ADR's latest threat to City litigators

A new mediation initiative is likely to impact on a huge chunk of City firms' litigation work, says Rob Mendick. City pages edited by Richard Tyler.

The City has traditionally regarded alternative dispute resolution (ADR) in the same light as pro bono work – worthy, but peripheral. But it can no longer afford to be complacent. Mediation is rapidly replacing litigation as a cheaper means of settling disputes, and the pace of change shows no signs of slowing down.

The Lord Chancellor, speaking at a conference held by the Centre for Dispute

Resolution, hinted at introducing a compulsory element to mediation and, this Thursday, the Market ADR Commitment (MAC) is being launched at the London Underwriting Centre.

Backed by 14 insurance companies – including Royal & SunAlliance and the Solicitors' Indemnity Fund (SIF) – MAC is a written, but non-legally binding, undertaking by the insurers to use mediation in preference to litigation.

If mediation is not used, the 14 signed-up parties – the leading insurers in the professional indemnity field – will have to say why ADR was not suitable.

Stephen Tester, a London-based partner at Cameron McKenna, is one of the prime movers behind MAC.

Litigation is costly and time-consuming and its outcome uncertain, says Tester, sitting at a desk on the fifth floor of his firm's offices at Tower Hill.

Metaphorically, he is sitting on the tip of an iceberg. The MAC initiative is working in the professional indemnity market, but Tester says it will naturally extend to all areas of civil dispute.

“The mood has just changed radically,” he says.

“It was originally designed to deal with situations where the market was tearing itself to bits. What this does is mark a big step forward towards resolving these conflicts and bring them one step closer to mediation.”

Those signed up to MAC say mediation has brought huge savings. Insurer ITT London & Edinburgh reckons the firm has saved more than u1m in legal fees this year through mediation.

And SIF claims to have saved u3.5m in more than 100 mediated cases. “They were difficult cases,” says Ian Bryant, SIF's assistant claims manager.

“They could well have gone to trial, but 80 per cent were settled, either at the mediation or shortly after.”

The Centre for Dispute Resolution (CEDR), a provider of mediation services and therefore with a vested interest in promoting ADR, claims that in a random sample of 40 cases successfully mediated, an average saving of u260,000 per case was made. CEDR says the cases it handled doubled to 150 last year.

A rough survey of the 40 mediation cases handled by Andrew Paton, partner in charge of the insurance litigation department at Pinsent Curtis in Birmingham, indicates an average saving of u45,000 per case. Between 1994 and 1996, the firm handled seven mediations – since then it is done 33.

Says Paton: “My instinct is that the percentage of cases that will immediately be resolved through mediation will grow to something like one-fifth.”

Current research, he said, showed only two to three per cent of litigated cases actually end up at trial.

“The advice I give is if your negotiations are going nowhere, pick the telephone up and call for mediation.”

The Master of the Rolls, Lord Woolf, will give the keynote address at MAC's launch. He told The Lawyer: “The culture as to how to resolve disputes is changing. The courts are beginning to promote the message that, wherever possible, parties and their legal advisers should be encouraged to resolve their disputes without resorting to litigation.

“If insurers were to provide their support as well, then this would mark a breakthrough of immense significance. ADR can offer a speedier, cheaper and more constructive way of resolving disputes and can be used at all levels of litigation. Its contribution deserves to be promoted, researched, evaluated and discussed.”

But not everybody is embracing Woolf's vision. Martin Bruffell, president of the Forum of Insurance Lawyers (FOIL), says a survey of his members found not a single “straightforward” personal injury case had gone to mediation.

Bruffell, head of personal injury at Berrymans Lace Mawer, says: “It was an unnecessary waste of time and money, because all you had to do was pick up the phone or get around a table and talk to the other side.

“We are concerned about the suggestion that mediation is going to be forced upon parties to litigation in personal injury claims. It would just be another unnecessary layer of bureaucracy and expense.

“Mediation should not be the first thing we talk of in negotiation. The fact is, mediations and arbitrations can be more costly than a trial.

“You have to prepare in the same way as you do for a trial, but you also have to pay for the mediator and the rooms. And in mediation there is no guarantee you are going to get a result. There is no saving in going to mediation if you can settle a case by talking.

“Mediation is suddenly the buzz word. But I just want everybody to be realistic about it. The fact is it's okay in its place.”

Bruffell's view may well be the prevalent one just now among solicitors. After all, at the moment the number of mediation cases settled is tiny.

But as clients join Lord Woolf in pushing for change, the City litigator who chooses to ignore the signs may well find himself out in the cold if the mediation revolution arrives sooner than expected.

Mediation: the facts

u260,000 – amount saved on average per successfully mediated case, according to CEDR

u3,500,000 – amount saved by SIF in more than 100 mediated cases

80 – the percentage of SIF cases successfully resolved at, or just after, mediation

150 – number of cases mediated by CEDR last year, double the previous year's figure

0 – number of 'straightforward' personal injury cases which went to mediation, according to a survey by the Forum of Insurance Lawyers