The advantages of mediation in commercial disputes
31st March 2019
Mediation and litigation are two, if not exactly opposing alternatives, different routes to settling conflicts. In this post I compare the role and effectiveness of mediation in commercial and industrial settings alongside the effect of legal action.
Relationships between business organizations usually run smoothly and remain productive but can give rise to disputes. When disputes arise, the parties might consider resorting to the law. The question is whether this is the best option.
Lord Woolf’s review of the civil judicial system included the obligation of litigants to consider alternative dispute resolution (ADR). As Brendan Schütte's “reframing” perspective suggests, Lord Woolf's reforms might be viewed as paving a way to an out-of-court settlement by some form of ADR rather than, or at least as well as, making litigation easier. One of the most important and relevant forms of ADR is mediation.
Mediation is a process whereby an impartial third party assists the parties in dispute to reach a mutually agreeable settlement. As such mediation has a number of important advantages:
- It is confidential in that neither the mediation nor its details are revealed. Also, the mediator does not reveal what either party discloses, but merely what the party wants relayed to the other party, or parties;
- It is without prejudice (as far as the law will allow);
- It is under the control of the parties, with settlement reached only when both parties agree to it;
- It can result in settlements not able to be awarded by a court.
Thus, mediation has greater scope for precluding 'winners' and 'losers'. It can create an outcome that all parties find agreeable.
The CEDR report further identifies that there were 8,000 mediations in 2012. The Ministry of Justice's Statistics Bulletin of June 2016 states that there were 1.4 million civil claims issued. Using these figures the percentage of claims mediated calculate to 0.6% of the total. Clearly litigants are missing an opportunity to grasp control and reach a satisfactory settlement.
McLibel and the "Streisand effect"
The matter colloquially known as McLibel provides some insight into the effects of even successful litigation. The case was an English lawsuit for libel filed by McDonald's against environmental activists Helen Steel and David Morris over a factsheet critical of the company. Whilst, at least in the first instance, the plaintiff was successful in court, the reputational damage caused Mark Oliver in the Guardian of 15th February 2005 to state, “The case was thought to have cost the fast food giant £10m and has been described as the biggest corporate PR disaster in history.” Damages were awarded in the amount £60,000, reduced on appeal to £40,000. The defendants were, apparently, unable to pay even the reduced damages. The cost to the claimant in reputational damage is not calculated. Nor are the direct management costs and opportunity costs which are likely to have been substantial.
Mediation, whilst it would no doubt have been exceedingly difficult in McLibel, might at least have saved much of the plaintiff's reputation and certainly a great deal of money. Mediation might have achieved the ceasing of publication of the false claims without attracting the adverse publicity given to the case and the revelation that some claims might have veracity. Of course, it might be that the defendants in McLibel would have refused to settle. If so, mediation might have brought this to light and the defendants shown that this was not the best tactic to adopt.
This effect of achieving the outcome one wished to prevent was termed “the Streisand effect” by Mike Masnick of Techdirt. The term arose after the matter of Streisand v Adelman. In the matter the plaintiff sued for suppression of a picture of her home, which was incidentally included in a series of photographs of the California coastline. The effect of litigation was to highlight to the world that the picture existed and showed the plaintiff's home. There was a costs award in the amount $154,000 against the claimant. The photographer had no real interest in Ms Streisand's home, it just happened to be in the coastline. A mediated settlement might have resulted in some acceptable outcome whereby the owner of the home was never mentioned, or the picture was altered in some was so as to camouflage it or change its appearance. Neither would have detracted from the function the picture was designed to address, which was to document the changing coastline.
Organisations should take advantage of mediation
The effects outlined above indicate the real, often hidden, cost of litigation: loss of reputation; alienation of the market; public airing of one's failings; large financial costs; and diversion of efforts away from the core business. Mediation mostly results in outcomes that better suit the parties’ needs and desires. Commercial organizations spend huge amounts on corporate promotions: websites; company collateral; mission statements; and logos are all designed to foster in the minds of actual and potential customers a specific vision. A rash decision to litigate can destroy all that effort. Of course litigation must be available to those wronged, but mediation provides a better route to settling disputes.
This short analysis of mediation and comparison with litigation in court indicates that mediation can provide for a far better outcome to the litigants. In mediation there are few, if any losers; costs are lower and controlled; reputations are protected; relationships are maintained or even enhanced; outcomes closely match the parties’ desires; management time is saved; and stress is kept to a minimum. The statistics suggest that percentage of litigants taking advantage of mediation is extremely low. Organizations need to become aware of the benefits of mediation and to use it before engaging the courts or a lawyer.