Something to talk about
14 August 2000
Mediation is big business. In the US, leading mediator David Shapiro, an independent consultant with SJ Berwin, reports that lawyers are raking in an annual $100m (£66.5m) in fees from mediation. It is a similar story in the UK. According to the Centre for Dispute Resolution (CEDR), the value of cases handled by mediation totalled £1.2bn in the UK in 1999/2000.
Lawyers have been quick to seek profit from this increasingly popular alternative to the courts. Litigation departments have been rebranded to include ADR (alternative dispute resolution) or arbitration in their titles and chambers such as Littleton Chambers have set up specialist dispute resolution companies as an adjunct to their normal business.
But despite a massive increase in the use of mediation as a dispute resolution tool - CEDR reports a 141 per cent increase in commercial mediation cases - many believe that it is not going to provide the same financial boost for private practice lawyers in the UK as it has in the US.
Allen & Overy partner Peter Watson reports a 15 per cent increase in his mediation workload, but says: "Sophisticated clients may look to carry out mediation themselves and not involve external lawyers, especially in high volume cases in the insurance and retail banking sector. The customer is always happy if it is cheaper."
There is evidence of this in the commercial banking sector, which suffered after the fallout from the 1992/1993 recession when an increasing number of customers ran into financial difficulties. Banks such as Barclays and Standard Chartered Bank opted to take a proactive approach by entering into mediation as a method of damage limitation, recognising the potential of resolving matters in-house.
Standard Chartered Bank's mediation team, comprising group head of legal services Martin Hayman and legal adviser David Brimacombe, avoids using lawyers in certain jurisdictions. Brimacombe says: "We frequently take the view that the additional value of using a law firm throughout franchises in Africa and Asia is so minimal that it could end up hampering the process.
"Generally if a dispute is embryonic we are comfortable without law firms but if a law firm is involved in a case, it would be churlish not to use them."
Barclays' in-house mediation programme emerged after former corporate affairs director Terry Jones was instructed to resolve a spate of outstanding debt recovery disputes. He applied CEDR mediator training to resolve 70 out of 80 cases.
The bank was so impressed that staff in the legal and debt recovery departments at Cardiff, Essex and Yorkshire were given formal mediation training in early 1998. Miryana Nesic, formerly an Allen & Overy associate seconded to Barclays, heads its mediation team full-time.
Nesic says: "We are trying to see if we can use mediation without involving lawyers and that has been successful so far. We are also increasingly using MPs to facilitate retail customer disputes and we have introduced a mediation clause in corporate contracts. The aim is to resolve disputes early on and maintain relationships with our clients."
Jones became a mediator at CEDR after retiring from Barclays. He says: "Commercial banks are generally involved in managed negotiations and that is part of the skill required for mediation, so it is not surprising that it resolves a high proportion of cases in-house."
Hayman says: "I introduced mediation to the bank [Standard Chartered] because it's a sensible way of dealing with intractable problems. Mediation is about cutting out the third party and taking ownership of the dispute rather than losing control to external lawyers."
There are other obvious benefits too. "There is no question that we have saved millions by early termination of disputes. Businesses need to recognise that it is better and more mature to find a resolution without a dispute," says Hayman.
However, Jones will not dismiss the role of the lawyer entirely. "Lawyers are critical when helping clients present their mediation case and helping realise the potential of legal and commercial options," he says.
While mediation has exploded onto the UK scene since the introduction of the Woolf reforms, in terms of sheer volume the US is still a long way ahead. But some argue that mediation in the UK is already more mature because it recognises client needs. "Clients have a greater degree of say in matters of mediation as opposed to the US where it is lawyer-dominated," says A&O's Watson.
There are other complaints made of US mediation methods. While a study by Northwestern University in Illinois reveals that 83 per cent of the 450 ADR cases evaluated favoured mediation over other ADR techniques because it is faster and cheaper than arbitration, criticism is levelled at the use of compulsory mediation and even the lack of quality practitioners.
Full-time mediation consultant and former Clifford Chance litigation partner Tony Willis believes that compulsory mediation in states such as Florida and Texas has backfired. "Compulsory mediation in the US has been foolish because it has led to delays and further expense," he says.
Willis believes that the UK mediation scene is more "grown up" than the US because under the Civil Procedure Rules, judges have been using their discretion to allow mediation wisely and only when it is deemed necessary.
While UK mediators must be CEDR or ADR Services accredited, no formal training is needed in the US. The US appellate courts offer a moderate amount of training but the rest of the market is largely unregulated and this has made it difficult to differentiate between good and bad mediators.
General Electric litigation and legal policy counsel Elpidio Villarreal says: "There is a greater demand for mediation services than there is a quality of supply. There is a huge proportion of securities and employment-related mediation in New York which may be draining skill resources."
However, Jerry Spolter of US firm Spolter McDonald & Mannion disagrees. "A mediator needs to be fair, impartial and get the deal done. The marketplace governs quality. You don't need certification," he says.
Despite the potential loss of business for private practice lawyers, the use of mediation is only set to increase further. Commercial contracts and construction, engineering and property still account for a large proportion of mediation work in the UK (see box) but Watson believes that banking and finance are following closely behind. "Banks have been more prepared to go into mediation to build on the negotiation process in the last 18 months," he says.
Watson says that mediation has been particularly useful in helping to bridge cultural boundaries and resolve cross-border disputes. "Mediation was used after the collapse of the Russian currency market, which caused bank to bank problems and the absence of foreign quotations leading to derivative contract problems affecting western banks."
Its popularity in the UK and US should soon spread to the rest of Europe. CEDR recently demonstrated mediation to representatives of European Ministries of Justice and the compilation of an EU Green Paper 2001 is the first step towards setting up a Europe-wide mediation standard.
The hope is that the UK continues to cut its own path and does not make the same mistakes as the US.
"It will be interesting to see whether mediation in the UK is a creature of fact or a function of the time and whether it will become as fractious as the US," says Villarreal.
Major differences between US and UK
The mediation scene is more developed with greater experience.
50 different federal systems govern mediation rules.
More preparatory work completed in the US.
No formal training is required other than in appellate courts.
US recognises conflict of interests if a partner in a law firm is involved in an action.
Costs are not awarded so there is no winner or loser.
The mediation scene is still in its embryonic stages.
The Civil Procedure Rules govern mediation.
Minimum preparatory work completed.
CEDR and ADR services run accreditation programmes for mediators.
There is no conflict of interests in mediation cases in the same firm or chambers.
The successful party is awarded costs.