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Mediation - An Offer You Can't Refuse?

Posted on Jan 17, 2014 by Liana Park  | Tags: mediation, dispute resolution, litigation, FCA review, interest rate swaps, ADR  | 0 Comments

by Liana Park, Solicitor, Dispute Resolution

A recent decision in an English case has confirmed that a party who refuses an offer to mediate may end up facing cost implications. In light of this new development, this article shall briefly look at some of the benefits of mediation, the current mediation landscape and the possible application of mediation in banking disputes.

Why Mediate?

Mediation is a form of ADR where an impartial third party, the mediator, assists the parties involved in the dispute to reach a mutually acceptable resolution.  The other principal forms of ADR are arbitration, expert determination and adjudication.  However, mediation in particular has a number of attractive features set out below:

  1. Quicker/cheaper – compared to Court proceedings mediation can be far quicker (often lasting only a day) and therefore cheaper. The mediator’s costs (approx £3k-£5k) are usually split between the parties.
  2. Air the issues – mediation lets parties discuss the issues that are important to them, so even if a settlement cannot be reached that day the issues may be narrowed.
  3. It is confidential – discussions are not shared with the Court.
  4. No limit to the number of parties - multiple parties can be dealt with at the same time.
  5. Relationships may be saved – it is not uncommon for parties who have refused to sit in a room with each other at the start of a mediation to shake hands and have a glass of wine at the end of it.  Court is unlikely to offer the same opportunity for reconciliation, never mind wine.

Mediation is usually voluntary, although mediation clauses are becoming far more frequent in commercial contracts and can sometimes be ordered by the court. Some jurisdictions have gone so far as to introduce mandatory pre-action mediation.

Towards Mandatory ADR in England?

In October last year the Court of Appeal in England handed down a judgement that suggests a move toward a mandatory mediation model in England. In PGF II SA v OMFS Co [2013] EWCA Civ 1288, the court held that silence in the face of an invitation to participate in ADR was unreasonable conduct.  In England unreasonable conduct in the form of refusing to engage in ADR can attract a costs penalty (see Halsey v Milton Keynes General NHS Trust). In PGF II the court extended the principle –equating silence to unreasonable conduct.  The result was that the party who ignored the offer to mediate was refused expenses that they would have otherwise been entitled to had it not been for their unreasonable conduct. The judgement endorsed the advice in the ADR Handbook (S Blake, J Browne and S Sime) that, as a general rule, ignoring an invitation to take part in ADR was itself unreasonable.

ADR in Scotland

While the case does not create a precedent in Scotland it could be persuasive when deciding who should pay expenses. In general we have seen a move towards the increased use of ADR in Scotland.  It is not uncommon for Sheriffs hearing Small Claims cases to ask parties if the case is capable of mediation. If the parties agree then the case can be referred to the in-court mediator there and then.

The Law Society of Scotland has recently published guidance in relation to advising clients on Alternative Dispute Resolution (ADR). The aim of the guidance is to ensure that solicitors provide clients with relevant and appropriate information so they can make informed decisions about the best method of dispute resolution.

‘Breaking the Cycle’

It is a common problem in disputes that parties become entrenched in their own position and may therefore be reluctant to mediate. This problem was highlighted in a recent Scotsman article by John Sturrock QC. He acknowledged that in nearly every dispute he has been involved with  “there is some element of personal animosity or hurt”. He also noted that legal representatives can be guilty of aggravating the situation by becoming suspicious of their counterpart.

Mr. Sturrock suggests that an acknowledgment of responsibility by one party can break that cycle. Accepting responsibility in such circumstances is not easy and he eloquently states that:

To be both humble and courageous, we need to step back and pause, reflect on our reactions, plan our responses, challenge our assumptions, choose our words with care, acknowledge the other story.”

Mediation in Banking Disputes

For customers involved in a dispute with their bank the above mentioned feelings of hurt and animosity are often present. On the other side, banks can make meaningful communication with their customers difficult by becoming overly defensive. Mediation could help both sides move away from their respective positions and reach a mutually acceptable resolution.

The ongoing FCA review of interest rate swaps lacks an opportunity for customers to have a meaningful discussion with bank representatives who know about their case at an early stage. Instead customers must provide their information to a ‘testimony taker’ who does not have information about their case so are unable to have a discussion about the dispute. A decision is then made about the customer’s case remotely.  

It would perhaps be more satisfying and effective if customers could have a meaningful discussion with bank representatives who knew about their case at an early stage. This might be achieved by a mediation scheme. Our Dispute Resolution team have been involved in a number of mediations between banks and customers with satisfactory outcomes that were unlikely to be achieved through court.

Conclusion

Clearly ADR will not be appropriate in every case. However it is, in our view, incumbent upon the solicitor to explore ADR options with their client in each case before a view is reached on a suitable course of action. In England the introduction of costs implications for unreasonable refusal to mediate is likely to increase the number of mediations. Parties can no longer ignore offers to mediate like unwanted LinkedIn invitations. There is an increasing awareness and enthusiasm for ADR in Scotland and it is not unforeseeable that similar costs implications could soon be introduced here too.

MBM Commercial has extensive experience of ADR, in particular arbitration and mediation. Should you wish to discuss your dispute with a member of the Dispute Resolution Team, please do not hesitate to contact us on 0131 226 8200.

While every effort has been made to ensure the accuracy of this blog post, it is not intended to provide legal advice as individual situations will differ. No recipients of content in this blog post should act or refrain from acting on the basis of the blog post without seeking the appropriate legal advice on the particular facts and circumstances at issue from a qualified solicitor in their jurisdiction. The blog post is for general information only and is not legal advice. The law changes frequently and varies from jurisdiction and jurisdiction. No solicitor-client relationship is formed nor should any such relationship be implied. If you require legal advice, please consult with a solicitor qualified to practise in your jurisdiction.  Should you be interested in seeking our assistance with a legal matter, please contact the Dispute Resolution team on 0131 226 8200.

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