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ADR Practitioner Update – February 2017

Date: February 7, 2017 Posted by No Comments

‘Unambiguous impropriety’ in mediation

At mediator school many years ago, I was taught that ‘measured diplomacy’ was the most appropriate style of dialogue between parties, positional bargaining was counter-productive (and could easily be trumped by a more principled approach) and as for the making of threats of any kind, well that was just plain silly.  And then I started mediating! I soon realised that this was a no-holds-barred process (almost), with few rules and where sometimes, despite the good offices of the mediator and efforts of advisors, a party could go a bit too far.  Whilst unhelpful, in most such cases, because of the protected environment of a mediation, the ramifications are limited.  However, as the recent decision in Ferster v Ferster [2016] EWCA Civ 717 reminds us, it will be permissible to use what is said or done in without prejudice negotiations if, by its exclusion, it ‘…would act as a cloak for perjury, blackmail or other "unambiguous impropriety" (the expression used by Hoffman LJ in Forster v Friedland, 10 November 1992, CAT 105)’ (Walker LJ in Unilever plc v The Proctor & Gamble Co. [2000] 1WLR 2436).

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Ferster concerned a family business dispute – two brothers sued a third brother for breach of fiduciary duty.  The third brother issued a s.994 petition.  A mediation took place – the two brothers offered to sell their shares to the third brother, but no deal. The mediator stayed in touch with solicitors for both sides and at some point sent an e-mail to the solicitors acting for the third brother, passing on a revised offer from his two brothers. It was not an improved offer.  The two brothers were more robust in their revised proposal (25% more so), because of what was said to be the discovery of further wrongdoing by the third brother.  And their offer was accompanied by some tough messaging.  Very tough.  Too tough, as it turns out. The e-mail included the prospect of contempt proceedings and criminal action, as well as the possibility of problems arising for the third brother’s partner.  The third brother applied to amend his s.994 petition to refer to the e-mail, a communication which would ordinarily be privileged. 

Mrs Justice Rose, at first instance, allowed his application.  The two brothers appealed but were unsuccessful.  Lord Justice Floyd, at paragraph 23 of his judgment, said:

‘…I agree with the judge that the threats here did unambiguously exceed what was proper, essentially for the reasons she gave. Firstly, the threats went far beyond what was reasonable in pursuit of civil proceedings, by making the threat of criminal action, (not limited to civil contempt proceedings). Secondly, the threats were said to have serious implications for Jonathan’s family because of Jonathan’s wrongdoings. Thirdly, the threats were of immediate publicity being given to the allegations. It is nothing to the point in this connection that Warren and Stuart may have believed the allegations to be true. The threat to publicise allegations of extreme severity against Jonathan and his partner, and within such a short timescale, placed quite improper pressure on Jonathan. Fourthly, the purpose of the threats was to obtain for the brothers an immediate financial advantage arising out of circumstances which should accrue, if they had basis in fact, to the benefit of the company. Finally, there was no attempt to make any connection between the alleged wrong and the increased demand.’

The case is interesting for a number of reasons.  Threats (however they might be dressed up) are not unusual at mediation, particularly in hard fought bitterly contested commercial disputes.  Add a family dimension and there can be all sorts of skeletons leaping out of cupboards, with threats of more to follow.  So are we now in the age of the ‘snowflake’ negotiating partner?  I think not.  The authorities on setting aside privilege are clear – it is to be done ‘…only in the clearest cases of abuse of a privileged occasion’ (Walker LJ in Unilever plc).

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In Savings & Investment Bank Ltd v Fincken [2004] 1 WLR 667, the defendant admitted at a WP meeting that he owned shares that he had not disclosed in an affidavit of means.  The claimant tried to include the admission in the claim on the basis that it showed the defendant had lied and that this amounted to an unambiguous impropriety.  The Court of Appeal disagreed.  Lord Justice Rix distinguished between an unequivocal admission and an unambiguous impropriety, saying ‘…It is not the mere inconsistency between an admission and a pleaded case or a stated position, with the mere possibility that such a case or position, if persisted in, may lead to perjury, that loses the admitting party the protection of the privilege … It is the fact that the privilege itself that is abused that does so. It is not an abuse of privilege to tell the truth, even where the truth is contrary to one’s case. That, after all, is what the without prejudice rule is all about, to encourage parties to speak frankly to one another in aid of reaching a settlement: and the public interest in that rule is very great and not to be sacrificed save in truly exceptional and needy circumstances.’

Lord Justice Floyd made this clear at paragraph 11 of his judgment, when he said that ‘…the critical question is whether the privileged occasion is itself abused. Although the test remains that of unambiguous impropriety, it may be easier to show that there is unambiguous impropriety where there is an improper threat than where there is simply an unambiguous admission of the truth. In either case, as Hoffman LJ pointed out in Forster v Friedland … "The rule is designed to encourage parties to express themselves freely and without inhibition. I think it is quite wrong for the tape-recorded words of a layman, who has used colourful or even exaggerated language, to be picked over in order to support an argument that he intends to raise defences which he does not really believe to be true."’

A number of arguments were raised on behalf of the brothers on whose behalf the e-mail was sent, including that its admission would inevitably bring in evidence of what happened at the mediation.  Lord Justice Floyd did not think that this was a problem, saying ‘The impropriety arises from the fact that the increase in price is tied, and tied only, to the threats affecting Jonathan’s liberty, family and reputation. The impropriety does not depend on the quantum of the price increase. The redaction of the amount involved is an adequate means of protecting details of the negotiations. This is not a case of the type referred to by Hoffmann LJ where there is a need to pick through many hours of recorded negotiations in order to make out a case of impropriety. The impropriety is apparent from the email itself, a single and carefully formulated document ’ (paragraph 21 of his judgment).  It was also said that the judge at first instance did not take account of the fact that the offending e-mail was sent by a distinguished mediator.  Floyd LJ didn’t think much of that point either.  The extent of the mediator’s involvement was all speculation and indeed, it was possible that the involvement of the mediator lent ‘authority’ to the the threats they might not otherwise have.

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Negotiating the settlement of a dispute can be a fraught business.  What is improper in terms of reinforcing demands is a tricky area, but given the public interest in the without prejudice rule, it will only be in exceptional circumstances that a party will lose the benefit of the protection it affords.  The problem is, except in the most egregious cases, what’s acceptable in one camp may not be acceptable in another. Ferster may be an example. But whatever one thinks of that decision, there is perhaps a more general point to bear in mind and it goes to the environment in which settlement is best explored.  We all know that dialogue in negotiation can be robust and unwelcome at times, whether at mediation or otherwise.  Indeed, painting a realistic and often bleak picture of what life could look like absent a deal, is all part of a mediator’s job.  As might be the passing on of tough messages to re-enforce the reasonableness of proposals made.  But at mediation, proposals and accompanying messaging, tough or otherwise, are made in conversation.  The messaging can be carefully crafted so as to ensure that it is received with impact, but without the distraction of causing offence or insult and if there is any ‘fall-out’, it can be managed hands-on and in real-time.  Proposals supported by a description of what might happen if not accepted, concentrated in ‘a single and carefully formulated document’, is inevitably going to jar.  Of course, if a privileged occasion is abused, it matters not the context in which that abuse takes place.  But in the environment of mediation, where there is a captive audience and where the respective merits of alternative approaches can be properly considered and critiqued by all concerned (together at the same time), there must surely be less scope for straying into dangerous territory.

Jon Lang
February 2017

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ADR Practitioner Update – October 2016

Date: October 25, 2016 Posted by No Comments

Release provisions and their interpretation: known unknowns and unknown unknowns – limits on the ‘cautionary principle’?

At some point during a mediation, parties will turn their attention to the scope of the release one or more of the parties will enjoy in return for reciprocal obligations (usually an agreed payment) they have assumed as part of the overall deal.

The release can be wide, narrow or something in between. The more complex the relationship giving rise to the dispute, the more challenging these discussions can be. The less ‘clean’ the clean break, the trickier the drafting. Sometimes discussion about the scope of the release can be as difficult as negotiation of the basic deal itself. But, as two recent cases have demonstrated, the drafting of release provisions requires a great deal of care.

Before looking at these two decisions, it is perhaps sensible to review the background and in particular, the House of Lords decision in Bank of Credit and Commerce International SA v Ali [2001] 1 All ER 961. 



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A case of unknown unknowns

In BCCI v Ali [2001] 1 All ER 961 a former employee of BCCI wanted to bring a claim for stigma damages but had earlier agreed a settlement ‘… in full and final settlement of all or any claims whether under statute, Common Law or in Equity of whatsoever nature that exist or may exist …’. The stigma claim was, as Lord Clyde noted in his judgment, one which ‘…. neither party could have contemplated even as a possibility as the law stood at the time when the [earlier] agreement was made’. Lord Bingham, after noting that ‘The general principles [of construction of contractual provisions] summarised by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, at 912-913 apply in a case such as this’, went on to say, at paragraph 10 of his judgment, that ‘… a long and in my view salutary line of authority shows that, in the absence of clear language, the court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware’. Later, (at paragraph 17) he said that ‘…. I think these authorities justify the proposition advanced in paragraph 10 above and provide not a rule of law but a cautionary principle which should inform the approach of the court to the construction of an instrument such as this’.

Lord Bingham concluded by saying that ‘On a fair construction of this document I cannot conclude that the parties intended to provide for the release of rights and the surrender of claims which they could never have had in contemplation at all. If the parties had sought to achieve so extravagant a result they should in my opinion have used language which left no room for doubt and which might at least have alerted Mr Naeem to the true effect of what (on that hypothesis) he was agreeing’. Three of the four other Law Lords agreed with Lord Bingham that on its true construction, the release clause of the earlier settlement agreement did not constitute a compromise of the new claim. But it was a case of an unknown unknown – a future claim that could not have been contemplated at the time the release provision was agreed. What is the position however where future claims, however unlikely, can be contemplated? It seems the court’s approach is quite a bit more expansive!



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A case of a known unknown – unsuspected but not impossible!

Khanty-Mansiysk Recoveries Ltd v Forsters Llp [2016] EWHC 522 (Comm) (22 March 2016)

This case concerned a professional negligence action brought by a claimant against former advisors a few years after a settlement had been reached in relation to unpaid fees.

In early July 2012, Forsters, a law firm, issued proceedings on a guarantee (given by RGP) in respect of outstanding fees (owed by Irtysh). The action was compromised in December 2012.

Clause 2.1 of the settlement agreement provided that the ‘… terms set out herein shall be in full and final settlement of all or any Claims which the parties have, or could have had, against each other (whether in existence now or coming into existence at some time in the future, and whether or not in the contemplation of the Parties on the date hereof)’.

‘Claims’ was defined as ‘… any claim, potential claim, counterclaim, potential counterclaim, right of set-off, right of contribution, potential right of contribution, right to indemnity, potential right to indemnity, cause of action, potential cause of action or right or interest of any kind or nature whatsoever, whether known or unknown, suspected or unsuspected, however and whenever arising in whatever capacity or jurisdiction, whether or not such claims are within the contemplation of the Parties at the time of this Agreement arising out of or in connection with the Action or the invoice dated 1 July 2010 addressed to [Irtysh] by [Forsters] and referred to in the Action’.

As noted in the judgment of Sir Bernard Eder:
‘The definition of “Claims” in Clause 1 is also, on its face, extremely wide. In particular:
a) “any claim” is expanded to include any “potential claim, counterclaim, potential counterclaim” i.e., reinforcing the notion that even a “potential” claim (or counterclaim) is nonetheless a “Claim”;
b) the words “whether known or unknown, suspected or unsuspected” make plain that knowledge or even suspicion is not a requirement for something to be a “Claim”;
c) the words “however and whenever arising” further make plain that it is not a prerequisite that the “claim” must have arisen by the date of the settlement;
d) the words “whether or not such claims are within the contemplation of the Parties [i.e. RGP, Irtysh or Forsters] at the time of this Agreement” repeat the words in the operative Clause 2.1 and make plain (again) that even (potential) claims and counterclaims outwith the contemplation of the parties at the date of the Settlement Agreement fall within its scope’.

Whilst widely drafted, the words ‘… arising out of or in connection with the Action or the invoice dated 1 July 2010 ……’ at the end of the definition clearly limited the scope of ‘Claims’. Moreover, the judge accepted that the present professional negligence action did not ‘arise out of’ the earlier compromised matters (being the guarantee/invoice). However, the respondent (Forsters) relied on the words ‘…or in connection with the Action or the invoice…’ (emphasis added) and on this, Sir Bernard Eder said ‘Here, it is sufficient to say that, as a matter of language, the words “in connection with” are plainly of wider scope than the words “arising out of”’. He concluded that ‘…. the claim now sought to be advanced is for breach of contract and/or negligence in relation to the very same legal services which were the subject of the Invoice and the Guarantee Action. In my view, it inevitably follows that, as a matter of language, the claim now sought to be advanced …..in these present proceedings is properly described as being “connected with” both the Guarantee Action and the Invoice and therefore “caught” by the Settlement Agreement’.

The Judge made clear that this was a decision reached having in mind the cautionary principle referred to earlier, noting ‘This is not a case like BCCI where the claim was, in effect, an “unknown unknown”. Whilst fully recognising that the present claim was not “suspected” at the time of the Settlement Agreement, the objective bystander could not and would not, in my view, have said that a claim for damages for breach of contract and/or negligence was “impossible”’.

Last year, the court came to a similar conclusion in one of the well-publicised phone hacking cases in what was another example of a known unknown.

Brazier v News Group Newspapers Ltd [2015] EWHC 125 (Ch)

In Brazier, the court struck out phone hacking claims on the basis that they had been compromised by an earlier settlement agreement, the release provisions of which had been drafted narrowly by reference to a specific claim number. A confidential schedule to a Tomlin Order had provided, ‘The Parties have agreed terms in full and final settlement of the Claimant’s claim in proceedings HC12C00607 (the “Claim”) as follows:’.

Mr Justice Mann, applying the normal principles of construction, identified the context in which the release wording was agreed, stating, ‘Since the matters compromised are identified in terms of claims made in a specified set of proceedings the principal context is the claim made in those proceedings and the proceedings themselves. I have set out details of the claim form and the pleadings above. The notice to admit and the admissions are of significance, and it is right to say that they are largely Mulcaire-centric, but the pleadings are more significant’.

He went on to say, ‘All this therefore points towards the claim brought in the proceedings as being one in respect of all phone-hacking activities directed against Mr Brazier. It is not a claim merely in respect of Mr Mulcaire’s activities. Mr Mulcaire’s activities, and therefore the News desk’s activities, were the main activities which had been revealed to Mr Brazier, but his claim was not about just those activities. It was about more than that. He expected to get relief in respect of whatever level of activity the court found by the end of the trial, as a result of disclosure, witness evidence and inference’.

Later, in distinguishing BCCI, Mr Justice Mann said:
‘Accordingly, when Mr Brazier settled his case he settled a case in which he did not know the full extent of his claim, but unlike the claimant in [BCCI] he was aware of his ignorance. In other words, he knew in general terms what it was that he did not know in detail. It was a “known unknown”. What is more, he knew that a stage was coming shortly when he might become better informed, because disclosure was to take place within the foreseeable future ….’

‘The case is therefore not one in which the releasor was completely ignorant of a further cause of action, as in [BCCI]. He was aware of further causes of action, and did not know how many, but, crucially, was aware that he did not know how many. A decision to settle in those circumstances, taking some sort of view on the probabilities and deciding whether it is worth going on in the action, is entirely rational and nothing like the situation in [BCCI] and the cases referred to there where there is an unappreciated ignorance of another cause of action. The latter situation might drive the court to the view that the parties cannot have intended to settle that of which they were ignorant, but there is no justification for forming that view in the former.

Accordingly Mr Brazier’s ignorance of the Pinetree conspiracy does not affect the construction of the words of the settlement so as to lead to the view that the Features desk conspiracy was not intended to be settled. The words are appropriate to settle it and the context does not upset what the words would seem to provide. Subject to the next point, I would find that the compromise agreement embodied in the Tomlin order prevents bringing the second action based on further evidence of phone hacking’.

Conclusion

Interpretation cases are always tricky and those that concern release clauses are no exception. No special rules apply to their interpretation and they are to be treated as any other contractual provision. The object of the court, as Lord Bingham summarised in BCCI, ‘….is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties’ intentions the court does not of course inquire into the parties’ subjective states of mind but makes an objective judgment based on the materials already identified’.

There is no reason why parties cannot settle future unknown claims. As Lord Bingham said at paragraph 9 of his judgment, ‘A party may, at any rate in a compromise agreement supported by valuable consideration, agree to release claims or rights of which he is unaware and of which he could not be aware, even claims which could not on the facts known to the parties have been imagined, if appropriate language is used to make plain that that is his intention’. The ‘cautionary principle’ that he later went on to discuss (‘that, in the absence of clear language, the court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware’), clearly has it limits as Khanty-Mansiysk Recoveries and Brazier demonstrate. In each of these cases, a distinction was drawn between BCCI on the one hand, which was a case of an unknown unknown (‘The stigma claim is one which neither party could have contemplated even as a possibility as the law stood at the time when the agreement was made’, Lord Clyde, paragraph 86) and the claims sought to be advanced in those cases, being known unknowns.

The three cases looked at in this Update demonstrate the need for careful drafting of release provisions. What on the face of it might look like a narrow settlement, e.g. release of claims made in Claim No XXXX, can in fact, depending on the drafting of that claim document, turn out to be a very broad settlement as Brazier demonstrated. On the other hand, what on its face looks like a widely drafted clause, can turn out to be narrow in scope, as would have been the case in Khanty-Mansiysk Recoveries Ltd had the words ‘or in connection with’ not been included in the release clause.
 
Jon Lang
October 2016

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ADR Practitioner Update – February 2016

Date: February 1, 2016 Posted by No Comments

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Sanctions – not just for the winners!

Reid v Buckinghamshire Healthcare NHS Trust [2015] EWHC

On the second day of a costs assessment hearing following a clinical negligence action against Buckinghamshire NHS Trust, the costs to be allowed to the claimant were agreed. However, an argument over the costs of the assessment ended up before Master O’Hare.

The defendant had failed to beat a Part 36 offer in relations to all costs and a Part 36 offer confined to counsel’s fees, and the claimant sought remedies under CPR 36.17. The Master duly awarded a sum equivalent to 10% of the costs assessed. However, the Master also considered the defendant’s refusal of the claimant’s offer to mediate.

The Master considered that the only sanctions available in respect of the defendant’s refusal to mediate was to award costs on the indemnity basis and to award interest on those costs from a date earlier than the norm. But first he needed to decide if the refusal was unreasonable. This is what he said:

‘I am persuaded that the defendant’s refusal to mediate in this case was unreasonable. It took them six weeks to reply to the offer and they then replied in the negative. But nevertheless I do not think I should impose the indemnity basis penalty from a date earlier than the date the defendants are likely to have received the claimant’s offer, and that is why…… interest should run from 27 July, that is, some three days after the offer was sent. I do not think I have any power to award a percentage penalty as I can in respect of a Part 36 offer. In my view I do not have power to alter the rate of interest payable and I do not think it proportionate to add interest penalties on top of an award on the indemnity basis from a date earlier than today’.

The Master ended his judgment with a few comments on mediation and sanctions, noting that the case law so far is largely about penalties imposed on parties who are in other respects the successful party, rather than the imposition of further penalties upon losers. He concluded his judgment by saying that ‘If the party unwilling to mediate is the losing party, the normal sanction is an order to pay the winner’s costs on the indemnity basis, and that means that they will have to pay their opponent’s costs even if those costs are not proportionate to what was at stake. This penalty is imposed because a court wants to show its disapproval of their conduct. I do disapprove of this defendant’s conduct but only as from the date they are likely to have received the July offer to mediate’.



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A further reminder on the need for clarity in post-mediation negotiations

Bieber and others v Teathers Limited (in liquidation) [2014] EWHC 4205 (11 December 2014)

The February 2015 Update looked at an earlier case on post-mediation negotiations, namely Mrs AB and Mr AB v CD Limited [2013] EWHC 1376 (TCC). That case concerned a settlement brokered through a mediator, but subsequent to the day of mediation. Satellite litigation arose as to whether a binding settlement had come into existence as a result of the mediator’s continuing efforts. The Judge was taken to the terms of the mediation agreement, which provided (as is usual) that a settlement will not be legally enforceable until committed to writing and signed. However, it was held that the mediation had come to an end by the time of acceptance of the offer said to constitute the agreement. Accordingly, the mediation agreement (including the ‘subject to contract’ provisions) no longer governed the dealings between the parties.

In the present case of Bieber, a mediation took place on 21 May 2014. It failed to produce a settlement. With a trial fast approaching, further settlement discussions took place the following month. These were between lawyers only; the mediator was not involved. The discussions culminated in an exchange of e-mails on 29 June 2014, by which the defendant agreed to pay the claimants £2 million. A draft settlement agreement was produced which, as is fairly usual, contained some additional terms. The parties could not agree on all terms and the claimants applied for a declaration that a binding settlement had been reached by way of the e-mail exchange on 29 June.

The Judge set out a very useful summary of the principles that apply when determining whether or not a binding settlement has come into existence. For the purposes of this Update, it is worth mentioning just a few of them.

Where the parties wish to make sure that a contract that is otherwise capable of being made orally, can only be made in a formal document, they may expressly provide that their negotiations will be ‘subject to contract’, in which case there will be no binding agreement until a formal written agreement has been executed. However, it is not essential that there be an express stipulation that negotiations are conducted ‘subject to contract’, if that was nevertheless the mutual understanding of the parties (which is a question of fact in each case).

So, what about the mediation agreement and the usual ‘subject to contract’ provisions? The point appears to have been considered but not seen through. This is what the Judge said:

‘The mediation agreement between the parties contained a provision by which the parties agreed that terms of settlement agreed at the mediation would not be binding until set out in writing and signed by the parties. Although there was a suggestion that the Defendant relied on that provision as preventing a settlement agreement being concluded as alleged by the claimants that was not pursued in the end. In my judgment that concession was sound for at least two reasons – first, the term was expressly confined to a settlement reached at the mediation. The settlement that is relied on by the claimants was allegedly arrived at long after the mediation had come to an end. Secondly I consider it at least arguable that an exchange of emails by the parties’ solicitors would have satisfied the requirements of the term in any event’.

A number of important practical points can be drawn from the judgment. Where claims are driven by money, there is a natural tendency to focus on ‘how much’. Often, however, there are other points that need to be addressed (for instance, as in Bieber, indemnities in favour of the paying party covering any further claims). If that is the case, parties need to take steps to avoid it being alleged that any agreement confined simply to ‘how much’ is the binding agreement. This can be done by being explicit as to the basis of negotiations.

The fact that it is anticipated that an all singing, all dancing document will at some later point be produced, doesn’t mean (absent an appropriate clause) that there can be no binding agreement until that has happened. Bieber illustrates this clearly, the Judge concluding….

‘In my judgment for the reasons set out above, the parties settled these proceedings by an agreement contained in or evidenced by an exchange of emails on 29 of June 2014 whereby it was agreed that the claimants collectively would accept the sum of £2 million in full and final settlement…..The settlement contemplated that there would be a consent order in order to carry that agreement into effect but settlement was not conditional upon the agreement of the terms of that consent order or the terms of a settlement agreement. The exchange of emails constituted the agreement between the parties’.

As to how best to make the basis of negotiations explicit, in the case of negotiations following a failed mediation, one obvious way is to agree that the ground rules set out in the mediation agreement continue to apply. This may be coupled with an agreement that the mediation is adjourned, rather than at an end. That doesn’t mean the mediator has to be involved in all further negotiations between the parties. But it does underscore the fact that the parties are abiding by the rules of the mediation, importantly, in this context, the ‘subject to contract’ provisions. Of course, the wording of that clause needs to be sufficiently broad to cover future negotiations, with or without the mediator, particularly given the Judge’s express finding in Bieber that ‘the term was expressly confined to a settlement reached at the mediation’. It might also be prudent to think again about how explicit parties need to be when describing what is required for a binding settlement to come into existence. As mentioned earlier, the Judge in Bieber thought it ‘at least arguable that an exchange of emails by the parties’ solicitors would have satisfied’ the requirement (of the mediation agreement) that any ‘…settlement agreed at the mediation would not be binding until set out in writing and signed by the parties’.

Perhaps it’s time again to review our mediation agreements!

Jon Lang
February 2016

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ADR Practitioner Update – September 2015

Date: September 25, 2015 Posted by No Comments


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Don’t ’empty chair’ the Plenary

After a few decades of largely unchanged mediation practice, some practitioners have begun to wonder whether there is anything beyond the tried and tested (and very successful) mediation model most of us have been working with for years.

The more substantial, complex or sensitive disputes have always demanded a bespoke process design. But for many disputes, the process has remained largely unchanged. Parties turn up, they know what to expect in terms of process, and everyone gets on with it. But in the past few years, there have been murmurings. In a few places, practice has actually changed. The plenary session, a stage that many mediators regard as fundamental, is in the cross-hairs!

The plenary under threat?

In the absence of any obvious problem with the present, albeit dated, model, debate has, almost by default, focussed on what is the most clearly defined, sometimes less than comfortable and occasionally unhelpful, stage of the day.

The plenary requires great skill, time and effort to get ‘right’. The parties to the same mediation sometimes have diametrically opposed views as to what ‘getting it right’ looks like. There is no formula to follow, no rule book. The way parties play it depends on a whole host of factors – clients, the strength of case, whether proceedings are on foot or are merely threatened. Some parties want to scare the hell out of those on the other side, some to more subtly sow a few seeds of doubt. Others will want to demonstrate how believable, credible, honest and able to withstand detailed and hostile cross-examination their (as opposed to the other side’s) witnesses will be. And some will try to set the agenda for the day or take a (strategic) laying of cards on the table approach. Of course, none of these approaches are mutually exclusive and a party’s opening may vacillate from outright aggression to declarations of love (well, almost) and respect. Given the limitless flexibility, there often isn’t an alignment of approaches amongst the parties and sometimes, even with the best of intentions all round, the plenary can grate, parties can come away feeling frustrated, angry, even more entrenched than they were, or simply feel that the session was a fairly pointless exercise.

And that, I suspect, is one of the key reasons why the plenary has been the subject of some attention.

We have all had sessions where one side puts an extraordinary amount of effort into the plenary, speaking elegantly, politely, doing their level best to engage and what do they get back? Sometimes little more than, ‘there is no point in us repeating our mediation statement, you know our position, we know yours, let’s just get on with it’. Not great! Sometimes, one side goes out of their way to annoy the other. Even worse. But just because some plenary sessions are less than satisfactory or fairly arid affairs, doesn’t mean we should abandon them all together.

Conflicting developments

Leaving aside mediations that warrant a considerable degree of choreographing in advance, I have seen two, perhaps conflicting developments over the last few years. On the one hand, some parties are becoming more relaxed about whether there is a plenary session. Whilst still generally assumed there will be, I am being asked more often these day whether that is my preference. And, occasionally, I am simply told that the view of one or all parties is very much that there should not be a plenary.

On the other hand, I see much more effort and thought going into plenary sessions. I see clients themselves much more comfortable, no doubt because of greater preparation, in taking the lead role. Whilst this is always what mediators hope for, in the past, at least in my experience, the plenary was typically dominated by the lawyers with clients having mere cameo roles. Thankfully that has changed, noticeably in my view, and plenary sessions are becoming much more meaningful stages of the mediation with clients themselves, as well as lawyers, becoming thoroughly immersed in the dialogue.

So, a slight but emerging degree of ambivalence towards the plenary, if not outright opposition on occasion, but also a recognition, clear from the fuller, more productive plenary sessions that are becoming the norm, that it affords a golden opportunity that needs to be exploited for all it is worth.

Where we heading?

Litigation lawyers know what they are doing. They know their clients. They know their case. There may be very good reasons for wanting to reflect on whether a plenary is a good idea. Often, any doubt will have arisen because of the sensibilities of clients. Whatever the position, we should avoid being too precious in preserving the one-size-fits-all plenary. When faced with ambivalence or outright opposition to a plenary, we should find out where the reluctance comes from. It may be no more than a feeling that ‘we just want to get on with it’ and that the plenary is no more than an archaic stage of the mediation process that simply affords the parties a needless opportunity for a bit of grandstanding before getting down to business. There may, however, be more substantive concerns. Whatever the position, there needs to be a discussion. From these discussions there usually emerges an idea, often something better suited to the dispute and the personalities involved, and the conversation can shift from the simple binary analysis of ‘to have/not have’ a traditional plenary, to a range of options some of which which may, ultimately, be better all round than the traditional style plenary.

An example. I mediated a dispute between a number of individuals, all separately represented, who had at one time been friends and business partners. One claimant, a number of defendants. They all knew each other well. There was reluctance to a plenary session on the part of the claimant. He had no appetite to face a line up of former friends/business associates and their respective legal teams, all broadly saying how hopeless his claim was. And who could blame him! I got it, but more importantly, so did the defendants and their advisors. Would it have been right to slavishly follow the typical plenary model? I don’t think so. And we didn’t. But I did push for the claimant to meet with each defendant, in turn. We thought about the order of meetings, we thought about combinations and we got into a rhythm. I felt that those on the defendant side adopted a more open-minded view of life because of the one-on-one approach adopted from the outset. Each defendant had a slightly different take on matters and that made the combined defendant only sessions far less myopic than can sometimes be the case. I have to admit to wondering if the approach was a terrible waste of time (because it did take time), whether I should have pushed for a traditional plenary or suggested dispensing with it all together. But we persevered and it paid off.

A second example. There was real concern that if particular messages (in reality new and more serious allegations) were imparted at the plenary session, there would be blood (metaphorically speaking). So we had two! The first was really no more than an elaborate meet and greet session. But nonetheless, it was civilised and helpful. The second was a more meaningful, full-bodied session, involving greatly reduced numbers on each side. And we survived!

A third example. It was agreed that each side would present a fully worked out proposal for resolution at the outset because of concern all round that parties might ‘go backwards’ if there was a traditional style plenary.

A fourth example. Lawyers only! Each set of advisors were acting for a faction of a family immersed in quite a vicious family business dispute. And they did a great job. It would have been absolutely wrong to throw the warring factions together at the outset when they were still all finding their feet in what was, for them, a totally new and fluid environment.

These examples were borne out of genuine concern that a traditional approach to the plenary might not be helpful. Bespoke mediation processes should not be confined to the biggest, most complex or hyper-sensitive disputes. I am a great believer in an early joint meeting. In my experience, if there isn’t one, the mediation moves slower, the debate is less fullsome and, in some situations, the absence of some form of direct dialogue can be positively unhelpful. At a mediation a while ago, one party refused to participate in a plenary session despite the other side being very keen. Later in the day, that same party requested a face-to-face client meeting. The other side said no. They had felt snubbed when their request for a joint meeting at the beginning of the day had been declined.

However, the possibilities for tailoring the traditional plenary session are endless and I would suggest that it is a rare case indeed that warrants no direct interaction of some kind early on in the day.

By way of introduction to the case reviewed below, we should perhaps reflect on one of the main reasons why parties can feel less than positive about plenary sessions. Positioning! Sometimes, the degree of positioning adopted by one side is just a little too, well, positional, for the other. Whilst a degree of positioning is inevitable at mediation, we have all seen it go a bit too far but, in the words of Mr Justice Turner in Laporte v MPC, ‘Tactical positioning should not too readily be labelled as intransigence’.


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Positioning, pre-conditions and abandonment

The case of Laporte & Christian v The Commissioner of Police of the Metropolis [2015] EWHC 371

The Claimants lost their case but argued that there should be no order as to costs because the Defendant had refused to engage in ADR. The judge trod what is now a familiar path, starting with CPR Part 44, noting that the burden of persuasion rests on the Claimants, narrowing the analysis from ADR generally to mediation, and then going on to consider the Halsey factors. The Judge began his analysis, however, by outlining the progress of the litigation so far as relevant to the issue before him, namely costs. The Defendant had declined an opportunity to attempt settlement at the allocation questionnaire stage, did not respond to an offer of mediation (including by a date subsequently ordered by a Master), but eventually offered to meet the Claimants in ‘a mediation hearing in an attempt to narrow the issues for trial’. The ADR discussion continued thereafter for quite some time. There was a telephone conversation between the Claimants’ lawyer and the Defendant’s in-house lawyer. It was agreed there would be a meeting on an ‘open minds’ basis, on a date to be agreed, although the Defendant’s lawyer was left with the impression that the Claimants’ lawyer only considered ADR worthwhile if there was going to be a money offer. A few weeks later, the Claimants’ lawyer wrote, summarising the earlier conversation, stating…

‘The Order dated 13 October 2013 required you to respond to …. our offer of mediation dated 26 September 2013…If you have instructions to make a meaningful offer our clients would be pleased to attend mediation in order to explore ADR…If you do not have instructions to make a meaningful offer we are concerned that a mediation where your client simply offers to ‘drop hands’ would not constitute a proportionate use of funds and our time might be better spent on preparing for trial. We are in your client’s hands as to whether he is willing to enter into mediation with an open mind to achieving a meaningful settlement’.

The response to that letter was that both parties should approach mediation with an open mind. It was said that although it was unlikely the Defendant would make a financial offer, this couldn’t be ruled out. The letter went on to express concern that it was being made a pre-condition of the mediation that there would be money on the table. The Claimants’ lawyer responded saying that his clients would approach the process in a frank and constructive manner but that…

‘Their view remains that a payment of compensation will be necessary to compromise this claim; however they are of course willing to listen to what your client has to say in that regard and vice versa in the spirit of ADR’

Attempts were made to find a date, the Claimants’ lawyer saying that if it helped, there would be no objection to a meeting between solicitors and/or clients in the absence of counsel. A PTR took place on 23 May 2014, following which another ADR related conversation took place between lawyers. The Defendant’s lawyer again got the impression that the Claimants’ lawyer saw a money offer as a prerequisite to compromise but also that he accepted that his clients would come to ADR with an open mind. Thereafter, the Claimants continued to push for a date. Eventually, on 4 June 2014, the Defendant’s lawyer responded by e-mail saying that…

‘I will be sending a letter re ADR. For reasons which I will explain in the letter I no longer think an ADR meeting is an appropriate use of resources for either party given what was said by you and your Counsel at and just following the hearing on 23 May’.

The Claimants’ lawyer responded the same day seeking an explanation, whilst also making the point that there was nothing new said regarding ADR by him or counsel at or following the PTR. The Defendant did not provide a response, nor follow up the e-mail of 4 June 2014 with a letter. On 6 June, the Claimants made Part 36 offers but no response was received. A trial went ahead, the Claimants lost and, in response to their obvious argument on costs, the Defendant argued that the nature of the dispute made the case unsuitable for ADR. The Judge disagreed, fleshing out his reasoning in the context of the Halsey factors.

To my mind, the most interesting part of the judgment was in relation to the question of whether the mediation had a reasonable prospect of success. In this regard, the Judge concluded by saying…

‘The central point relied upon by the defendant is that Ms Fowler came incrementally to the view that the claimants would only accept a financial offer and that the defendant was unlikely to make one and so ADR was not appropriate.

I would make the following observations:

i) At no time had the defendant excluded the possibility of making a money offer;

ii) At no time had the claimants insisted that the making of a money offer would be a formal precondition of engaging in ADR;

iii) It is always likely that those representing any given party to a dispute will seek to lower the expectations of the other side in preparation for ADR. Simply because one side makes a prediction of what it might take to reach a settlement does not entitle the other side to treat such a prediction, without more, as a formal pre-condition. Tactical positioning should not too readily be labelled as intransigence; (emphasis added)

iv) I do not agree that Ms Fowler was entitled to take the view that Mr Dutta’s approach to ADR was purely tactical. It had been on the claimants’ agenda from the outset and was pursued with appropriate vigour throughout;

v) It is difficult to escape the conclusion that Ms Fowler was repeatedly on the procedural back foot in the months leading up to the hearing as a result of which the pursuance of ADR was deprioritised to help her to meet the demands of preparing the case for trial.

On the evidence before me I am satisfied that there was a reasonable chance that ADR would have been successful in whole or in part. The defendant was not justified in coming to a contrary conclusion’.

The Judge went on to say that taking all matters into account, he was satisfied that the Defendant’s failure ‘fully and adequately to engage in the ADR process should be reflected in the costs order I make’ and went on to award the Defendant only two thirds of its costs, to be assessed on the standard basis.

There is a lot that can be said about the Judgment but it is the ‘tactical positioning’ point that I think is of particular interest.

Most mediators will at some time have got that call a week or so before a mediation, in which they are told that the other side have said or done/not done this or that, and that, given their approach, there was not much point in mediating. Usually things can be smoothed over. People remain committed, just about and just enough to get them into the mediation room. Sometimes however, the mediation cannot be saved.

This case perhaps illustrates the dangers in reading too much into what a party says or does in the run up to a mediation. It is to be expected that parties will start positioning, employing their chosen strategy to put themselves in prime position to do the best deal possible. Those on the receiving end should not take it to be the sole determinant of likely success or failure of the mediation. Or of intransigence, or anything else for that matter. Of course, in extreme cases, questions might need to be asked as to the motives of the party concerned, but even in such cases, where perhaps the invective seems entirely inappropriate, it is more likely to be a case of a party just not being able help themselves, rather any firm indication of complete unyielding stubbornness.

The case could also be seen as laying down a bit of a marker for situations where one side seeks to set out a pre-condition for their attendance at a mediation. We can only speculate as to the outcome in Laporte, had the judge found that the making of a money offer by the Defendant was in fact a pre-condition set by the Claimants. I think that may well have put the Defendant in a stronger position.

We will have to wait and see how the cases go, but I suspect there will be a range of decisions depending on the nature of the pre-condition sought to be imposed. It seems to me that there is a real difference between a pre-condition that seeks, for instance, advance disclosure (given that the mediation can always take place at a later point once disclosure is given if this becomes a sticking point) and a pre-condition which seeks, for instance, that a particular person does or does not attend on the other side, that a particular point is conceded in advance, or that a money offer will be made over a certain level.

Jon Lang
September 2015

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ADR Practitioner Update – June 2015

Date: June 8, 2015 Posted by No Comments

This Update highlights a few confidentiality issues to have arisen recently as well as an interesting decision in which sanctions were not imposed on a party despite its unreasonable refusal to mediate.



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Confidentiality – a bit of a bloomer!

At a joint meeting recently, a party (not his advisor) unexpectedly paraphrased an exchange I had had with his team in an earlier caucus session during a spot of reality jousting. It was ok, and in fact caused a fair degree of amusement all round, although more so to the other side who lost no time in tweaking the tail of their opponents by commenting…. ‘No need for us to deal with X, sounds like Jon has already had a discussion with you about that issue.. hee, hee, hee’.

Most mediation agreements, in fact most of what is written about confidentiality, concentrates on the restriction of disclosure of what a party says to the mediator, not the other way around. But confidentiality works both ways. As Ramsey J reminded us in Farm Assist, a mediator has an enforceable right of confidentiality. There will no doubt be some who think that a mediator should never say anything to one side in private, that he wouldn’t say to the other, so it shouldn’t matter. To my mind, that view is flawed. But in any event, the sanctity of the caucus session must remain sacrosanct. Of course, by agreement, anything can be disclosed but the default position must be that everything that is said as between mediator and party should remain confidential, not just what the party tells the mediator.

The client at this mediation realised his faux pas as the words came out of his mouth. Luckily, no harm was done, the topic of the disclosed exchange being a ‘bugbear’ of the party concerned, but of no real consequence to the case or eventual settlement. In fact, the amusement the disclosure caused released a great deal of tension in the room. But it could have been serious and that led me to wonder whether a slight change in emphasis may be called for given that it was clear, despite what I had said when explaining the ground rules, what the party’s lawyers had said to him in their pre-mediation briefing and the express words of the mediation agreement, that this particular client assumed the obligations of confidence, as between him and me, were one-sided.



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Confidentiality – permitted disclosures

The second issue on confidentiality to have arisen concerns exceptions to the general prohibition on disclosure to be found in most mediation agreements.

A draft mediation agreement was circulated to the parties prior to a recent mediation. The mediation was taking place pursuant to a mediation clause in a contract. That clause provided for mediation under the auspices of a particular organisation, the rules of which provided for disclosure of the fact that a mediation had taken place. The draft mediation agreement circulated did not. However, both the rules and the mediation agreement expressly provided for disclosure if required by law. It was the variance between the organisation’s rules and mediation agreement which led to a discussion, and from that discussion an interesting issue arose.

All parties were happy with the blanket prohibition on disclosure provided for in the mediation agreement. However, some of the parties were public companies domiciled in different jurisdictions and subject to different disclosure requirements. In the circumstances of this particular dispute, some felt that they would be required to disclose that a mediation had taken place, but others, subject to different disclosure regimes, did not. Had this issue not surfaced and the dispute not been resolved, we would have had an asymmetrical and no doubt very unhappy situation, with shareholders in one public company being told more about the management of a dispute than shareholders in another public company involved in the same dispute. Whilst this may seem like a relatively narrow issue, with high profile disputes involving public companies, particularly where stewardship of a business maybe under the microscope, information dissemination is critical. If there is more information coming out from one camp than another, difficult questions may be raised.

In many cases, on settlement, a confidentiality regime will be established which in large part supersedes or supplements that established by the mediation agreement. But in the few cases that don’t settle, the confidentiality regime established in the mediation agreement is likely to survive unchanged. In circumstances where the parties have agreed that not even the fact of mediation can be disclosed, thought needs to be given as to whether any legal obligation of disclosure is likely to apply to only one, some but not all of the parties to a dispute and what that might mean in practice. If asymmetrical disclosure could be a concern, it might be sensible to ensure a level playing field. This could be achieved by having a clause enabling all parties to disclose what could conceivably be required by way of disclosure from a party which considers itself subject to a legal obligation to disclose. Usually, a clause allowing for disclosure of the fact that a mediation has taken place, will suffice.



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Confidentiality – who is bound?

Finally, and probably the least significant of the points, it is perhaps sensible to ensure, for clarity, that the obligations of confidentiality include and bind the parties to a mediation, including but not just the people attending the mediation on their behalf. This was also the subject of a recent debate on the wording of an (unfamiliar) mediation agreement.



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Case Review

Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd (No 2) [2014] EWHC 3148 (TCC)

February’s Update looked at the case of Phillip Garritt-Critchely, a case in which sanctions were imposed because of an unreasonable failure to engage in mediation. This Update looks at a case in which it was also decided that there had been an unreasonable refusal to mediate, but in contrast to Phillip Garritt-Critchely and earlier cases, no sanctions were imposed.

Northrop (NGM), in a part 8 Claim, sought a declaration that BAE was not entitled to terminate a software licence agreement. It lost. NGM accepted the principle that BAE was entitled to its costs, but argued that they should be reduced by 50% on account of its unreasonable refusal to mediate.

Before reaching a conclusion on the issue, Ramsey J made findings in relation to the various ‘Halsey’ factors.

Nature of the dispute‘I regard this case as being like many cases, where points of construction are major issues at the centre of a financial claim. In all such claims a skilled mediator can assist the parties in resolving the dispute by finding a solution to disputes which each party would regard as incapable of being settled and would be unable to settle without such assistance.’

Merits of the case‘I have come to the conclusion, after considering the arguments, that this was a strong case by BAE…. It was a case where BAE reasonably considered that it had a strong case. ….’.I consider that BAE’s reasonable view that it had a strong case is a factor which provides some but limited justification for not mediating.’

Extent to which other settlement methods were attempted‘This is not a case where there was an offer to mediate and no response or, where the parties did not have some communication with a view to settlement.’

…there was a meeting between in-house lawyers on 22 November 2012 at which mediation was suggested by NGM and rejected by BAE….

The more significant matter is the exchange of ‘without prejudice save as to costs’ offers. BAE offered to settle on the basis of no payment, with each party bearing their own costs. This is an offer which, if it had been accepted by NGM, would have put NGM in a better position than it is in terms of the outcome of the hearing. It has received no payment and accepts that it will have to pay BAE 50% of its costs. This offer was rejected by NGM who referred to its offers of mediation.

… I think that, overall, this factor is neutral or marginally in BAE’s favour in its impact in assessing the refusal to mediate. I shall consider, separately, the important effect of the offer made by BAE’.

Costs of ADR‘… the costs of ADR cannot be said to be disproportionately high’.

Prejudicial delay caused by ADR‘This is not a factor in this case. Mediation could have taken place without affecting the litigation’.

Prospects of successful ADR‘This was a classic case where I consider that a mediator could have brought the parties together. In assessing the prospects of success I do not consider that the court can merely look at the position taken by the parties.

The published success rate of mediation … shows that generally mediation is likely to be successful. In this case … I consider that this is a dispute between parties where a mediated settlement would have been likely. There were therefore reasonable prospects of success’.

Ramsey J concluded his analysis by saying that the nature of the case made it susceptible to mediation, that mediation had reasonable prospects of success and that whilst BAE reasonably considered it had a strong case and that its view provided some justification for not mediating, other factors demonstrated that it was unreasonable for it not to mediate.

However, he went on to say that refusal to mediate was not the only factor to take into account when it comes to costs. He referred to CPR 44.2(4)(c) pointing out that circumstances to be taken into account in deciding the appropriate order include ‘any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply’, noting that the ‘without prejudice save as to costs’ letter on behalf of BAE was just such an admissible offer. He added that ‘Whilst the existence of the letter does not justify a refusal to mediate, it is independently a relevant factor that BAE made an offer which NGM was not successful in bettering. NGM’s conduct in not accepting that offer is similarly a matter to be taken into account’.

Ramsey J then weighed up the conduct of each party against the backdrop of BAE’s success in the action, stating that ‘A refusal to mediate means that the parties have lost the opportunity of resolving the case without there being a hearing. A failure to accept the offer has equally meant that the parties have lost the opportunity of resolving the case without a hearing’.

In the end, the Judge decided that ‘…the fair and just outcome should be that neither party’s conduct should be taken into account to modify what would otherwise be the general rule on costs.

Accordingly, the appropriate order is that NGM should pay BAE its costs, to be assessed on a standard basis, if not agreed, without any reduction’.

It is interesting that Ramsey J, in the course of his Halsey analysis, found that the ‘without prejudice save as to costs’ offer from BAE (combined with the WP meeting between in-house lawyers), was ‘..neutral or marginally in BAE’s favour …’, went on to decide that, in the round, it was in fact unreasonable for BAE not to mediate, but then concluded, balancing the ‘without prejudice save as to costs’ offer against the unreasonable refusal to mediate, that no costs sanction should apply.

In circumstances where a ‘Halsey’ factor is regarded as neutral or pro refusenik, but nevertheless insufficient to prevent a finding of unreasonable refusal to mediate, it seems curious that that very same factor operates to excuse the refusenik from sanctions.

It will be interesting to see if this approach is followed in subsequent cases.

 


Jon Lang
June 2015

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ADR Practitioner Update – Feb 2015

Date: January 24, 2015 Posted by No Comments

This Update mentions a few cases which raise some interesting practical points for those practising in the field of ADR.



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The contractual framework underpinning a mediation

Mrs AB and Mr AB v CD Limited [2013] EWHC 1376 (TCC) concerned a settlement brokered through a mediator but subsequent to the day of mediation.  The claimants’ solicitors called the mediator to communicate acceptance of an offer made by the defendant.  The mediator communicated that acceptance to the defendant’s solicitors giving rise to the settlement.  During the course of documenting the settlement, a few wrinkles arose e.g. in relation to costs, scope and confidentiality and satellite litigation arose as to whether a binding settlement had come into existence as a result of the mediator’s continuing efforts.  The judge, not surprisingly, was taken to the terms of the mediation agreement, which provided (as is usual) that a settlement will not be legally enforceable until committed to writing and signed.  All well and good except that, on the judge’s interpretation of that particular mediation agreement, it was held that the mediation had come to an end by the time the defendant’s offer was accepted.  Accordingly, the mediation agreement (including the ‘subject to contract’ provisions) no longer governed dealings between the parties even though taking place through the good offices of the mediator doing what he was doing from the outset – mediating!

Just as those involved in mediation re-visited the wording of their mediation agreements following the decision in Farm Assist Limited (in liquidation) – v – The Secretary of State for the Environment, Food and Rural Affairs (No.2) [2009] EWHC 1102 (TCC), in which the provisions of a mediation agreement concerning the mediator giving evidence fell for analysis, it may again be time to review the paperwork. The issue in Farm Assist concerned a provision in the mediation agreement which provided that none of the parties could call the mediator as a witness in any litigation or arbitration ‘in relation to the Dispute’.  The judge decided that this was a restriction confined to the underlying dispute being mediated (the term ‘Dispute’ being defined as such), but that the dispute before him (in relation to which a witness summons had been issued against the mediator) concerned whether the settlement reached at the mediation (of the underlying dispute) had been entered into under duress.  That issue was quite separate and distinct from the issues in the original dispute.

It is now common for mediation agreements to seek to prohibit, not just evidence from the mediator in relation to the dispute being mediated, but also any dispute in relation to, or arising from the mediation itself.  And similarly, the issue in Mrs AB and Mr AB v CD Limited having arisen, parties should now ensure that there is clarity in their mediation agreements in relation to the basis of any post ‘day of mediation’ negotiation.



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Escalation clauses re-visted

Emirates Trading Agency LLC v Prime Mineral Exports Private Limited [2014] EWHC 2104 (Comm), concerned the enforceability of a tiered dispute resolution clause, such clauses having had a mixed reception from the courts in terms of their enforceability.  Accordingly, before looking at this decision, it is perhaps helpful to mention a few of the earlier cases in this area.

In Cable & Wireless v IBM [2002] EWHC 2059 (Comm), the judge decided that the obligation to attempt in good faith to settle a dispute through ADR was sufficiently certain to be enforced, because the procedure to be followed was specified.  The judge also noted, however, that a mere obligation to attempt in good faith to settle a dispute would have been unenforceable given the lack of certainty – a court would lack objective criteria against which to measure compliance.  Following this line of reasoning, a number of decisions have gone the other way.

In Sul America v Enesa Engenharis [2012] 1 Lloyd’s Reports 671, the undertaking that, ‘prior to a reference to arbitration, they [the parties] will seek to have the Dispute resolved amicably by mediation’ fell for consideration.  The court was in no doubt that the parties intended that the clause should be enforceable.  However, it went on to say that to be enforceable, the clause must define the parties’ rights with sufficient certainty to enable it to be enforced.  In the circumstances, the clause, having not set out a defined mediation process or containing a reference to the services of a specific mediation provider, did not create an enforceable obligation to commence or participate in a mediation process.

A similar outcome (on similar reasoning) arose in the later case of Wah v Grant Thornton [2013] 1 Lloyd’s Law Reports 11.

Both Sul America and Wah concerned pre-arbitration procedures, as did Emirates, but in Emirates the judge took a refreshingly different approach to a clause which provided that, in the event of a dispute, the ‘Parties shall first seek to resolve the dispute or claim by friendly discussion’.  Such ‘friendly discussion’ was to take place within a limited period of time.  The judge said that ‘where commercial parties have agreed a dispute resolution clause which purports to prevent them from launching into an expensive arbitration without first seeking to resolve their dispute by friendly discussions the courts should seek to give effect to the parties’ bargain. Moreover, there is a public interest in giving effect to dispute resolution clauses which require the parties to seek to resolve disputes before engaging in arbitration or litigation’.  The judge also went on to say that the obligation to resolve disputes by friendly discussions must import an obligation to do so in good faith.  Echoing the reasoning in the Australian decision of United Group Rail Services v Rail Corporation New South Wales, (2009) 127 Con LR 202, the judge found that the clause in issue was not incomplete nor uncertain and that ‘an obligation to seek to resolve a dispute by friendly discussions in good faith has an identifiable standard, namely, fair, honest and genuine discussions aimed at resolving a dispute. Difficulty of proving a breach in some cases should not be confused with a suggestion that the clause lacks certainty’.  The judge also went on to say that ‘Enforcement of such an agreement when found as part of a dispute resolution clause is in the public interest, first, because commercial men expect the court to enforce obligations which they have freely undertaken and, second, because the object of the agreement is to avoid what might otherwise be an expensive and time consuming arbitration’.

Whilst representing perhaps a sea change in attitude, it would seem sensible to continue to draft tiered dispute resolution clauses with as much certainty as possible.  That does not mean that the parties, by later agreement, cannot substitute some other procedure more suited to the actual dispute that has arisen or use a different mediation service provider than that specified.  It will, however, mean that if a dispute arises and subsequent agreement (on anything) proves difficult, there is a greater likelihood of judicial enforcement of the pre-litigation or arbitration steps (the ‘condition precedent’ as the judge in Emirates termed it) that had been agreed and specified at the outset, prior to any buttons being pressed!



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Unreasonable refusal to mediate – sanctions

And finally, no offering from a mediator can be complete without at least one reminder of the dangers of refusing a proposal of mediation.  In Phillip Garritt-Critchely & Ors v Andrew Ronnan and Solarpower PV Ltd, [2014] EWHC 1774 (Ch), the judge awarded indemnity costs in favour of the claimants following the defendants’ acceptance of a Part 36 offer (out of time), because he found that the failure to engage in mediation (or any other serious ADR) was unreasonable.  The defendants sought to justify their failure to mediate on various grounds.  For instance, it was submitted that there was no ‘middle ground’ (the dispute concerning whether a concluded agreement was reached), an argument that the judge thought misconceived.  It was also submitted that there was considerable dislike and mistrust between the parties, just the type of case, the judge seemed to suggest, which was suitable for mediation!

No other settlement attempts had taken place and the court had earlier suggested mediation in a pre-trail direction.

The defendants’ counsel also took the trial judge to PGF II SA – v – OMFS Company 1 Limited [2013] EWCA Civ 1288, referring in particular to paragraph 30 of the judgment, which deals with the ADR Handbook and the steps a mediation ‘refusnik’ should consider taking so as to avoid a costs sanction.  (In short, a party to whom a request to mediate is made should constructively engage rather than flatly reject or remain silent).  Briggs LJ, delivering the judgment of the Court of Appeal in PGF, concluded by saying that ‘…this case sends out an important message to civil litigants, requiring them to engage with a serious invitation to participate in ADR, even if they have reasons which might justify a refusal, or the undertaking of some other form of ADR, or ADR at some other time in the litigation’.

The defendants’ counsel (in Phillip Garritt-Critchely & Ors) said that his clients had engaged with the claimants’ requests to mediate.  That argument also received short shrift from the judge who said ‘None of that assists the defendants here. They did respond, they gave reasons but they were misconceived. So the fact that they responded promptly each time a letter was written is neither here nor there’.

In summary, a party refusing to mediate must have good reason to do so.  But however sound their position might be, unless articulated, they will be at risk of sanction.

 


Jon Lang
February 2015

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Client Guide to Mediation

Date: February 16, 2014 Posted by No Comments

I was asked recently by a solicitor whether I had a brief guide to the mediation day that he could pass on to his clients. I didn’t, but I have now! It is entitled, simply, ‘Client Guide to Mediation’. Please feel free to download and send it to any clients who might find it useful. Client Guide to Mediation

Contents

  • The Basics
  • Key Features of Mediation
  • The Client’s Role Role
  • Key Stages
  • Preparation
  • On the Day
  • The Opening Session
  • The Exploration Phase
  • The Negotiation Phase
  • Settlement

 

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Financial Times Business Questions

Date: October 25, 2013 Posted by No Comments

The Financial Times’ ‘Business questions – Expert advice’ section recently published my response to a question concerning difficulties experienced in selling a business where there are a few ongoing disputes affecting valuation.  Not surprisingly, I happened to mention mediation!  The gist of my response can be seen below, or the piece as published can, if you have an account with the FT, be viewed by following this link.

Question: I am hoping to sell my business to a competitor but we have been arguing about valuation. I have had a couple of disputes with suppliers and the prospective purchaser wants a hefty discount to allow for these. I can’t guarantee the outcome but I want to sell in the next couple of months. What are my options?

Disputes are a headache for any business. They not only divert time and money, but the outcome is never certain. It is not surprising, therefore, that the purchaser wants a discount, no doubt reflecting worst-case scenarios. If unacceptable, propose something else.

You might consider suggesting a ‘disputes’-related deferred consideration but the risk with this option is that if the purchaser (who is a competitor) is in control, a ‘soft’ deal may suit them in terms of any ongoing relationship with suppliers. And it will be you that ends up paying by way of a reduction in the deferred consideration!

A second and better option, would be to suggest mediation to the suppliers. Businesses are increasingly using mediation as an alternative to both litigation and lengthy bilateral negotiations. Mediation is an inexpensive dispute resolution process that can be organised at short notice, takes no more than a day and, importantly, is usually successful. The mediator, appointed jointly by the parties, is a resolution-focused third party neutral trained to overcome deadlock in difficult negotiations. With an 85% – 90% settlement rate, you might find through mediation that the last obstacle to an agreed valuation falls away.

Jon Lang

Mediator

publicsector

Growth in the use of Mediation in the Public Sector

Date: September 23, 2013 Posted by No Comments

There can be few more challenging areas in which to mediate than the public sector.  Often, there is not just a contractual issue to resolve, but a statutory backdrop and political dimension to contend with too!  Yet mediation in this fascinating sector is on the increase as the body of evidence demonstrating its success and the benefits it can bring, particularly in the saving of public resources, continues to grow.  This article looks at the growth of mediation in the public sector and the challenges that can arise. 

Growth in the use of Mediation in the Public Sector

There can be few more challenging areas in which to mediate than the public sector. Often, there is not just a contractual issue to resolve, but a statutory backdrop and political dimension to contend with too! Not surprisingly, the range of disputes that are mediated are also far broader than in any other sector, from multi-million pound procurement contracts to far more localised issues such as an investigation into conduct of employees at a state-run establishment.

There has always been a mismatch between the high percentage of public bodies that regard mediation as a sensible alternative to litigation, and the considerably lower percentage that actually use mediation as their preferred method of resolving disputes. However, the mismatch appears to becoming a little less marked as mediation is used more and more to resolve the full range of disputes that arise within and concerning public bodies. The results of CEDR’s Fifth Mediation Audit published in May 2012 , noted that mediators who had been asked to identify sectors that would see most growth in mediation usage over the next two years, listed public sector disputes amongst others. The prediction appears to have been a good one – the experience of many mediators is indeed that work in this area is on the increase. But why?

Evidence of success?

Maybe the increase in use of mediation in the public sector is as a result of the Government’s renewed ADR pledge, in the form of the Dispute Resolution Commitment. However, I suspect it has more to do with the greater general familiarity that now exists with the process and, most important of all, more evidence of its success, particularly in the saving of public resources. I was especially grateful therefore to Jack Hayward, a solicitor who works with public bodies across the UK, for mentioning in his Update  for the March/April 2013 edition of the Procurement and Outsourcing Journal, a dispute that I had the privilege of mediating. A difficult procurement dispute, Jack commented that ‘It was refreshing therefore to be involved in mediation recently concerning a contract dispute where I genuinely felt that both parties had come away satisfied with the result. Our mediator – Jon Lang – facilitated, after some 16 hours, a result that would have taken at least another 12 months to achieve …..’

Whilst not convinced that mediation was a panacea, Jack went on to comment that ‘…certainly where there is the need to heal a dispute in a situation where there is a desire to continue with a contract I would certainly give it very serious consideration.’

As with the provision of most other professional services, I suspect tangible evidence of success and benefit beats any kind of advertising, pledge or procedural coercion in terms of increasing usage. Given what will hopefully be a continued rise in the use of mediation in the public sector, it is perhaps timely to look at some of the challenges parties might have in mind in the run up to a mediation in this field.

The challenges of mediating public sector disputes

Whilst the type of dispute one mediates in the public sector varies hugely, there are often certain shared characteristics which require considerable versatility and skill on the part of the mediator and, importantly, pre-mediation groundwork on the part of all involved.

Appreciation of statutory framework
Public bodies usually act within a statutory framework and often contract with third parties to assist in meeting their obligations. Funding reviews, economic cutbacks and changes in the statutory framework within which public bodies function, can often be the root cause of a dispute. An understanding of both the statutory framework and political dimension within which a dispute has arisen is often essential, not just in terms of fully understanding the dispute, but for finding solutions.

Public accountability
Public bodies are also subject to varying degrees of public accountability. Thus whilst public bodies will attend a mediation under the cloak of confidentiality and privilege, the outcome of a mediation may well need to be made public. Sometimes, the outcome of a mediation will also need to be justified publicly e.g. where monies paid or not recovered raise issues of public accounting. Depending on the nature and size of a dispute, and the political climate at the time it is resolved by mediation, it may be the case that a mediated outcome is used as a political ‘football’. A parliamentary or local government debate about alleged mismanagement of a public budget springs to mind. Thus, post mediation matters require careful consideration, pre-mediation, so that parties properly understand whatever constraints there might be in preserving confidentiality of an outcome. These issues are always difficult and given that it is by no means unusual to discuss, during a mediation, what can and cannot be said post mediation, press releases and even Q & A scripts for press departments, a degree of forward planning is always a good idea.

Decision making and Authority
Decision making within a public body will be structured, maybe by committee and will often be more complex than within a commercial entity. Moreover, the authority of negotiators to bind the public body which they represent, will usually be limited in some way. Accordingly, decision making mechanics and issues of authority will also often require a little additional thought, pre-mediation. Neither factor will prevent a public body from actively participating in a mediation, but the ease and manner in which decisions can be made, and further or wider authority obtained, in real-time, needs careful thought and planning.

Moreover, it is sometimes the case that, because of the scope of settlement, input from several different departments across one public body is required, making pre-mediation preparation more crucial than ever.

Post-mediation approval
If it is likely to be the case that a particular settlement can only be formerly approved and executed post mediation (having been hammered out and agreed in principle at the mediation by those officers of the public body present on the day), that possibility should be floated pre-mediation. No one likes surprises, particularly after a hard day of negotiation. The party negotiating with the public body will not welcome their hope and expectation of absolute finality being dashed at the last stage! Being told in advance what the procedure is and also that it would be unusual for a settlement recommended by those present at the mediation not to be approved, usually deals with any concerns.

Attendees
Given the nature of the public sector, securing the attendance of those who, at first blush, appear to the ‘right’ people, can be something of a challenge. A Minister of State is unlikely to attend. A Chief Executive of a local authority might be on the end of a phone to have a conversation with someone from the other side, but attendance may not be possible. However, there should be individuals present at a sufficiently senior level that the other side are comfortable that the public body ‘means business’, comfortable that if calls need to be made to other stakeholders impacted by any potential settlement or further authority sought, those calls will be answered (whatever time of day or night it is) and comfortable that any deal will be ‘carried’ back at HQ.

Final comments

Public sector mediation is on the increase. The potential savings public bodies can achieve by using mediation are huge. In these cash-strapped times, one would hope therefore that its use will continue to increase. And as it does, so too will evidence of its success.

Jon Lang
September 2013

oil on troubled waters

UPDATE – Oil on Troubled Waters

Date: February 13, 2013 Posted by No Comments

Oil on Troubled Waters…..

is the title of the Update section of the March/April 2013 edition of the Procurement and Outsourcing Journal which describes (anonymously) a dispute I had the privilege of mediating.  Jack Hayward, a solicitor who works with public bodies across the UK, commented that ‘It was refreshing therefore to be involved in a mediation recently concerning a contract dispute where I genuinely felt that both parties had come away satisfied with the result. Our mediator – Jon Lang – facilitated, after some 16 hours, a result that would have taken at least another 12 months to achieve …..’  That Update section prompted me to write an article, now published in the Procurement and Outsourcing Journal, entitled Growth in the use of Mediation in the Public Sector.