Out-Law Guide | 30 Sep 2022 | 4:00 pm | 8 min. read
The vast majority of cases which come before the courts are settled before trial, and many disputes are resolved before proceedings are even issued. Resolution of a dispute by agreement can save legal costs, and settlement also allows the parties to focus again on their business.
The Civil Procedure Rules (CPRs) provide the framework for litigation in England and Wales. They also oblige the courts, and place lawyers under a duty, to encourage the appropriate use of alternative dispute resolution (ADR) and make it easy to use. The CPRs impose an obligation on solicitors to consider ADR with their client because litigation of commercial disputes should be regarded as a matter of last resort. The court has a wide discretion when it comes to making orders for costs at the conclusion of a case and can impose costs sanctions on those who refuse to engage with or who withdraw from the process without good reason.
A party’s belief in the strength of its case or the perception that each side is too far apart to achieve a negotiated settlement are not necessarily good reasons to refuse to engage in ADR.
ADR is an integral part of dispute resolution. It is a generic term that describes a number of techniques that can be used to promote early and cost-effective settlement and dispute resolution. Most of these rely on the imposition of a decision on the parties, through arbitration, mini-trial, expert determination or otherwise. Mediation is different – the entire process leading up to a negotiated outcome is consensual.
Increasingly, commercial contracts will include a detailed dispute resolution mechanism that typically will provide for escalation from direct negotiation at senior level followed by some form of ADR before either party is permitted to engage in litigation or arbitration. Such clauses will be binding in most instances.
Mediation is a voluntary and confidential process using the services of a mediator, who is a neutral third party who will attempt to facilitate negotiation by the parties of an agreed settlement. It can take place at the instigation of all or one of the parties or it can be initiated by a court order. Since agreement to participate in mediation is an essential part of the process it is not usually imposed by the courts, but they can influence by persuasion.
Senior judges and the Ministry of Justice have raised the prospect of compulsory mediation in lower value cases, although complex commercial disputes are less suitable for compulsory mediation, and already have a high take up of voluntary ADR.
Mediation works because the mediator is able to change the dynamics of the traditional negotiating process away from positional bargaining with its hostile associations.
Mediation can happen at any stage of a dispute, including before proceedings are issued, and takes anything from one hour to several days, although usually the process is completed after one day. Timing is critical. There is a balance to be struck between early mediation - where there may be gaps in the evidence - aiming to save incurring substantial legal costs and, alternatively, waiting until after documents have been disclosed and witness statements served, by which time the parties are likely to have become entrenched and costs will have escalated.
Mediation can be used for settling cross-border disputes but there is no applicable set of rules for enforcement of settlements. Since Brexit, the UK is no longer a party to the EU Directive on mediation. To date, only a small number of countries, not including the UK, have signed up to the 2019 Singapore Mediation Convention on the enforcement of international settlement agreements after mediation.
There are a number of organisations which will provide the services from a panel of trained mediators, including the Centre for Effective Dispute Resolution, Independent Mediators Ltd and the ADR Group. Mediators can also be approached directly. They are often solicitors or barristers but can be from wider professions. There is no formal qualification to become a mediator.
The provider will provide the names and profiles of two or three suitable mediators for the parties to choose from. Some parties and lawyers believe that a mediator should have a similar background to the dispute in question - for example, a surveyor should mediate in a surveyors' negligence dispute. Others believe that the professional background of the mediator is irrelevant, and it is the individual qualities of the mediator that count. Your solicitor and the mediator provider can discuss this with you.
The role of the mediator is not to express any view on the issues in the dispute nor to seek to impose a solution on the parties. They may well “reality test” each party’s case so that the risk and cost of failing to reach a settlement can be factored in when considering a settlement offer.
After the mediator has been appointed, the parties will enter into a mediation agreement with the mediator and each other which defines the rights, responsibilities and obligations of each to the other – including the procedure to be followed, confidentiality and fees.
It is essential to prepare thoroughly for the mediation. In conjunction with their legal representatives the parties will typically prepare a short summary of their case which will be exchanged with the other party and copied to the mediator in advance of the mediation. This is commonly called a 'position statement'.
Copies of important documents can be provided to the mediator if the parties so wish. It may also be necessary to prepare a short chronology, guide to who is who in the dispute and a technical glossary if the dispute is complex. This will allow the mediator to read into the case and prepare. These documents should, however, be kept to a minimum. They can be provided to the mediator confidentially if a party so wishes.
On the day appointed for the mediation the parties and their lawyers will attend the agreed venue and will each have their own private room. During the Covid-19 pandemic, mediations were held remotely and it is likely that this may continue, for example, if participants are spread geographically. In person mediations tend to work better, as there is great value in having the clients across a table in a secure environment.
At an initial 'open' session involving all parties, the mediator will re-emphasise their impartiality and the voluntary and confidential nature of the mediation and will lay down any ground rules. Each party will be required to confirm that they have authority to settle the case and make a short oral presentation of its case. The purpose of the open session is to bring the parties face to face before breaking off into the private sessions that the mediator will have with each party. The mediator may omit this open session if they believe it will serve no useful purpose.
After the open session, the parties will break off into private sessions. The mediator will meet with each party separately to discuss the background to the dispute and then begin a process of 'shuttle diplomacy' between the parties. The mediator will seek to:
If settlement terms are agreed in principle then the parties will be encouraged to sign a formal settlement agreement at the end of the mediation. If court proceedings have commenced, the parties will also be encouraged to agree a Tomlin Order to conclude the litigation. The mediator will be reluctant to leave these steps until another day.
In complex cases, the parties may agree heads of terms of settlement, with the formal documents to follow after the mediation and further consideration.
If the case has not settled, the parties are of course at liberty to continue negotiations and more often than not a settlement will be reached shortly after the mediation.
The vast majority of cases are appropriate for mediation – even fraud cases. Mediation should always be considered, but especially when:
Mediation is probably not suitable when:
If you are participating in a mediation, you should:
Mediation works because the mediator is able to change the dynamics of the traditional negotiating process away from positional bargaining with its hostile associations. It also strives to achieve a 'win/win' outcome, which is usually not possible in the traditional negotiating process and is certainly not possible at trial.
Parties to a mediation can also derive satisfaction from the opportunity to put their points across in a face to face encounter. They can include topics and settlement options that would not be determined by a judge, especially if there is to be a continuing commercial relationship that has been interrupted by the dispute.
The cost of a mediator for a one-day mediation with a day's preparation could be approximately £4,000 - £5,000 in a reasonably straightforward case. Both parties will be jointly responsible for the mediator's fees unless stated otherwise. Each party will pay its own legal costs in connection with the mediation. However, as it is not clear-cut that the legal costs of preparing for and attending mediation and the mediation fees are recoverable in the event that the mediation does not lead to a settlement, it is important to address this issue in advance. Parties should specifically record in the mediation agreement that the costs are to be recoverable as litigation costs.
Court-run mediation schemes are substantially cheaper, but there will be a limited amount of time - for example, three hours - set aside for the mediation. Some organisations also run fixed-fee mediations where the fee remains fixed irrespective of the time taken by the mediation.