Using mediation to cut costs and show you’re a profit centre: in-depth article
In this article, we look at how mediation can help you settle disputes, prevent problems from escalating and broker tricky negotiations.
Mediation can resolve most disputes very effectively. It disrupts the inertia of litigation and can reduce legal costs. However, for the in-house lawyer, it’s more than just an alternative to litigation.
Mediation - a real alternative to litigation
If your organisation gets embroiled in a dispute, either internally or externally, it may well pay to consider mediation seriously before pressing ahead with litigation.
Mediation is quicker, more confidential and considerably less expensive than both litigation and arbitration. It’s less risky too, particularly when a valued relationship or your organisation’s reputation is at stake. With this in mind, it’s unsurprising that 90 per cent of commercial mediations in the UK settle.
And even the remaining 10 per cent that don’t settle provide benefits. They clarify what both sides think about the case, what the real issues are, how much is at stake and how much a trial could cost. This is why court pre-trial protocols include a requirement on litigants to have considered using some form of Alternative Dispute Resolution, such as Mediation, before getting to court.
So, at the very least, mediation will give you the critical information you need to formulate your strategy and relay it to the Board. Furthermore, even if you do go to trial, you can still use a mediator as a go-between with the other side, maybe to have the occasional ‘deniable conversation’. Even then, around 70 per cent of all High Court cases end up being mediated.
In his book, ‘Talking to Terrorists’, Jonathan Powell, who was Tony Blair’s chief negotiator in the Northern Ireland peace process, says the relevant question isn’t ‘Should you talk to these people?’ but ‘When should you do so, and how?’ We can apply that same thinking to commercial disputes.
In other words, instead of waiting until things deteriorate, if you intervene you might also be able to resolve issues and get the relationship back on track. The time to think about bringing in a mediator is when:
- A dispute is flaring up;
- Colleagues are having difficulties with their business partners; or
- You need to clear the air and stop people arguing about who’s right and what the damage is and, instead, focus on what happens next.
Conflict escalation – the tell-tale signs
This diagram here, illustrates the typical characteristics of a conflict and how emotional elements can give it momentum. As lawyers, we may view concepts such as termination in terms of rescission and repudiation. Others however, may see it in terms of rejection and take it extremely personally.
Similarly when a person feels they’ve been lied to or treated unfairly or disrespectfully, emotions can cloud decisions. This can make people forget what they need and what’s at risk.
It is worth remembering that there are often several "layers" of issues in any dispute and the ones that surface first may simply be the easiest ones to express and not the underlying ones that are actually the most important to resolve. Addressing the more fundamental issues may be vital, particularly if they are potentially jeopardising an on-going relationship.
Litigate, arbitrate or mediate?
To help you decide what course of action to follow in a given dispute, start by taking a step back. Ignore any emotional triggers and look at the bigger picture. As well as looking at the facts and the legal position, you’ll also need to assess:
- The likely net financial position - bear in mind that even if you have a ‘strong’ case, your best-case net recovery position probably won’t exceed 50 per cent;
Best and worst case scenarios;
- How the dispute could affect you, your organisation and its internal and external relationships; and
- Costs, risks, and timings.
Be sure to make these assessments and gather relevant information upfront. Whichever route you take and however strong you believe your case to be, you don’t want to find yourself two years into litigation with unforeseen costs mounting and frustrations relating to the case bleeding into the Boardroom.
You could conduct a ‘pre-mortem’ or get an external mediator in to help you review the issues and evaluate your options. Either way, start by analysing what you want to achieve. Then consider each route in terms of its:
- Speed; and
Consider how each option is likely to impact: -
- Business relationships
- Corporate reputation. How will it sit with your public image, or your internal ethos? If you don’t keep the dispute confidential, how damaging could attendant publicity be?
- Key stakeholders
- Senior personnel, particularly given how time-consuming and distracting it can be. Also, think about how the stress and uncertainty might affect them and anyone else directly involved.
The route that’s best for you will depend as much – if not more - on what’s right for your business as it will the specifics of the case. Do you, for example, want someone to make a binding decision or would you prefer to avoid the possibility of being bound by an adverse ruling? If a public decision were to go against you, how harmful a precedent could that be? How do you feel about the problem becoming public? How will your stakeholders and employees react? Will your competitors profit from your predicament at your expense? How will the market react?
Don’t feel you have to make a "binary either/or decision". You could start by issuing or threatening proceedings to focus attention on the other side and then, once you have a clearer understanding of their position move over to mediation.
Before you make your decision, put yourself in their shoes and do the same exercise, but from their perspective. This gives you more options because, with mediation, you’re not restricted to standard legal remedies. You can agree whatever creative solution works for you.
Many contentious financial disputes, for example, have been settled by the creditor giving its debtor more stock so it can earn out the debt and save the relationship. And there have been royalty cases where parties agree a headline figure, then revise future revenue streams so no payment needs to be made or appear in the accounts.
Mediation is especially useful when:
- The law won’t give you what you want, or it will take too long;
- You don’t have a cast-iron legal case;
- You don’t want to risk collateral damage or incur disproportionate management time or expense;
- You don’t want issues becoming public or disruptive;
- You want a quick fix;
- People are taking things personally;
- Communication has been poor;
- You’re dealing with sensitive relationships or issues.
Not just disputes
As well as disputes, mediation can help in other ways, too. Consider bringing in a mediator if you need help with:
- Knocking heads together and keeping everyone on track until a binding agreement has been reached;
- Chairing tricky board meetings, industrial relations, regulatory negotiations or multi-party stakeholder discussions, especially where people have different interests or are dealing with change; or Managing awkward conversations safely and productively.
Why use an outsider?
Sometimes it helps to have the involvement of an individual with no vested interest in the outcome, other than the aim of reaching a settlement in itself. No matter how good a negotiator you are, you can’t referee your own dispute if someone else won’t let you - or if they regard you or your organisation as part of the problem.
As lawyers, we tend to analyse business issues though a legal prism. However, when it comes to settling disputes, the obstacle to a settlement often lies elsewhere. You’ll rarely find it in the inter-party correspondence or the pleadings. If the other side don’t appear to be listening to you, they won’t let you scratch under the surface either. But they will open themselves up to an independent mediator.
This is where experienced mediators earn their keep – uncovering details, defusing tensions, managing the process and keeping everyone focused on what they want to achieve.
Mediation as your default position
Putting mediation at the heart of your agreements enables you to make it your automatic first port of call whenever a negotiation starts coming unstuck. Think about putting into it your:
- Key deals;
- Standard contracts;
- Contracts for long-term or multi-party projects. Appoint a dedicated ‘go to’ person in the contract to insulate the project from inter-party fall-out; and Contracts with foreign partners – this will help minimise the risk of lengthy foreign proceedings.
Use mediation to promote your department internally
Like it or not, we in-house lawyers can get a bad internal press, especially when we don’t appear to be delivering quick commercial results. Mediate a case quickly and successfully, however, and that perception will soon change. Mediating gives you a great opportunity to spend time with key decision-makers and show them first-hand how you add value when the company is in a tight spot.
Use it to position legal as a profit centre
Towards year-end, take stock of outstanding disputes. Which ones can you mediate and take off the books? Liaise with finance to see if any provisions can be released or reduced. What about anticipated legal expenses? Have any potentially recoverable amounts been written off? What would raise Ebitda?
Diarise to do this every year. It’s a great way of showing the board that you’re aligned with the wider business strategy and not just running the legal department.
Mediation is tailor-made for businesses in general and in the in-house lawyer in particular. It’s highly effective, inexpensive and speedy. You can use it to resolve disputes, prevent them from escalating or to broker deals.
The savings in terms of management time and external counsel are also considerable. More importantly, if your role as an in-house lawyer involves getting deals done and minimising business risks, mediation allows you to achieve both. And remember, 90 per cent of the time it works.
This article was wrtten by Andrew Hildebrand. Andrew has an additional article on the subject, first published in the Winter 2018 issue of The Resolver, the quarterly magazine of the Chartered Institute of Arbitrators. Please read here.