1 From Better Solutions for Business: Commercial Mediation in the EU, 2004 by CPR Institute for Dispute Resolution, Inc. Chapter One Why Businesses Need Mediation Mediation is coming, because it has to....companies are not expected to take silly risks with shareholder assets if there are other ways to secure certainty at less cost. Businesses are increasingly drawing a line under their escalating conflict budgets and demanding much faster outcomes. They are also perceiving that they need to lead themselves out of the concentric circles which characterise litigation. Practitioners... are realizing that to retain their ever more discerning client base, and to win new clients, they need to prove themselves as spontaneous early conflict resolvers and solution providers, not just as good litigators and processors. Michael Leathes Head, Intellectual Property British American Tobacco The Case for Mediation Why is Mediation the most rapidly growing approach for the resolution of business disputes? In 1997, the media carried news of a survey of conflict resolution approaches among Fortune 1,000 companies. More than 600 companies responded to the survey, which canvassed corporate counsel regarding their policies and perceptions regarding the use of arbitration, mediation and other appropriate dispute resolution (ADR) techniques. Although both arbitration and mediation were extensively employed within the respondent group, the major headline from the survey was that mediation was the most widely used approach. Eighty-seven percent of those responding almost nine out of ten companies had participated in mediation in the twelve months prior to the survey.
2 In 2002, the CPR Institute conducted an in-depth survey of conflict management practices among companies. Though not necessarily representative of the entire Fortune 1,000, the responses of forty-three companies reinforced the notion that businesses are increasingly turning to mediation more than half of the respondents in the CPR group were mediating more. Over the three years prior to the survey, these companies reported increases in mediation usage ranging from 10% to 50%. Moreover, most of the respondents reported high levels of satisfaction with mediation under private auspices; by way of comparison, companies rarely reported more than moderate satisfaction with arbitration or litigation. Business managers and counsel point to a number of reasons for the trend toward mediation, all of which involve the potential benefits of mediation. In nearly all of these ways, mediation is essentially different from arbitration or litigation, and is often superior to unaided face-to-face negotiation. These potential benefits include: 1. Continuing control by the parties over process and product, as contrasted with the risks and uncertainties of litigation or arbitration 2. Customization of the process for managing and resolving the dispute 3. Confidentiality 4. Communications enhanced 5. Cultural, cross-border bridge 6. Commercial realities considered 7. Cost savings, cycle time reduction 8. Creative, durable solutions 9. Continuing relationships maintained, enhanced 10. Cost and risk low as compared to potential benefits In the following pages, we will explore each of the potential benefits that distinguish mediation. Potential Benefit #1: Continuing control by the parties over dispute resolution process and product, as contrasted with the risks and uncertainties of litigation or arbitration A cast iron case does not exist. All conflicts involve downsides. The main one is the risk of losing. And that s not just losing the case on its substance. What about loss of face, reputation, money, gain, position,
3 opportunity and of course the costs and wasted time? Many victories... are Pyrrhic, not least because the world has inevitably moved on since the dispute arose and the judicial outcome [is]... academic. 1 These are the conclusions of a long-time corporate lawyer who made mediation an integral element of the conflict resolution policies for the intellectual property department at his global company. He understands a fundamental point about mediation that it gives parties and their counsel the chance to resolve their dispute in their own way, in a controlled and much more private environment than a courtroom or arbitration hearing. An attorney for GE Oil & Gas in Florence similarly explains: [D]isappointment with arbitration outcomes has led [our legal department]to strongly encourage even the bitterest of opponents to pursue mediation....[we] encourage... early identification of disputes and... de-escalation,...[and try to] keep the company s aim--and, to the extent possible, our adversary s aim--on commercial interests rather than the win/lose results of litigation. 2 Although there will be situations in which his company is unable to avoid going to court or arbitration, he recognizes that in the long run most disputes will be resolved short of full-blown adjudication. Mediation provides a framework that strengthens the ability of business people to adjust relations and resolve problems straightforwardly, efficiently and effectively without losing control of the outcome to a judge or arbitration tribunal. No one needs to point out to the managers of a commercial firm that they should manage corporate affairs so as to maximise the benefits accruing to the company s legally entitled constituencies shareholders, employees, the public. However, while managers routinely take and implement business decisions with these duties in mind, they may not view the resolution of disputes as presenting such responsibilities or opportunities. After initial attempts to negotiate fail when parties meet hard initial positions and settlement momentum dissipates through frustration and lack of a structure or strong impetus for continued efforts, a common reaction is to move ahead with litigation or arbitration. This is not surprising, since litigation and arbitration represent the established default framework for handling disputes when face-to-face negotiations fail. Given the inertia of traditional expectations, seeking adjudication may not even seem like a decision: It is simply what tends to happen when a transaction fails or a relationship sours. Furthermore, it may feel like a fail-safe : managers who hand disputed matters over to outside lawyers who submit those matters to courts or arbitration tribunals have someone else to blame for the ultimate results. In litigation and arbitration a company accepts this loss of control over outcomes (and, indeed, over the costs and discomforts occasioned by 1 Michael Leathes, Leadership Key to Profitable Dispute Management (unpublished draft 2004) 2 McIlwrath, Dealing With Selective Perception and Bad-Faith Allegations in Commercial Settlement Discussions, 22 ALTERNATIVES 151, 153 (October 2004).
4 these processes in the form of counsel fees, loss of executive time and attention to other, more important, matters, strained customer relations, adverse publicity, and the like) because it accepts that it has no other choice. But as the foregoing quotes suggest, a growing number of business managers and business counsel are coming to recognize that they are obliged to consider new options besides unassisted negotiation on the one hand and third-party adjudication on the other. Mediation, whether occurring before or after the filing of a civil complaint or arbitration demand, permits parties to engage in a carefully managed discourse in which the dispute is viewed against the backdrop of business interests, practical considerations, and options for mutual gain. Mediation often provides distinct advantages over face-to-face negotiation without a mediator. The mediator listens, suggests, steers, facilitates, tests reality, and explores options for mutual gain. By taking control of the negotiating experience, the mediator ensures that the parties can control the outcome. 3 As in unaided negotiation, moreover, mediating parties nearly always have the choice of continuing the dialogue or withdrawing. Importantly, the mediator has no power to impose a solution upon the parties, although [in some cases] a mediator has the power to propose solutions....the resolution of the dispute can only result from an agreement between the parties.... A party cannot be blamed for not reaching an amicable settlement through mediation. That is an opportunity left to the parties, not an obligation. 4 In short, [m]ediation... is the thinking business person s process of choice where control of the outcome sits with the client. 5 Potential Benefit #2: Customisation of the process for managing and resolving the dispute Another reason for the growing popularity of mediation is its extraordinary flexibility. The range of options for business parties seeking third party assistance to facilitate negotiations is limited only by the willingness of the participants and the creativity of the mediator. There are many ways in which mediation may be tailored to the needs of the parties and the issues at hand. Choices begin with the selection of a basic format for interaction among the parties and mediator. Some mediators routinely commence by arranging a joint session with the parties, others usually start with separate meetings with business persons and counsel. This intermingling of joint discussions and separate sessions, or caucuses, will continue 3 Paraphrasing Michael Leathes, Leadership Key to Profitable Dispute Management (unpublished draft 2004). (A more extensive discussion of this topic is provided below under FAQ: Frequently-Asked Questions about Mediation, infra). 4 Pierre Raoul-Duval and Alexandra Munoz, Mediation in France, Appendix B, at 1,4. 5 Ronald Bradbeer, Mediation in the U.K International Perspective., Appendix F, at 1.
5 at the discretion of the mediator. At some points, the mediator, after conferring with counsel, may arrange for the principals to meet by themselves. During the course of mediation, face-to-face discussions may be supplemented by any number of other forms of communication. Skillful mediators have regularly made use of the telephone and as well as intranet technology. There are also a variety of ways in which pertinent information may be funneled into the mediation process for the purpose of providing an objective foundation for negotiations. In appropriate situations, mediators may facilitate the submission of joint or separate briefs on legal or factual issues. In some scenarios, advocates may also be encouraged to make abbreviated best-case presentations for the benefit of business decision makers. Sometimes, one or more expert factfinders are engaged to provide reports on key technical issues. In their role as facilitators of solutions for business disputes, mediators have many opportunities to conceive and encourage the use of different innovative processes for managing conflict. Even if mediation fails to resolve some or all of the issues between the parties, the mediator may be able to help set the stage for and even help the parties to tailor an appropriate adjudicative process. 6 Potential Benefit #3: Confidentiality At the heart of mediation is the principle that negotiations can only be effectively facilitated in an atmosphere of privacy and confidentiality. 7 This expectation of privacy not only distinguishes mediation from most adjudicative processes, but also lays the foundation for more candid interaction between the parties and the mediator. As French advocate Pierre Raoul Duval explains, [C]onfidentiality allows the parties to frankly discuss the facts, their position, the issues and settlement options. It also facilitates the exchange of information.... It encourages the parties to actively participate in the mediation process. 8 Agreements to mediate typically set forth specific ground rules for protecting that which is said and done during the course of mediation within broad limits cloaking communications made during the process. Such agreements, reinforced by legal tenets supporting the confidentiality of mediations or negotiations generally, permit parties to come to the negotiating table to talk to each other with the understanding that what is said 6 Stipanowich, ed., COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS, Ch. 2 (ABA 2001). 7 See generally L. Boulle & M. Nesic, MEDIATION: PRINCIPLES, PROCESS, PRACTICE (Butterworths 2001). 8 Pierre Raoul Duval and Alexandra Munoz, Mediation in France, Appendix B, at 3.
6 or done will not wind up in court testimony or in the next day s papers except as agreed by all concerned. 9 An additional layer of privacy is provided by the caucus separate conversations between individual parties and the mediator. Unlike arbitration or litigation, mediation thrives on ex parte communications between mediators and individual parties, who can speak in confidence to the neutral and disclose information which would never become known to a judge or an arbitrator. 10 The caucus may provide an opportunity for acknowledging the weaknesses of a position, revealing business goals, brainstorming settlement options, and sharing other extremely sensitive information, including trade secrets, that may be important for the mediator to know in order to facilitate a resolution. Potential Benefit #4: Communications enhanced Another potentially significant value of mediation and one way in which it is often superior to unaided negotiation as well as arbitration or litigation is in creating an opportunity for parties to communicate effectively. As one experienced mediator puts it, mediation can introduce light where before there was only heat. In the course of a dispute, business managers (and counsel) often become emotionally invested in their position, creating a further obstacle to meaningful discussion and resolution of the issues. Part of the role of a mediator is to bring the parties together in an environment that permits them to blow off steam while establishing new and more constructive ways of interacting.11 In his essay, Luc Demeyere offers an example of a mediator s successful effort to reduce the heat and generate light in a business negotiation: On the date of the mediation session, Mr Jordaens turned up with his wife. MaxTex's CEO was present along with Mr Van den Bossche jr. and the two mediators. Mr Van den Bossche sr. refused to enter the room where the mediation was held, but he was prepared to stay in a room close by... After coffee had been served, Mr Jordaens became very upset about the way the Van den Bossche family had treated him, and after five minutes he stood with his hand on the door handle, ready to leave the room. The mediator stayed very calm and said that, if this was the way Mr Jordaens felt, he would not prevent Mr Jordaens from leaving the room, even though this would result in the loss of all the time and effort spent bringing 9 Chapter 2 contains a more thorough discussion of confidentiality in the context of a mediation proceeding; in addition, some of the essays in this book discuss confidentiality issues against the backdrop of various laws or judicial decisions. See Appendices A-F. 10 Ronald Bradbeer, Mediation in the U.K., Appendix F, at See J. Wade, IN SEARCH OF NEW CONFLICT MANAGEMENT PROCESSES - THE LAWYER AS MACRO and MICRO DIAGNOSTIC PROBLEM-SOLVER 12 (Bond University Dispute Resolution Centre 1995); see also 17 ALTERNATIVES 69 (April 1999).
7 together the people around the table without the mediation actually having started. Mrs Jordaens felt that her husband should return to the table and he was persuaded to do so. The mediation went on all morning, and the mediator noted the interests of the parties concerned. When the first four hours were nearly over, despite the fact that no hint of an understanding had seemed to emerge, Mr Jordaens was willing to stay another four hours and to pay one-third of the further costs of the mediators. After lunch, the mediator drew Mr Jordaens attention to Mr Van den Bossche jr's position, and he asked Mr Jordaens what advice he would give to Mr Van den Bossche jr if he were his son. The atmosphere of the mediation turned 180 degrees. At the end of the second four-hour session, an agreement was reached whereby a certain amount would be paid to Mr Jordaens, Outfit would organise a reception for Mr Jordaens, and Mr Jordaens would introduce Mr Van den Bossche jr to Outfit's clients. 12 Potential Benefit #5: Cultural, cross-border bridge Mediation can provide special benefits in the case of disputes across borders, and among persons of different cultural backgrounds. Cultural, social and political differences often inhibit communications and lead to misunderstandings. Mediators who understand these often subtle differences may be in a position to help the parties avoid pitfalls in their interaction and translate communications in a helpful way. One way of addressing the cultural divide is for the parties to employ a team of mediators representing the backgrounds of the various parties at the table. This model is currently offered in conjunction with a mediation centre co-sponsored by the CPR Institute and the China Council for Promotion of International Trade. Potential Benefit #6: Commercial realities considered Experienced mediators with pertinent business or legal expertise may be particularly qualified to help parties examine a conflict within the context of best and worst alternatives to a negotiated settlement, and larger business aims. Explaining why his company uses mediation, one Florence-based attorney explains, [W]hen an adversary takes a completely unrealistic position, we know they probably think the same about us.... And that s the tragedy of litigation. 13 Mediators routinely help parties confront the hard realities of their established positions, highlighting weaknesses and drawing attention to the compounding of risks and costs that accompany litigation or arbitration. Unconfined by the legal/factual focus that is the heart of litigation or arbitration, mediators may also be able to help parties focus on underlying interests strategic, 12 Luc Demeyere, Experience and Perspectives on Mediation in Belgium, Appendix A, at M. McIlwrath, Dealing With Selective Perception and Bad-Faith Allegations in Commercial Settlement Discussions, 22 ALTERNATIVES 151, 153 (October 2004).
8 economic, personal and force a consideration of the implications of various public and private courses on these interests. Potential Benefit #7: Cost savings, cycle time reduction Reduced costs and cycle time are among the most compelling reasons to choose mediation. It has been demonstrated again and again that mediation will probably result in successful resolution of a business dispute while saving considerable time and money through the avoidance of some or all of the stages of litigation or arbitration. 14 A 2002 survey of corporate counsel by the CPR Institute revealed that most respondents reported significant savings in likely litigation costs (including attorney fees, filing, discovery, motion, expert witness and appeal costs) through the use of mediation. Mediation usually produces positive results in a relatively short time. Depending on the complexity of the dispute and the number of parties, the process may conclude in a matter of days, weeks or, at most, a few months. Given the consensual nature of mediation, the parties always have the choice of continuing with the process pending a resolution, or calling a halt. While parties may establish time parameters for mediation by agreement, court-connected mediation processes may set time limits. 15 Potential Benefit #8: Creative, durable solutions The flexibility that is a hallmark of mediation extends to mediated solutions. An agreement is nearly always the final result of successful mediation, and the contents of that agreement may range from a transfer of dollars (presently or in the future) to complex exchanges of performance (including apologies!) and/or promises (including executory arrangements for wholly new business relationships) results well beyond the remedial limitations of a court proceeding or arbitration. 16 There are several illustrations in this volume of the creative solutions available through mediation. For example, Luc Demeyere writes of a situation in which a retiring corporate officer received a lump sum compensation and a reception in return for introducing the new head of the company to various clients (and refraining from instituting a lawsuit). 17 Not surprisingly, there is evidence that parties are more likely to live up to the terms of a mediated settlement agreement than a result imposed through a court judgment or an arbitration award. 14 See E. Carroll and K. Mackie, INTERNATIONAL MEDIATION THE ART OF BUSINESS DIPLOMACY 13 (Kluwer Law International 2000). 15 For example, the French New Code of Civil Procedure provides for duration not exceeding three months (Article of the NCPC); this period can be renewed once but at the request of the mediator only. Pierre Raoul Duval and Alexandra Munoz, Mediation in France, Appendix B, at Chapter 2 describes several creative outcomes, as well as forms of settlement that enhance enforcement. 17 Luc Demeyere, Experience and Perspectives on Mediation in Belgium, Appendix A, at 6-7.
9 Potential Benefit #9: Continuing relationships maintained or enhanced The scenario described by Mr. Demeyere also illustrates the ability of mediation to restore broken or strained relationships, or even to create new business opportunities for mutual gain. 18 Pierre Raoul Duval may have had such a scenario in mind when he concluded that: Mediation [can restore trust where] business relationships hav[e] turned sour. Parties used to be partners, used to act together to fulfil their common interests, have lost confidence. The channel of communication is broken. Using mediation is a method to restore dialogue and confidence. 19 Potential Benefit #10: Cost and risk low as compared to potential benefits As we have seen, there are many potential benefits to business mediation. What makes it much better is that companies that rely on the assistance of an experienced mediator nearly always achieve success. For example, most of the corporate counsel who responded to the 2002 CPR Institute Survey reported that mediation led to settlement at least 80-90% of the time. Experience has also shown that even when mediation does not result in a settlement agreement, there may be other benefits in the form of clarification of issues for adjudication. Thus, the risk that mediating parties will devote time and energy to a useless effort is low. Moreover, as we have seen, because mediation is a consensual process that only reaches a binding result if the parties arrive at a mutually satisfactory agreement, there is always the option of pursuing other process choices (including litigation or arbitration) if the parties so desire. In these cases, keep in mind, an experienced mediator may help set the stage for litigation or arbitration even to the point of crafting an adjudication process and even identifying suitable neutrals! Id. Pierre Raoul Duval and Alexandra Munoz, Mediation in France, Appendix B, at 4.
10 FAQ: Frequently-Asked Questions about Mediation If business people and counsel are already skilled negotiators, why do we need mediation? Even the best negotiators sometimes need assistance of various kinds in advancing the interests of their client through settlement discussions. Negotiations may stall because of widely varying expectations, heated emotions, or misunderstandings. Parties and counsel may find it difficult to move beyond commitment to a stated position, to relinquish the perceptions of an advocate for that of an objective agent of reality, or to separate the people from the problem. In a number of ways, mediation may help to overcome various barriers to effective communication and help parties find areas of agreement. Skilled mediators routinely manage the mediation process for the parties, moving negotiations forward; open communications between the parties, translating, clarifying the issues and interests under discussion, acknowledging emotions while attempting to reduce the heat of argument; focus the parties on solving the problem at hand rather than on past rights and wrongs, and on the likely outcomes if settlement is not reached; help the parties define the dispute, broadening or breaking down issues to create settlement options; address apparent barriers to settlement, for instance, by providing for communication in private, suggesting additional examination of certain topics or matters, or raising questions for consideration by the parties and counsel; inspire generation of multiple and/or innovative solutions by the parties; close the process with a clear statement of the settlement or other resolution; promote cooperation between the parties to promote current and ongoing relationships For an extensive presentation of the role of mediator see K. Scanlon, MEDIATOR S DESKBOOK (CPR 1999). See also L. Riskin, MEDIATION TRAINING GUIDE (1997).
11 Will proposing the use of mediation be interpreted as showing a lack of confidence in the strength of our case? Most companies have rational concerns about how they project themselves in handling disputes. Some business persons and counsel reason that when it comes to protecting legal rights, it is important to convey an image of strength and resolve which some interpret as an apparent willingness to go to the mat and litigate. Today, many companies straightforwardly express a policy supporting negotiated resolution wherever possible, and employ mediation where necessary in furtherance of this policy. Such policies may be explained as acknowledging and embracing the reality that the vast majority of issues are resolved without adjudication, and that courts and agencies are increasingly encouraging or requiring the use of mediation. Published policies of this kind, like contractual dispute resolution provisions calling for negotiations and/or mediation prior to adjudication, take the onus off companies in getting the ball rolling on negotiations. The most widely accepted corporate policy statement reflecting a commitment to revolve disputes early, efficiently, and with the assistance of a third party neutral if necessary, is the CPR Corporate Commitment, or CPR Pledge. More than 800 companies and thousands of subsidiaries adhere to some version of this commitment. Many hundreds of law firms are also signatories. A 2002 survey revealed that nearly all of the responding corporate counsel who were aware of their company s signing of the Pledge reported that that Pledge is at least sometimes effective in encouraging the use of ADR. A list of current signatories may be found on CPR s website, As a result of its sponsorship of the Pledge, the CPR Institute is sometimes called upon to encourage parties to come to the negotiating table, or to mediation, thereby taking the responsibility for initiating settlement discussions off the shoulders of corporate counsel. For example, in one large, complex matter involving a distribution chain including producers and wholesalers in the EU, several corporate counsel contacted CPR and asked the organization to invite counsel for the respective parties to the negotiating table. This was important, it was explained, because no one wanted to appear anxious to come to the table, and in any event feared that their motives in extending an invitation would be questioned. CPR proceeded to contact representatives of the major parties, and convinced all of them to attend a meeting to discuss a negotiated resolution of the issues. Not long after, the parties agreed to the appointment of a mediator under the auspices of the CPR Institute.
12 How can you initiate mediation before you have all, or most of, the facts on the table? One often hears attorneys insist that mediation should not be commenced too early after a dispute arises or before an exchange of key information takes place. However, experienced mediation counsel often say the sooner the mediation takes place in the development of a dispute, the better. 21 Explains one such advocate: It is axiomatic that the overall cost of the dispute has to be less the sooner the mediation takes place and an agreement reached. A significant number of lawyers, whilst agreeing in principle that mediation is appropriate, believe that it is not possible to mediate until there has been a prior full investigation of not only the law but also of all the facts affecting the case. Whilst this may well apply in some cases, I would venture to suggest that this does not apply to many disputes regardless of value or complexity. Many mediators when coming towards the end of a mediation will be asking the parties not what they believe their rights to be but what their needs are. Commonly asked questions are What do you want to get out of this mediation? How does that stack up against what you think a Court might do? By way of example... in a three party dispute, a number of preliminary issues had been dealt with in two different Courts occupying 12 days of Judicial time. Each party was supported by a large team of skilful lawyers and they all eventually agreed that they would attempt to use mediation before taking the next step in the appeal process. During the mediation it was disclosed that each party had spent approximately 1.5m in costs and disbursements in the litigation where not one single word of evidence had yet been given to the Court. The arguments had simply addressed the Preliminary Issues and which had still not been resolved. There were some very interesting issues of law but whilst this engaged the lawyers enormously, the clients themselves were aghast at where they stood and the further lengths to which they would have to go to reach a final judgment. The mediation settled. That issue could have been resolved with as much ease 3 years earlier when the bills for the parties might well have been less them 100,000 each. What was required was the introduction of a third party neutral who had been trained to assist parties in reaching a negotiated settlement. It was that new element in the dispute which made all the difference. 22 Bringing a mediator into play in the early stages of a dispute may permit the neutral to assist the parties in focusing on key issues. If necessary, the mediator may be of value in identifying important pieces of information that might be helpful in establishing a basis for resolution of the dispute. 21 Ronald Bradbeer, Mediation in the U.K., Appendix F, at Id.