Effective dispute resolution
By Richard Smellie
The Second Global Project Superconference
15-16 May 2003
Session 204 - Effective Dispute Resolution – Mediation
Every human benefit and enjoyment, every virtue, and every prudent act, is founded on compromise and barter. We balance inconvenience, we give and take, we remit some rights, that we may enjoy others; and we choose to be happy citizens rather than subtle disputants.
[Edmund Burke, Speech on Conciliation with America, 22 March 1775]
The concept of mediation is not new. Compromise and conciliation have been a part of life for generations, as the above words of Edmund Burke on conciliation with America as long ago as 1775 demonstrate.
The notions of mediation and conciliation have been in operation in legal systems for some considerable time: for example Japan has had a conciliation law since 1951 which allows for court proceedings to be transferred to a process of conciliation, and in the West, have been operating in the United States since at least the 1970s. Tribal courts in Africa operate what might be called a “conciliation philosophy”, being “future orientated” in that they look at how people will continue to live in harmony beyond their dispute, and so seek to restore the “social balance” through compromise and reconciliation rather than the application of rules of law.
What is new, however, is the fast growing interest and application of alternative dispute resolution techniques, and in particular mediation and conciliation, in international commercial disputes, and the ever increasing acceptance of these ADR techniques as a “mainstream” means of dispute resolution in the UK and Europe, as well as elsewhere.
This is something of a cultural change in both the domestic market and the international market. The use of mediation, because of its very nature, does require an understanding of approach and a desire to resolve disputes outside of an adversarial and formal procedure, focusing on the best means of appropriate satisfactory compromise for the good of all concerned, rather than strict legal rights.
ADR, and in particular mediation, has an ever increasing role to play in the resolution of disputes, and indeed in the avoidance of disputes.
As a matter of important housekeeping, that which falls under the
banner “ADR” does vary depending on whom you are talking to, but most see
it as covering any form of dispute resolution other than proceedings in
court or “ordinary” negotiations. The Office of Government Commerce
(“OGC”) in the UK, in its paper “Dispute Resolution Guidance” (March
2002), listed dispute resolution techniques and bracketed those that they
considered to be ADR as follows:-
The European Commission Green Paper on ADR and Civil and Commercial Law, however, excludes arbitration from the definition as follows:-
Alternative methods of dispute resolution, for the purposes of this green paper, are defined as out of court dispute resolution procedures conducted by a neutral third party, excluding arbitration proper. The alternative methods of dispute resolution will therefore be referred to below by the acronym that is tending to be accepted universally in practice i.e. ‘ADR’.
This paper, however, is concerned with the ADR technique of mediation, this being ADR which is dependent upon resolution through compromise rather than the imposition of a binding decision by a third party, and it is mediation which is central to the significant “cultural” change in the way that increasingly, both domestically and internationally, commercial disputes are being resolved.
Further, where this paper refers to mediation, the reference covers the concept of conciliation, which is sometimes called “evaluative” as opposed to “facilitative” mediation, the primary difference being that with the former the mediator makes non-binding recommendation, whereas with the latter, he/she does not.
What is Mediation?
Definition
Mediation is essentially structured negotiation: consider the following three short definitions:-
a) The Right Honourable the Lord Woolf described mediation as follows in his report “Access to Justice” in June of 1995:-
Mediation is offered by a number of private and voluntary organisations. Unlike other forms of ADR it does not result in a determinative adjudication, but is perhaps best described as a form of facilitated negotiation where a neutral third party guides the parties to their own solution. Mediation can be used in a wide range of disputes. And in many cases produces an outcome which would not have been possible through the strict application of the law.
b) The authors of “The ADR Practice Guide - Commercial Dispute Resolution” (Butterworth, 2000 - Mackie, Miles, Marsh and Allen) provided the following short definition:-
Essentially ‘mediation’ is a process of negotiation, but structured and influenced by the intervention of a neural third party who seeks to assist the parties to reach a settlement that is acceptable to them. The mediator does not make an award, nor, in the purest form of mediation, is there any evaluation of each party’s claims. However, the dynamic of third party involvement is potentially much more subtle than this bald description suggests.
c) By way of further example, mediation is colourfully described as follows by Carroll and Mackie in “International Mediation - The Art of Business Diplomacy” (Kluwer Law International, 2000):-
… mediation itself provides a new form of conceptual suspension bridge between managers or advisers in conflict. It offers an interim structure to open up a traffic of dialogue, marks out lanes over which communications can pass with less risk of head-on collision and adjusts the traffic flow to give users a sense of managed risk, momentum and relative safety from which to explore the various views from the bridge. The good mediator needs both the skills of the project manager, the vision and maps of the bridge designer, yet also the inherent respect for the creativity of principals, experts, advisers once the mediation process unleashes an effective flow of communication.
Mediation is therefore a dispute resolution technique in which, with the assistance of an impartial third party, the parties seek to resolve their differences through compromise.
It is a private, uniquely flexible dispute resolution process concerned with finding a solution satisfactory to all involved. Its primary characteristics are:-
a) It is a consensual process, with the procedure being a matter of agreement between the parties.
b) It is an entirely private and confidential process, conducted on a “without prejudice” basis.
c) It is generally a voluntary process, in that after the dispute has arisen, the parties agree to mediate the dispute.
It should be noted however, that more and more a requirement to mediate is being written into the dispute resolution provisions of contracts; but the process remains voluntary in that the procedure will often allow a party to withdraw from the process, and it remains concerned with compromise and not the imposition of a decision by a third party.
d) As just said, mediation is non-binding: its objective is to broker a settlement deal, and there is no decision made by a third party which is then imposed on the disputants.
e) It is the role of the mediator to facilitate compromise. The mediator is an impartial third person. His role is described by the Centre for Effective Dispute Resolution (“CEDR”), in their Mediator’s Handbook, as follows:-The Mediator helps the parties to try to reach a negotiated settlement. The Mediator provides a clear head, impartiality, process management, encouragement and optimism, and brings hope to a situation that may seem hopeless, whilst leaving the problem and the settlement decision firmly with the parties.
The CEDR handbook goes on to refer to the mediator as a facilitator, a reality tester, a problem-solver, a “sponge” for the parties’ frustrations and a scribe, to help accurately record the settlement reached.
In many respects, the techniques used by a skilled mediator have more in common with international political diplomacy rather than mainstream legal culture. The “shuttle diplomacy” of international politicians brokering significant international arrangements is the kind of technique which skilled mediators use in going from caucus session to caucus session in a mediation.
Types of Mediation
Mediation might be facilitative or evaluative.
In a facilitative mediation the mediator seeks to facilitate the parties’
own efforts to formulate settlement, whilst in an evaluative
mediation the mediator further assists by introducing his or her own
view on the merits of the case, in some instances providing a written
recommendation. It is probably fair to say that facilitative mediation
is more common for the resolution of mainstream commercial disputes,
save that the “hybrid” of “mini-trial”, where the parties present their
respective cases to a panel of executives and a neutral, caucus sessions
are then held and the mediator makes recommendation, is not uncommon
in commercial disputes.
Procedure
The mediation procedure followed by the parties is dependent upon agreement by the parties. This agreement might or might not be found in the dispute resolution provisions of any contract between the parties. There are various bodies who have put forward procedures for mediation. Two examples of administered mediation procedures are the CEDR procedure and the ICC ADR Rules.
The CEDR procedure includes for the appointment of a mediator through CEDR (if needed), and for CEDR to assist with drawing up a Mediation Agreement, and finding a venue and the like, if necessary. The procedure itself is entirely certain but flexible: it calls for the parties to exchange a concise summary of their cases and key documents, and for the parties to try and agree the maximum size of this documentation. In some instances, the mediator might call an early pre-mediation meeting in order to help resolve any differences with regard to these administrative matters.
Thereafter, the process is fairly immediate. On the morning of the mediation, the parties sign a Mediation Agreement (thereby confirming their commitment to the process), which Agreement includes confirmation that each representative has authority to settle the dispute on behalf of the party he or she represents. Thereafter, the usual procedure is that there is a joint meeting at which the mediator clarifies the process and establishes any ground rules, and the parties present a summary of their case to each other and issues are clarified. Thereafter, caucus sessions (i.e. private confidential meetings between the mediator and each party separate from the other party) proceed. At these caucus sessions, important issues are examined and open discussion takes place about weaknesses as well as strengths. Thereafter joint meetings and caucuses continue as appropriate, with the mediator seeking to help broker a deal.
The ICC ADR Rules are perhaps even more open ended. Again the ICC administers the procedure, receiving an initial request for an ADR procedure pursuant to the rules, appointing a neutral where necessary, and confirming any termination of the procedure. The rules leave it open to the parties to decide upon the ADR procedure they wish to follow but stipulate that in the absence of agreement then the ADR is to be a mediation, and the guide to the rules confirms that it is to be a facilitative mediation. The guide suggests the following general procedure for the mediation itself:-
To facilitate an amicable settlement the Neutral generally holds joint meetings with all of the parties present and may also hold separate meetings often called caucuses with each of the parties alone. These meetings permit the Neutral to create an atmosphere appropriate for negotiations, obtain useful information, identify the interests of each party and help the parties find common ground for the resolution of their dispute. Any oral statements or written documents provided to the Neutral by one party during a separate meeting or otherwise will not be conveyed to the other unless the other party has specifically authorised the Neutral to so do.
Otherwise, by Article 5, Rule 3:-
The Neutral shall conduct the procedure in such manner as the Neutral sees fit. In all cases the Neutral shall be guided by the principles of fairness and impartiality and by the wishes of the parties.
Further by Article 5, Rule 5:-
Each party shall co-operate in good faith with the Neutral.
Mediation Strengths
The first great strength of mediation as a technique for the resolution of commercial disputes is that the parties seek their own solution through a flexible procedure, aimed at encouraging positive compromise rather than the imposition of law. The parties have control of the process and its outcome, and whilst any settlement must be within the law, it does not have to reflect the parties strict legal rights and can take into account commercial and political pressures and realities. Consequently:-
a) The parties do not have to seek redress entirely in the form of monetary compensation, and
b) The parties can seek to rearrange their contractual/commercial arrangements in order to facilitate or bring about satisfactory or indeed a “win-win” solution to the dispute, and
c) The wider social and/or political implications and/or difficulties can be taken into account and both reflected in and if possible and appropriate, included within any compromise.
Mediation is in line with the commercial world’s recognition of the benefits of partnering, business alliances, and general relationship marketing. The flexibility of mediation allows these factors to be taken into account in the resolution of any dispute.
The second great strength of mediation is cost and time benefits, particularly as against arbitration (be it domestic or international) and litigation in the local courts – and particularly in those jurisdictions where the Court process remains not only expensive but slow.
In many instances, from the moment of agreement to mediate through to the conclusion of the mediation, little more than one or two months might pass. This is necessarily dependent upon the nature of the dispute and the extent to which the parties have already put forward their case. So for example where arbitration or litigation is already up and running, a mediation might take place within a matter of weeks, whilst where the dispute is still being formulated, there may be a need for the parties to take time to properly ascertain issues before a useful mediation can take place.
The mediation itself, however, will often take no more than two days, regardless of the amount involved. In introduction to “International Mediation – the Art of their Business Diplomacy” (Kluwer Law International, 2001, Carroll and Mackie), the authors say:-
Most telling in terms of mediation’s future scale of impact, the range of case values is wide - $200,000 to $500 million, the average length of mediation just under two days.
As against the cost and time of litigation or arbitration (be it
domestic or international), mediation is profoundly efficient.
Mediation’s third great strength is that it is very much an alive and
developing dispute resolution technique as is clear from its move into
mainstream dispute resolution.
Mediations Move into the “Mainstream”
Mediation in the United Kingdom and in Europe has clearly moved firmly
into the mainstream of dispute resolution in the past few
years.
Firstly, following Lord Woolf’s “Access to Justice”, direct
express reference to ADR has found its way into the Court Rules for
England and Wales, being the Civil Procedure Rules l999 (“CPR”). Uniquely,
these rules commence with an “overriding objective”, being a statement
that the rules are a code “… with the overriding objective of enabling the
Court to deal with cases justly”. CPR 1.4 then provides as follows:-
- The Court must further the overriding objective by actively managing cases.
- Active case management includes … (e) encouraging the parties to use an alternative dispute resolution procedure if the Court considers that to be appropriate and facilitating the use of such procedure.
Further, in consequence of the overriding objective in the CPR, pre-action conduct is of considerable importance now in English courts when it comes to the issue of costs. The decisions of Dunnett v Railtrack Plc [2002] 1 WLR and Hurst v Lemming [2001] EWHC 1051 (CH) both confirm the importance of parties properly and fully considering mediation and indeed engaging in mediation unless they have good reason not to, in advance of litigating. Further, they confirm the recognition which mediation now has. The following extract from the judgment of Brook LJ in the Dunnett decision perhaps highlights the “new” judicial view of mediation:-
Skilled mediators are now available to achieve results satisfactory to both parties in many cases which are quite beyond the power of lawyers and courts to achieve. This court has knowledge of cases where intense feelings have arisen, for instance in relation to clinical negligence claims. But where the parties are brought together on neutral soil with a skilled mediator to help them resolve their differences, it may very well be that the mediator is able to achieve a result by which the parties shake hands at the end and feel that they have gone away having settled the dispute on terms with which they are happy to live. A mediator may be able to provide solutions which are beyond the powers of the Court to provide.
The express reference to ADR in the CPR is not entirely new in the English system. For example the commercial court has had a practice direction since around 1996 giving the Judges power to direct litigants into ADR proceedings. But it has now taken on new force. Further this development is not limited to the English system. There are similar types of directions available in countries such as Argentina, Australia, Canada, France, Greece, Hong Kong, Israel, New Zealand, Singapore and the USA.
Secondly, as a matter of English law, it is now clearly established that provided a clause in the contract calling for mediation provides for a sufficiently clear and certain procedure, then the parties are obliged to go through the procedure, or hold off embarking on any other procedure (including litigation or arbitration) until such time as the mediation procedure has run its course.
The most recent word in the English courts is found in Cable & Wireless Plc v IBM United Kingdom Limited [2002] EWHC 2059 (Comm Ct). Historically, the problem with a mediation provision being an enforceable provision of a contract has been that an agreement to go to mediation is no more than an agreement to agree, and an agreement to agree or an agreement to negotiate is not enforceable in English law. This principle was clearly set out in Courtney and Fairbain Limited v Tolaini Brothers (Hotels) Limited [1975] 1 WLR 297, where Lord Denning MR said as follows:-
If the law does not recognise a contract to enter into a contract … it seems to me it cannot recognise a contract to negotiate. The reason is because it is too uncertain to have any binding force. No court could estimate the damages because no-one can tell whether the negotiations would be successful or would fall through: or if successful what the result would be. It seems to me that a contract to negotiate, like a contract to enter into a contract, it is not a contract known to the law.
In Cable & Wireless, however, Mr Justice Coleman noted that the relevant clause described the means by which the attempt to negotiate was to be made, namely through an ADR procedure as recommended by CEDR. Mr Justice Coleman went on to say:-
The engagement can therefore be analysed as requiring not merely an attempt in good faith to achieve resolution of a dispute but also the participation of the parties in a procedure to be recommended by CEDR. The resort to CEDR and participation in its recommended procedure are, in my judgment, engagements of sufficient certainty for a court readily to ascertain whether they have been complied with. Thus, if one party simply fails to co-operate in the appointment of a mediator in accordance with CEDR’s model procedure or to send documents to such mediator as is appointed or to attend upon the mediator when he has called for a first meeting, there will clearly be an ascertainable breach of the agreement in clause 41.2.
He went on to say that whilst this may appear to be a slender basis for distinguishing the clause from a mere promise to negotiate:-
… the English courts should nowadays not be astute to accentuate uncertainty (and therefore unenforceability) in the field of dispute resolution references. There is now available a clearly recognised and well developed process of dispute resolution involving sophisticated mediation techniques provided by trained mediators in accordance with procedures designed to achieve settlement by the means most suitable for the dispute in question.
It is now therefore clear that properly worded contract provisions
calling for mediation can be enforceable.
The mainstream acceptance of
mediation can be further seen in its inclusion in the OGC’s Dispute
Resolution Guide from March 2002. This document provided a government
pledge that government departments will consider the use of alternative
dispute resolution in all suitable cases, and that government departments
will provide appropriate clauses in their standard procurement contracts
on the use of ADR techniques to settle disputes. The impetus for this
pledge lies in the recognition, as set out in the introduction, that:
Contractual disputes are time consuming, expensive and unpleasant. They can destroy client/supply of relationships painstakingly built up over a period of time and can impact the supply chain. They can add substantially to the cost of the contract as well as nullifying some or all of its benefits or advantages. They can also impact on the achievement of value for money. It is in everyone’s interest to work at avoiding disputes in the first place and this is mirrored in the government’s emphasis on improving relationships between the client and supplier through teamwork and partnering.
The Dispute Resolution Guidance covers ADR (and the scope of ADR as seen by this document is set out above). The inclusion of mediation, however, draws mediation firmly into the mainstream dispute resolution techniques to be used by UK government departments. Indeed, at paragraph 7.1 the guidance says of mediation:-
It should be seen as the preferred dispute resolution route in most disputes when conventional negotiation has failed or is making slow progress. Mediation is now being used extensively for commercial cases (including cases involving government departments), frequently for multi-party and high value disputes. Over 75% of commercial mediations result in a settlement either at the time of the mediation or within a short time thereafter.
In February 2003, it was clarified by Baroness Scotland of Asthal, the Parliamentary Secretary, Lord Chancellor’s Department, that following the pledge alternative dispute resolution by government departments has increased dramatically from 49 cases in 2001/2002 to 225 cases. She said that “progress on this scale clearly demonstrates that the pledge marks a step on the road away from a culture of litigation towards a culture of settlement”.
Turning to the wider picture of Europe, the European Commission’s Green Paper on Alternative Dispute Resolution in Civil Commercial Law from April 2002, quoted from above, has been adopted in draft by the European Parliament.
Mediation is therefore now clearly a mainstream dispute resolution technique. In the World Bank’s Procurement Toolkit, the following table is provided by the World Bank of dispute settlement techniques and their appropriateness for Concessions. The table is telling in that non-binding ADR is regarded as “usually appropriate” in most circumstances:-
With further reference to PFI and concession contracts, although the general guide (from the OGC and Partnership UK) on the standardisation of PFI contracts (from August 2002) makes no mention of mediation other than in a footnote, mediation is now expressly included in some proposed PFI standard form dispute resolution provisions. For example, the Centre for Effective Dispute Resolution (CEDR) Standard “Dispute Resolution Procedure for PFI and Long Term Contracts” (September 2002) includes mediation, and it is understood that mediation is to be included in the new JCT Major Projects Form of Contract.
The continued flexible growth of mediation is further apparent from the use of mediation to prevent disputes arising in the first place (as opposed to a means of resolving existing disputes). This is what Contracted/Project Mediation is aimed at. Contracted mediation is presently the subject of research by King’s College, London. The relevant flyer states as follows:-
Contracted mediation attempts to fuse team building, dispute avoidance and dispute resolution in one procedure. The impartial contracted mediation panel, consisting of one lawyer and one commercial expert who are both trained mediators, is appointed at the outset of the project. It attends site meetings and conducts workshops. The panel therefore has a working knowledge of the project and the individuals working on that project. This knowledge allows the panel to resolve contractual differences before they escalate, and provides an immediate medium for the confidential, mediated resolution of disputes.
Perhaps the strongest indication as to how “mainstream” mediation has become, and its continuing growing importance, is the announcement by the English Court of Appeal on 10 March 2003 that it has appointed CEDR to re-launch its mediation scheme. The re-launch follows limited success, but there is clear determination that there be both a procedure and a “culture” of looking to mediation, in appropriate circumstances, following the decision of a court of first instance.
Finally, whilst mediation is not mandatory in the United Kingdom it is not beyond the realms of sense and possibility that it could be in the future. It is interesting to note the conclusions of an evaluation committee in Canada in March 2001 regarding the inclusion of a rule in the Canadian Civil Rules mandating a mediation session for case managed actions within 90 days of filing of the first Statement of Defence. The recommendation of the Committee was that, essentially, the rule be included (albeit that as a matter of detail various changes were suggested).
Mediation and the Hungarian Toll Road
The scope for mediation to assist in the difficulties with the Hungarian Toll Road lies in two of the primary areas which give mediation its power and value as a dispute resolution technique:-
a) The flexibility of mediation, and its ability to take into account a variety of different interests and influences giving the parties the forum and the control to reach a suitable compromise and solution to their differences and difficulties, and
b) The time and cost benefits of a flexible, immediate, procedure.
It is apparent that the Hungarian Toll Road suffered from a fundamental problem of the revenue stream required by Elmka and the banks as against the available traffic flow and that which the citizenry of Hungary would accept and pay. It is, even in this enlightened age, probably unlikely that mediation could have played a direct role in resolving the claim of the Association for Consumer Protection and the Magyar Autoklub that Elmka’s high pricing of tolls was an abuse of its monopoly position. But had there been a binding obligation in the project documentation obliging mediation in the event of a dispute, then there may have been room for the following:-
a) It seems that an important part of the problem stemmed from Elmka’s strategy of maximising revenues by charging what it thought the market could bear, a strategy presumably driven by Elmka’s need to maximise revenue return where it could, as a part of the project’s overall financing structure.
The Hungarian Government played no role in the litigation brought by the Association for Consumer Protection and the Magyar Autoklub law suit but stood on the sidelines. There would be little that Elmka could do whilst that litigation was progressing to oblige some action or activity by the Hungarian Government for the benefit not only of Elmka but the project as a whole, through the ordinary mechanisms of arbitration or litigation. An adjudication provision would likewise have been of little benefit.
A binding mediation provision, however, pursuant to which Elmka could have obliged the Hungarian Government to look at mediating the issues arising in consequence of that public law litigation, could have conceivably allowed Elmka, and the Hungarian Government, to look at rearranging relations and the financing of the project so as to meet the concerns of the Hungarian citizenry but allow the project (and the concession) to continue.
Mediation would allow a creative, flexible solution capable of taking into account matters of public concern and political reality along with wider financial issues. Further, the flexibility of the proceedings would allow the involvement of the banks in the process. The banks had a clear interest in a compromise resolution of the litigation given its potential (and in the end actual) effect on the project. It could cynically be said that the banks would not have rearranged but would have looked to call on securities, but it is equally likely that they would have seen the benefit of restructuring the overall deal in order to avoid loss.
b) The sequence of events, it would seem, is that the public law litigation commenced in February 1996 and did not come to an end (including appeals) until March 1999. During that period of just over 3 years, the uncertainty surrounding the project looks to have caused the project delay and, as a matter of commercial norm and reality, will have increased the losses suffered by all of the various parties involved in the project.
As a matter of timescale, therefore, mediations commencing in 1996 looking to deal with the perceived concerns of the Association for Consumer Protection and Autoklub in bringing the litigation on behalf of the citizenry of Hungary, and looking at how those concerns might mould with the political concerns of the government and the financial needs of Elmka, could well have reduced the importance and impact of the final decision in that litigation, thereby bringing or returning certainty to the project well before March 1999, and may have brought about a result which would not have been the re-nationalisation of the concession.
c) Further, if instead of looking to the Courts through the appeal process to overturn the first instance decision on the litigation, Elmka had had a means by which it could oblige negotiation with the Hungarian authorities, and if the Hungarian authorities had been of a legal culture to look to renegotiate and resolve the disputes rather than stand on the sidelines, it may well be that there would not have been delay to the project of the magnitude that there was, or the collapse of the concession.
It is perhaps telling that one of the first steps taken by the Hungarian Ministry of Transport following the end of the concession, was to significantly reduce toll charges, a step it could take easily once the concession had been re-nationalised, but a step that arguably could equally have been negotiated through a re-arrangement of the concession in the early stages with Elmka when the litigation commenced in February 1996 and it became apparent that the citizenry of Hungary were not prepared to stand the toll regime put forward by Elmka.
The opportunity here with mediation was to step across the divisions between the parties and recognise their common interests rather than their differences, and to capitalise on those common interests. As put by Carroll and Mackie in “International Mediation”:-
If successful as a professional project, international mediation practice will help create a bridge between eastern and western, ancient and modern, legal cultures and also between the formal traditions of national, legal cultures and fluid forms of negotiated rule making that will be necessary to support the global marketplace of the 21st century.
Mediation is and was probably the best suited form of dispute resolution for the differing public, private and financial interests of those concerned with the Hungarian Toll Road. Returning to the table from the World Bank Toolkit, which recommended non-binding ADR for concessions where there were many occasions of conflict, a long-term relationship of importance, a public-natured service, and a complex and sophisticated project, all of these elements were featured on the Hungarian Toll Road.
With the growing “mediation culture” in both legal and business circles, there is increasing opportunity for difficulties of the kind experienced in the Hungarian Toll Road to take a different, more positive route to resolution.