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Mediation

Introduction

On 26 April 1999, the Civil Justice Reforms of High Court and County Court procedure will take effect. They are likely to have a profound effect upon the conduct of litigation in England and Wales. One feature of those reforms is the approval and encouragement by the Judiciary of Alternative Dispute Resolution. ADR can take a number of forms that the property industry is very familiar with, for example, independent expert determination and adjudication. In the context of the reforms, however, ADR refers to mediation and the two terms are sometimes used synonymously.

Mediation was introduced to this country about 10 years ago. Although it is still only used in a minority of cases, its use has been accelerating and now it has received an important boost from Lord Woolf's Interim Report "Access to Justice" published in June 1995.In it he described mediation as a "more flexible alternative" to litigation for the resolution of commercial disputes, both in preventing disputes entering the Court system at all and in facilitating the settlement of disputes without the need for a trial. The report described mediation as being "of great value to the parties and the Court in achieving expedition and the saving of expense for the parties and the saving of resources for the Court".

The purpose of this article is to explain what it is and how it works and to explore whether, in practice, it does work and what application it has for the world of property and construction.

The Process

Mediation is the process whereby two or more parties in dispute appoint an independent third party to assist them in reaching a negotiated agreement to resolve their differences. The third party does not tell them what to agree and does not sit in judgment upon them.He does not sit as an expert. He or she assists the parties in arriving at their own resolution. It is of the essence of mediation that it is a voluntary, non-binding, without prejudice and confidential process, in which the third party acts as a catalyst.

Mediation is voluntary because there is no compulsion upon the parties to participate. It is non-binding only in the sense that the parties may withdraw from it at any time before a settlement has been reached; however once a settlement has been achieved, it is recorded and signed by the parties. It then becomes a binding contract and the dispute is at an end. Since litigation may already have been set in train it is common for the parties to agree a consent order to be attached to the contract . It is without prejudice because nothing which is said in the mediation process can be referred to, or relied upon, in subsequent litigation. It is confidential because the parties have chosen to resolve their dispute away from the glare of publicity.

Precisely how a mediation will be conducted is for the parties and the mediator to decide. Typically, however, the mediation will begin with a joint session, at which the mediator will outline the process and give each of the parties an opportunity, without interruption, to state its case. This joint presentation is very important since it is frequently the first occasion that the parties have the opportunity to hear, in simple summary terms directly what the opposing case really is. The mediator will then meet privately and separately with each party and shuttle backwards and forwards between the parties. These private sessions are sometimes referred to as a "caucus". What is said to the mediator in private session remains entirely confidential and is not disclosed to the other side without prior consent.

Further joint sessions will be held if the mediator thinks that they would be useful - perhaps, in resolving points of detail. The mediator may feel, for example that it may be helpful to bring the experts together in a joint meeting. During the private caucus sessions, the mediator will act as "devil's advocate" so as to encourage the parties to focus upon the strengths and weaknesses of their own case. One of his objectives is to penetrate the posturing that often accompanies litigation and to concentrate the minds of the parties on the realities of their situation. The skill of the mediator lies in moving the parties away from an over optimistic assessment of their case towards a position where they are best able to use their strengths but are realistic about their chances in court. The mediator is able to make progress because of his experience in re-framing offers and counter offers in a way that allows them to be more receptively received. He also needs the ability to deal with the strong emotions that can sometimes accompany disputes.

This process takes as long as is necessary or as long as the parties wish it to take but even quite complicated disputes are usually resolved within a day. Although some disputes can, of course, take longer.

Organising a Mediation

The parties may contact a mediator direct and organise the mediation themselves. Should they wish to arrange the mediation privately they should seek a mediator that has been accredited and is experienced. His or her mediation skill is more important than their expertise in the subject matter of the dispute.

Alternatively, they may seek the assistance of one of the many organisations which maintain panels of trained and accredited mediators. The RICS Dispute Resolution Service is available for this purpose, describing itself as offering "a fast, cost effective and amicable way to settle disputes over land property and construction". The process is very similar to that which exists for the appointment of a third party on rent review. The current administration fee payable for the appointment of the mediator is £235. The parties then agree with the mediator his or her own fees. A typical mediation lasting a day is likely to cost something of the order of £1500-£2500 (a typical mediation day will be somewhat more than eight hours) plus the parties' own fees.

Alternatively, the parties could look to one of the bodies established specifically to assist with Alternative Dispute Resolution, such as the centre for Dispute Resolution (CEDR) or the ADR Group (ADR-Net). CEDR has attracted the support of major companies since its inception, as well as many of the leading professional practices. ADR-Net was the UK's first private commercial dispute resolution service and has a pool of trained lawyer mediators, drawn from firms across England and Wales. The Academy of Experts and the Chartered Institute of Arbitrators also offer dispute resolution services.

Very often, the hardest part about organising a mediation is persuading all of the parties to the dispute to agree to participate. Increasingly, this hurdle will be overcome at the contractual drafting stage. Although it remains unusual for commercial leases to contain mediation clauses, they are now commonplace in construction contracts.

The Benefits

  • Speed - a mediation can be organised very quickly ; if necessary, in a matter of days
  • Cost - since most mediations are resolved within a day, they cost very little, particularly when viewed against the potentially large costs of a contested High Court case
  • Confidentiality - mediation is always conducted in private and it is very rare for the details of a mediation to be disclosed after the event. In contrast with many rent reviews, it is not common for the outcome of a mediation to leak into the market
  • Flexibility - the procedure can be tailored to suit the needs of the parties. The mediation can take place before, or during, litigation or arbitration proceedings
  • Creativity - a Court case usually has a black or white outcome: one party wins and the other loses. A mediated settlement allows for imaginative solutions, such as a renegotiation of terms of sale, a discount on future services, a re-appointment on another deal. This is often described as the "win/win outcome"
  • Long term relationships can be repaired and sustained
  • More than one party - Multi-party disputes are effectively dealt with by mediation.

Suitable Cases for Mediation

In principle, every case is capable of resolution by negotiation. In practice, however, particularly in the context of vigorously contested proceedings, negotiations can be very difficult to initiate. They can also be protracted and litigation procedures are very rarely put on hold whilst negotiations continue. Mediation, which is a facilitated negotiation, is a way around these difficulties.

In the commercial property world, there are also very often, ongoing relationships which can be damaged by protracted litigation, such as landlord and tenant, client and advisor as well as both joint venture and neighbour situations. There are also a number of instances where a resolution is required more quickly than litigation can provide, such as disputes between vendor and purchaser, tenant and assignee, mortgagor and mortgagee.

The following are examples of where mediation is likely to be worthy of consideration:

  • Dispute between landlord and tenant as to whether a break clause has been effectively operated
  • Claim by agent for unpaid fees on a sale and professional fee disputes across the board
  • Claim by client that solicitor has drafted a lease badly
  • Dispute between neighbours over the position of a boundary
  • Dispute over service charges and management matters generally
  • Claim by a bank for negligent valuation advice
  • Claim by a client against a solicitor who is blaming the surveyor
  • Dispute between joint venture partners.

The following examples illustrate just how valuable and effective the process is.

Suitable Cases

The Boundary Dispute

A detached house in single ownership was divided into two separate dwellings and sold to two families. The boundary that passes through the building was not a straight line and the line followed a different path on the first floor from the ground floor. The conveyances for each property showed different boundary lines and neither of them corresponded with the land registry titles precisely. The dispute had existed for six years. It had led to physical violence and police intervention and had hung like a black cloud over both families.

It was the land registry that coaxed the parties to mediation.

At the beginning of the day the parties could barely tolerate being at the same table.At several points during the day one of the parties walked out. By 9.0 pm however an agreement in principle had been reached and at midnight the drafting of a contract with an agreed plan was signed.

The parties shook hands with each other for the first time in six years and smiled and the matter was concluded.

Multi-Party Negligence.

The dispute involved a lender taking action against a solicitor for alleged negligence over charge documentation and action against a valuer for an alleged negligent valuation. Simultaneously the solicitor was taking action against the valuer. The professional indemnity insurers for both the valuer and the solicitor were present. Although there were three actions to resolve there were effectively five parties in the negotiation.

The difficulty in mediations of this type is that a resolution of one dispute is contingent on a resolution of the others. In fact a solution to one seemed possible fairly early but it was blocked by impasse on the other two. As the day wore on it seemed that a solution was within sight but then a typical barrier was met. One of the key insurers had reached the ceiling to his authority and a higher authority needed to be consulted. But by then it was 7.0pm and that individual could not be contacted.It was reluctantly agreed that the matter would be adjourned until the following day, which is a risky strategy for a mediator, since it created the possibility that the other parties might reconsider and then move back from previously agreed positions.

In this particular case that fear proved to be unfounded and by mid morning on the following day an agreement had been reached and a contract and Tomlin Order had been executed. Conventional litigation would have been unlikely to achieve this speedy resolution, especially at the modest cost that was involved.

A Multinational and their lawyers

This case concerned a large corporation and their lawyers, a respected and important law practice who had acted for them for many years. The matter in dispute turned on a loss, resulting, it was alleged, as a result of a drafting error by the lawyers. As is frequently the case when negligence is claimed, contributory negligence was raised. The dispute covered both liability and quantum and the sum being claimed was significant .The litigation was well advanced and substantial legal costs had already been incurred. It was also apparent that strong emotions had been stirred. >

The corporation was obliged to pursue the claim and the lawyers with their insurers had to defend it but in fact both parties wished the professional relationship to continue if only an acceptable formula could be reached. Furthermore the publicity flowing from litigation would be of benefit to neither party.

There were many issues to resolve so they were tackled by splitting the parties into separate joint groups with the mediators so that the experts had the opportunity to narrow their differences and thus restrict the issues.

Although the gulf between the parties initially seemed unbridgable eventually a resolution was reached and a consent agreed. The parties had fielded large teams of lawyers so the mediation costs were not as modest as most are, however this dispute had been set down for a long hearing so the litigation costs would have been substantial but even more important than the financial saving was the fact that the parties ended the session by shaking hands and smiling. Bad publicity had been averted and the client/professional relationship move forward and prosper.

Unsuitable Cases

There will, nevertheless, be cases where mediation will not be appropriate. The most obvious examples of these cases are situations where one of the parties wishes to establish a legal principle or precedent or to plan to generate publicity. Perhaps one of the parties wishes to obtain discovery where (pace Lord Woolf) delay would assist them, or perhaps party simply believes that there is no merit whatsoever in the other's case and so there is nothing to discuss.

At the same time it must be noted that an agreement to mediate does not imply that a party accepts that there is a case to answer or that they perceive that their case is weak.

Mediation is also less compelling where costs are less likely to be saved such as rent reviews disputes that flow simply from valuation differences.

Conclusion

Mediation is not the ultimate panacea. It will not always be suitable whilst there can be no guarantee that it will be successful; experience suggests that over 80% of all mediations held do result in a settlement, saving both time and very substantial costs.

Clients and advisors should always give serious consideration to whether or not mediation would be an appropriate means of seeking to resolve a dispute. After 26 April, there may even be costs penalties for those parties who unreasonably refuse to participate in a mediation. Apart from the situations mentioned above, there is rarely a good reason for not attempting to mediate. The costs, in relation to the overall costs, are minimal and since litigation can be running parallel, there is no time disadvantage.

Clearly, mediation works. We have seen it in action. It saves time and money, it avoids publicity and it maintains relationships between parties who need to work together in the future.

Going to mediation is just plain common sense.

Anthony Salata FRICS MCIArb CEDR Accredited Mediator
Chairman RICS Dispute Resolution Practice Panel
Member CEDR Training Faculty.
Principal Jorden Salata Graham,Chartered Surveyors

Nicholas Cheffings FCIArb (ADR-Net accredited mediator and partner in the Property Litigation Department of Lovell White Durrant)