The courts are ready and willing to penalise commercial parties that refuse genuine offers of mediation. Is mediation finally coming of age?

Veteran mediator Andrew Paton, a partner at Pinsent Masons, recalls a debate he took part in a decade or more ago. It was titled: ‘This house believes evaluative mediation is an oxymoron.’ In other discussions, ‘compulsory’ could easily replace ‘evaluative’. In mediation circles, agonising about the direction mediation is headed – often steered  by judges and policymakers with an uneven understanding of the process – is a near-constant preoccupation.

Some fear that mediation, with its prospect of early resolution of a dispute on terms that both parties can sign up to, will become a victim of its own PR. They are concerned that it will be taken up for scenarios where it is not designed to work. This will simply add to the cost of parties, whose dispute needs to get to court or arbitration for a determinative resolution. Moreover, this tendency to misuse mediation will make the process too much like full-blown litigation. As Paton relates: ‘I think you’ve got almost a principled objection from the “mediation evangelist” that compulsory mediation is a contradiction in terms.’

Those debates continue. But whereas rival parties once feared that an offer to use mediation was a sign of weakness, key costs judgments have turned the tables on refuseniks. Some litigators observe that a party willing to mediate has established a tactical advantage over a party that will not.

In PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288, Lord Justice Briggs (pictured) found the dispute ‘eminently suited to mediation’. Claimant PGF’s offer to mediate was ignored by the defendant, which Briggs LJ found to be an ‘unreasonable refusal’ to mediate, prompting a costs sanction. The case established a precedent that silence, or a failure to respond, in the face of an offer to mediate would expose even a successful litigant to a possible costs sanction.

As Matthew Rushton, deputy managing director of mediation and arbitration provider JAMS International, observes: ‘We are seeing a gradual change in judicial outlook towards mediation, as perhaps those coming on to the bench now will have had some familiarity with the process through their own practice.’

Gordon Dadds partner Hugh Elder notes another change: ‘As someone who has been involved in mediations since the mid-1990s, I have noticed that parties and their advisers sometimes use mediation more tactically than they used to, in an attempt to explore weaknesses in their opponents’ cases rather than as a genuine attempt to settle.’ It is a scenario a good mediator will be aware of, he adds.

The PGF II judgment also seems to reflect wider judicial willingness to address costs management issues – whether or not cases are outside the strict costs management regime ushered in by the Jackson reforms, and introduced by the Legal Aid, Sentencing and Punishment of Offenders Act and amendments to civil procedure rules.

‘The profile of the ideal mediator,’ Greg Cox, a partner at Colemans-ctts reflects, ‘ought now to include detailed knowledge of how the Jackson and LASPO changes will bite in reality and an ability to communicate the risks now arising to parties and their lawyers. In particular, with the sums litigants can recover from their opponents under threat from the changes, the risk of a pyrrhic victory, where the sums recovered are exhausted by the shortfall in costs recovery, needs to be skilfully articulated.’

John Sykes, a partner at Charles Russell Speechlys, concurs: ‘Mediation is now obligatory in every sense but the strict letter of the CPR.’ Sykes cites last month’s judgment in Northrop Grumman Mission Systems Europe Ltd v BAE Systems (AI Diriyah C4I) Ltd (No 2) [2014] EWHC 3148 (TCC) as evidence that ‘you refuse mediation at your peril’. The fallout, he notes, is that, ‘since my first mediation in 1996 this has meant a change from mediation as a “miracle cure for commercial ills” to mediation as a necessary but costly part of litigation’.

That sense of compulsion has yet to lead to a substantial boost in the number of mediations. As Cox points out, the ‘pre-April 2013 bulge is still working its way through’, and Northrop Grumman is very recent.

Yet mediators and litigators still identify immediate challenges. Sykes argues: ‘In England and Wales, litigation lawyers need to be continually educated about the benefits for them and their client – not just threatened by the courts for not using it. Mediation in my view needs to be presented as the corporate client taking back control of the dispute resolution process and bringing his/her commercial sense to solve conflict [rather than] a road on the march to war.’

Suzanne Rab

With mounting interest in Europe in private enforcement of competition disputes, it is timely to consider alternative forms of resolution

Suzanne Rab, Serle Court

Helen Ager, executive partner for DWF’s Newcastle office, hints that the trend towards evaluative mediation – where the mediator is a less passive figure – has helped to resolve disputes: ‘When mediation first began, and when I was trained, the idea was that the mediator would never tell the parties what to do and would hesitate to even express an opinion on the merits of an argument.’ Now, she adds: ‘There’s a clear move towards using more engaged mediators who are more assertive and less formal with the parties involved. In the early years the pace was slower. Now there’s a real drive to get people to the right answers more quickly than before.’

Reducing the formality of a mediation is one of the benefits of the mediation community becoming more collegiate, Russell-Cooke’s head of contentious property, Jason Hunter, notes: ‘Many expert property litigators are so used to participating in mediations that they are often familiar with their opponents, by reputation if not actually.

‘Therefore, mediations are often quite flexible in the way they progress, with all sides being pragmatic and commercial in their approach to the process and settlement.’ That allows a ‘robust’ and ‘pragmatic’ approach which saves time.

Mediators ‘build relationships’ with the partners they regularly deal with, Paton confirms: ‘That’s helpful.’

Litigation in numbers

CEDR, the London-headquartered centre for dispute resolution, is a leading mediation training provider. The not-for-profit organisaton also provides model mediation clauses, sources mediators for disputes and offers mediation facilities. Its annual audit is a bellwether for the ‘health’ and uses of mediation and its research covers informal, as well as formal, mediations.

  • CEDR conducted 732 mediations of which roughly 405 were ‘major cases’ with a quantum of claim well in excess of £1m;
  • 24% of major cases were cross-border commercial disputes;
  • The UK mediation market grew by 9% – 9,500 commercial mediations were performed in the last 12 months;
  • As a profession, mediators and service providers in the last year earned £22.5m;
  • Just over 75% of cases settled on the day of mediation; 11% shortly after; and
  • Mediators’ fee rates were slightly lower than in 2012.

Source: CEDR 2014 ‘mediation audit’ (results for the 12 months to May 2014)

The mediation process comes at a cost of course. What those contacted by the Gazette are keen to stress is that judicial ‘compulsion’ should not blind parties to arguments about the best time to attempt mediation. Jeremy Lederman, a partner at Wedlake Bell, says: ‘The problem is that mediations often take place once a good deal of the work has been done, costs incurred and management time spent.’

Seamus Smyth, former president of the London Solicitors Litigation Association, says: ‘While it may appear costly at first and is far more expensive than a serious settlement discussion between sensible solicitors, it is – if it works – infinitely less expensive than continuing, and conclusive without the risk of appeal.’

Less ‘formality’ in mediations has also helped to lower costs, several lawyers note. David Foster, a partner at Barlow Robbins, explains: ‘I have seen a shift towards a more relaxed process. This is helpful as it means the process can be better tailored to the issues. Mediators are more specialised, especially in some areas, such as mediation of trust disputes. Solicitors and parties are more proactive and mediations are shorter, with the mediator seeing less.’

Where mediation (whatever its cost per day) can keep costs down, Paton argues, is by recreating some of the circumstances that often lead parties to settle ‘at the courtroom door’. ‘People settle not through fear of the judge,’ Paton says, ‘but because on both sides you have gathered together people who understand the risks, and have the authority to make decisions.’

Cutting against the characterisation of mediation as being increasingly part of the ‘litigation’ process, is a structure that can remove some of the heat of the disagreement at the start. Stephen King of Payne Hicks Beach explains: ‘I have noticed an increased use of dispensing with a joint opening session, in circumstances where emotions run high and where clashes can stoke up the fire rather than lead towards a resolution.’ It is a practice noted by others.

Foreign quarrels

Many are predicting significant international growth in mediations, even without the judicial pressure that now exists in England and Wales.

‘Abroad, mediation is one of the great British exports and we see organisations such as CEDR [the Centre for Effective Dispute Resolution – see box] taking the lead role in places such as Qatar and Hong Kong,’ Sykes points out. In the last year, almost a quarter of CEDR’s 405 ‘major cases’ were commercial mediations, with a cross-border element.

Serle Court chambers barrister Suzanne Rab believes that competition cases could increasingly benefit from mediation: ‘With mounting interest in Europe in private enforcement of competition disputes,  it is timely to consider alternative forms of resolution beyond a complaint to a competition authority, including mediation.’

Some impetus, she predicts, will come from the implementation of the Consumer Rights Bill, and the EU Directive on antitrust damages actions approved by the EU Council on 10 November.

The possibility of early resolution is an important element in the argument for mediation, Rab says. ‘Cases before a competition authority can take several years to resolve and may be subject to a lengthy appeal process. Mediation can offer an expedited “once-and-for-all” solution. It can reduce costs and limit damage to the competitive position of the respective businesses when compared with the period of limbo before final determination by a regulator or court.’

What is more, she notes: ‘Competition cases can raise untested points of law and controversial economic theories. It can be in both parties’ interests to avoid a precedent that is binding in future cases.’

CMS Cameron McKenna partner and mediator Tim Hardy sounds a note of caution on the potential for international growth: ‘In the world of commercial disputes, mediation is used very widely as an alternative to negotiation, with a high degree of success. So not much room for growth there, despite the pleas of the mediation providers.’

Several lawyers interviewed for this article have been involved in mediations since the 1990s, and they can point to tangible ways in which the maturity of mediation as a process is now paying dividends.

Opinion is divided over whether mediations have a natural ‘ceiling’; not all disputes are capable of mediation. But that ceiling has not been reached, Foster believes: ‘Mediation growth can be exponential. At the moment, the total mediation figures remain relatively small.’

A hard and unpredictable economy at home and abroad may also point up mediation’s claimed advantages.

And mediation continues to evolve. While some comment on the rise in evaluative mediation, others note that it is a style that is far from its full potential. Robert Jones, head of commercial disputes at Weightmans, notes: ‘I have found early neutral evaluation a very successful method of dispute resolution in the past but it is rarely used. I conducted a mediation utilising the Manchester Technology and Construction Court’s judicial mediation pilot project and achieved settlement.’

Jones adds: ‘It would be interesting to see that approach expanded by the courts as the gravitas of a mediator judge does tend to focus the minds of the parties and their advisers. Where one is acting for well-informed and commercially minded parties, a without-prejudice meeting can be a perfectly sensible and effective avenue for settlement.’

As Law Society president Andrew Caplen observes, even a mediation that does not lead directly to settlement has its uses: ‘While it will not necessarily be suitable for every case, it can help those involved to understand the issues, and find solutions.’

What could put a brake on mediation’s growing popularity? Here Ager has a challenge for the mediation and litigation ‘communities’: ‘In order for this area to continue to grow, there needs to be a larger pool of experienced mediators. We have access to a number of high-calibre mediators. However, we’re seeing that in the market generally there is a limited supply of mediators who have both the expertise and experience.’ In that regard, Hardy notes: ‘Experience counts, so introduction of pupillage schemes are critically important to “wannabes”.’

On judicial ‘encouragement’ to mediate, Paton concludes that the effect is not to lessen the benefits of mediation. ‘The pragmatists,’ he says, ‘think that because of the nature of mediation’ and its inherent strengths, even where the parties are reluctant attendees, mediation can still work: ‘Even if it’s against their will, they will get a settlement.’

Eduardo Reyes is Gazette features editor