Alternative dispute resolution: Why should you mediate (and what happens if you don’t)?

Mediation is a cost effective, practical and commercial manner of dealing with disputes. Clare Mackay explores what mediation is and how it can help.

What is mediation?

A mediation is essentially a without prejudice settlement meeting attended by the parties (usually, but not always with their lawyers)and an independent and neutral mediator.

The mediator works with the participants to facilitate a negotiated settlement – he or she is not there to judge the case and does not issue any binding decision at the end of the process. The parties retain complete control over whether the case settles and if it does, they decide the terms of the settlement reached.

Why mediate?

  • High success rate – Our experience as a firm and that of the Centre for Effective Dispute Resolution (“CEDR”) is that the vast majority of cases which go to mediation settle either on the day or soon after. In its latest set of data, CEDR report that 74% of mediated cases settled on the day and a further 15% settled shortly afterwards.
  • Reduces time and costs – Mediation (especially at an early point in a dispute) is a more cost effective way of resolving a dispute than taking a case to trial. It is also much quicker, freeing up the management time of those involved. CEDR report that by achieving earlier resolution of cases that would otherwise have proceeded through litigation, commercial mediation will saves British businesses around £3 billion a year in wasted management time, damaged relationships, lost productivity and legal fees.
  • Control – The parties feel a greater sense of satisfaction at the end of the process as they retain a significant degree of control throughout and ultimately determine the outcome. Most mediations are more about negotiation and less about nuanced legal argument, meaning the parties remain in the driving seat.
  • Flexibility of remedy - – Litigation offers a limited scope of legal remedies. The outcomes in mediation are much more diverse and creative; as they are ultimately decided by the parties, the outcome can be adapted to meet their commercial needs. The parties can agree terms of settlement that contain provisions that the courts have no power to order, such as a new working relationship or payment in instalments. Solutions can also be found which, unlike court judgments, are made on the basis that there is no admission of liability.
  • Confidentiality – Unlike litigation, both the mediation process and any information disclosed remains confidential to the parties and is not shared with the Judge. A confidentiality clause can also be included in the settlement reached to avoid opening the floodgates to other similar claims. Confidentiality prevents adverse publicity and embarrassment which could damage a party’s reputation.
  • Choice of mediator – Parties usually select the mediator and can appoint a mediator from their industry, who need not be a lawyer. This enables parties to choose a mediator best suited to the dispute. This can be particularly beneficial in complex technical and industry specific disputes.
  • Less adversarial – Mediation is about compromise. This can enable commercial relationships to be maintained where they otherwise may have been damaged irreparably by aggressive and adversarial court proceedings.
  • Costs risk if you unreasonably refuse to mediate – You should expect the court to impose costs sanctions if you ignore or unreasonably turn down an invitation to mediate or indeed if you fail to consider mediation at all.
  • Use of technology – lockdown has seen the growth of virtual mediations embracing technology and being conducted successfully over video conferencing platforms such as Zoom. This makes mediation more convenient and reduces the cost of mediation as it avoids the need for participants to travel to an agreed venue.

Why not mediate?

  • No guaranteed outcome – There is a risk that despite investing time, money and effort in a mediation, a settlement may not be achieved. If there is no agreement, the dispute will remain to be resolved through the courts or by arbitration. Mediation in those cases will add a further layer of costs to that procedure. That said, even an unsuccessful mediation usually helps in narrowing the issues in dispute and therefore potentially save costs in the long run.
  • Voluntary – As a mediation is a consensual process, there is no requirement to commence or to continue with a mediation. Either party can walk away from the process at any time. A belligerent opponent may take some persuasion to mediate and then engage on the day. It will be the task of the mediator to build a relationship and break down those barriers.

What do the courts have to say about mediation?

While mediation is not compulsory, it is very strongly encouraged by the judiciary and must be considered in every case.

It is a brave litigant who refuses to mediate without a very good reason. While the Court cannot (yet) order a party to mediate, judges will readily exercise their discretion to penalise a party who unreasonably refuses to mediate by imposing cost sanctions. This means that a successful party who unreasonably refused to mediate may be deprived of all or part of the costs that it would otherwise have been able to recover from its opponent. For an unsuccessful party, this would mean being ordered to pay to their opponent more costs than would have been the case, had they mediated. Such orders are designed not only to penalise unreasonable conduct but to send a very clear message to encourage other litigants to ignore mediation at their peril.

In considering whether a party has unreasonably refused to mediate, the courts will consider the following non-exhaustive list of factors (known as the Halsey principles – Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576):

  • The nature of the dispute – but most cases will be suitable for mediation and it will only be an exceptional case that is not – such as where injunctive relief is sought or there is an issue of public policy at stake.
  • The merits of the case –even very strong cases are suitable for mediation, In 2020, the judge in DSN v Blackpool Football Club Ltd [2020] EWHC 670 (QB) made it very clear that no defence, however strong, by itself justified a failure to engage in any kind of alternative dispute resolution.
  • Other settlement options – for example, if offers of settlement or other attempts to resolve matters have been made. However, often mediation will succeed when other attempts have failed and so this is not failsafe.
  • Costs of the mediation – this could be a reason, particularly if these costs are disproportionate to the amount in dispute. However, for most cases, the costs of a mediation will be a dip in the ocean compared to the costs of fighting a case to trial.
  • Delay – if mediation is proposed close to trial and would jeopardise the trial date, this might be a sufficiently good reason.
  • Prospects of the mediation succeeding – it is not very difficult to persuade a judge that there was a reasonable prospect of the mediation resolving the dispute – saying that the parties are too far apart will not wash.
  • Other factors including judicial encouragement to mediate, whether further expert evidence is first required or the impact of any Part 36 offers made. If a judge has suggested you mediate that should leave you in little doubt that a costs sanction will follow if you fail to do so.

You should also not ignore an invitation to mediate – silence in response to such an offer will generally amount to an unreasonable refusal, regardless of whether there are, in fact, good reasons for refusing to engage in alternative dispute resolution (PGF II SA v OMFS Company 1 Ltd [2013] EWCA 1288).

Mediation continues to prove itself to be a cost effective, practical and commercial way to deal with disputes. It is not a panacea but it does, in most cases, give the parties a very good chance of resolving their differences. A party who refuses to accept an invitation to mediate, without very good reason, does so at considerable risk and can expect sharp criticism and a costs penalty from the court, regardless of the eventual outcome of the case at trial.

CONTACT CLARE

If you would like more information or advice relating to this article or a Commercial Litigation & Dispute Resolution law matter, please do not hesitate to contact Clare Mackay on 01727 798025.  

© SA LAW 2020

Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them alone. You are recommended to obtain specific advice in respect of individual cases.