are concerned about “opening the floodgates” to other claims if they litigate publicly in court and lose.

A closing thought: litigation is a punishing and draining process, both financially and emotionally. Generally, at the end of a court case, any relationship the parties may have had will be well and truly over. Even if those parties had been in a good trading relationship prior to the dispute blowing up, the chances of that relationship being resurrected after the parties have been to court are remote. Mediation is rather different, however: in the mediation process, parties who have had a business relationship with one another are encouraged to look at ways in which they might be able to work together again. In some cases, of course, that may not be possible, but often parties will be keen to put the dispute behind them and work on repairing the business relationship, and mediation is an ideal process to enable them to do that. So whilst mediation is about successful resolution, that resolution can extend beyond financial to repairing relationships as well – something litigation by its very nature cannot do.

For our clients, mediation has been able to give satisfactory closure to a wide range of disputes, involving large sums of money, that have been a significant drain on business, on our client’s resource, and in many cases, on them personally and emotionally. Successfully mediating has enabled them to be able to put the dispute behind them forever, much more quickly than any court case could, and to move on with their lives and their businesses. We will continue to push for mediation wherever we can, and to work on more and more effective ways of ensuring parties on the other side, whether big or small, can be persuaded to mediate.

If you would like to find out more about mediation and how our Dispute Resolution Team can help, then please contact Cat MacLean at cat.maclean@mbmcommercial.co.uk or on 0131 226 8218. Cat is a partner at MBM Commercial and head of Dispute Resolution.

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