29 May 2006
Collaborative law is a new type of alternative dispute resolution (ADR) used in divorce cases in place of the traditional court-based route. It was introduced to the country following discussions between Cambridge solicitor Rosemary Sands, a consultant at Marchant-Daisley, and collaborative lawyers in Canada three years ago. The approach has been particularly fast to take off in East Anglia, especially in Cambridge, where almost all family lawyers are trained in this method.
The backbone of the collaborative law process is a series of four-way meetings, involving both parties and their legal representatives. There is a minimum of correspondence and no preparation for court. An integral part of the process is that the clients sign a participation agreement at the outset, confirming that they will not go to court to litigate either the divorce or the finances. If either party uses the courts, apart from dealing with matters on an agreed basis, then both solicitors are sacked. There is, therefore, a transparency of mutual interests that keeps the parties and their advisers at the negotiating table. In Cambridge only 3 per cent of collaborative cases have broken down, the rest being resolved successfully through negotiation.
This method is not suitable for all divorcing couples and it is certainly not an easy option. However, it enables the couple to focus on the issues they find important, rather than what a judge is going to require by way of evidence. Much of the wastage of preparing for court can be avoided. The legal spend may therefore be lower, although this will not always be the case as the ambit of discussion can be broader than normal legal remit.
It is particularly helpful in complex cases involving family business, trusts or substantial estates. Difficult areas of valuation can be discussed face-to-face, with the forensic accountant or property valuer coming into the four-way meeting to discuss their findings, rather than giving a 'snapshot figure', which so often becomes the focus of much sterile (and expensive) debate in court.
Family trustees can also be involved in the meetings. This can provide a more direct way of understanding what their policies are, and the extent or otherwise to which they might be able to help. This can short-circuit the often expensive and fraught three-way dialogue between the couple and the family trustees, who do not relish being dragged in as third parties in court proceedings.
For the new breed of entrepreneurs in Cambridge, who are used to juggling family and business interests, the collaborative process seems a natural way forward. For them, it provides the best aspects of the professional services available, without the time-consuming and expensive downside. Given the limitations as to what the court can order (couples can only apply for a transfer of assets or shares, or for a business to be sold), the four-way meetings provide a forum for much more flexible options to be explored: setting up lifetime trusts, discussing shareholders' agreements and considering the involvement of the next generation in a business are more easily addressed. The settlement can reflect more subtly the requirements of that particular family.
Working through the finances face-to-face avoids the mistrust that can all too easily predominate upon the breakdown of relationships. Involving a family's tax advisers or trustees can often make the process seem much more akin to an inheritance tax planning exercise, where the future interests of the next generation are often used to help find common ground.
For those with children, it provides the right basis for moving forward as parents, so that the process is looked at as a family transition rather than the traditional gladiatorial struggle in the court arena.
Several Cambridge lawyers have also trained other professionals in this method to promote 'team working'. These include accountants and financial advisers, who can then become involved in the process. For them, it is an opportunity to help their existing clients and remain involved as trusted advisers. Collaborative law has grown up quickly in a number of areas of the country. Some more traditional firms have yet to embrace this type of ADR as part of the portfolio of services available to their clients, but it is hoped that a launch on 22 November in London will help persuade some of the more conservative - and perhaps even some of the more cynical - lawyers to collaborate. The process has the full support of the judiciary, and Sir Mark Potter, president of the family division, will be speaking at the launch.
The collaborative process
A recent business case involving commercial and private assets worth around £20m shows the immense amount of work and planning between solicitors and clients generated by the four-way meetings.
The couple involved instructed solicitors in June 2005. The first four-way meeting took place at the end of July 2005, at which the valuation process was planned. Valuations were taken of commercial and domestic properties during August and the family's accountant calculated the notional capital gains tax. A net figure for the overall estate was arrived at by the middle of September.
At the second four-way meeting the disclosure was discussed. The commercial property valuer was asked to clarify certain issues (on a conference line) and certain tax points were also clarified subsequently with the accountant.
At the third and fourth four-way meetings in October and November, the terms of the settlement were agreed and subsequently implemented in the early part of 2006 following detailed pension advice which the couple obtained jointly. The adult children were passed shares and their future involvement was mapped out.
The court route
Had this couple used the traditional means of the court process, the following would have been the likely timetable:
- Divorce and financial proceedings would have been issued in July 2005.
- Exchange of financial information would have taken place, at best, in September/ October, together with the preparation of the first appointment documents - statement of issues, chronology and a questionnaire in which a schedule of inquiries would be made of the other spouse's financial statement.
- Discussions would then take place as to the choice of valuer and the terms of the joint letter of instruction prior to the first appointment. Counsel would be instructed.
- At the first appointment, a district judge would consider which inquiries in the respective questionnaires were appropriate. The judge would then set a timetable for the valuation process, such as the commercial properties and domestic properties to be valued separately, and an accountant to assess the liquidity, valuation and taxation aspects.
- The valuation process would be carried out over the next three months, before the second court appointment - the financial dispute resolution hearing in May 2006, for example.
- The parties would answer the questionnaires and, in correspondence, would make without-prejudice proposals.
- Both parties would be represented at the second hearing and a district judge would assess the respective negotiating positions, commenting accordingly and encouraging them to try to settle matters.
- In the absence of a settlement, the case would be listed for around four days in late 2006 or early 2007. After an examination of the valuation evidence, an order may have been made for the husband to pay a substantial lump sum based on an appropriate percentage of the net value of the estate, in the expectation that the husband would borrow substantially or sell off part of his holdings.
Roger Bamber is a partner at Mills & Reeve