Mediation 2015: Trends

Amid continued economic uncertainty, even in jurisdictions that have seen a welcome shift towards recovery over the past 12 months, the focus of both global and domestic corporations has moved towards cost-reduction and mitigation.

The cost of litigation, from discovery to judgment, generally continues to rise in recognised centres of excellence such as the US, UK and Germany, meaning that clients are more concerned than ever with dispute avoidance or resolution at the lowest possible price. In this commercial environment, and given that the cost of arbitration also continues to rise, contributors to our research have highlighted the opportunity to further mediation’s reputation as a user-friendly, cost-effective and flexible form of dispute resolution that cannot only resolve disputes amicably and confidentially but facilitate stronger working relationships between commercial parties.

 Several contributors have remarked upon the global recession’s impact in creating a bigger mandate for mediation as a cost-effective and expeditious way of resolving disputes. As companies in financial difficulty struggled to meet the demands of various projects and commercial contracts, there were numerous disputes pertaining to debt recovery, contractual non-performance and employment, among others. As a method of alternative dispute resolution (ADR), mediation “really did fit the bill” in terms of providing a forum for the settling of unavoidable disputes for commercial entities without the resources to pursue court action. As one expert observed, “The positive for mediators was that many parties which were forced into mediation by economic circumstances are now providing regular work; growth in the field comes from people experiencing the process first-hand.” Repeat business drives many established mediation practices, and as bigger corporations become more amenable to this form of ADR, there is an opportunity for practitioners to mediate a case in one discipline and subsequently receive work in another. One source commented, “I recently worked on a complex workplace-related mediation for a global corporation, before receiving instructions from the same organisation in a franchising dispute.” Given the increasingly international nature of mediation there is an expressed hope that it is embraced by major corporate entities on a wider scale in the next five years.

While there “has certainly been no let-up in cases”, it remains difficult to gauge whether the cost-conscious commercial environment has facilitated a marked increase in the use of mediation. While case confidentiality is one of the cited benefits of mediation for sensitive cases, it also means that it is difficult to ascertain whether there has been greater activity across the board. The response to our research indicates that mediation cases have certainly increased since 2008; one US expert stated, “This has been my busiest year ever.” Others were more cautious about the extent of the area’s growth. For those with an increased workload, there have also been other factors at play. While many have cited cost mitigation as the key reason, the increased activity can also be attributed to the reputation of a particular jurisdiction. As one UK-based contributor observed, “Due to the perception of England as a centre of excellence for litigation and arbitration, the number of international commercial cases diverting to mediation has undoubtedly been a positive for those with experience in mediating cross-border disputes.” Ever-increasing litigation fees also contribute to the appeal of mediation. In March, the UK government increased civil court fees dramatically, so that claims worth over £200,000 are now subject to fees of up to £10,000 – a massive 576 per cent increase on the previous figure of £1,515. While the recent nature of the changes means that the trend is not yet pronounced, many contributors expect to see an increase in the number of commercial clients, particularly start-ups and SMEs, exploring the possibility of dispute resolution by mediation.

Many law firms count litigation fees as a significant contributor to profitability and several mediators we spoke with asserted that this could be an ongoing obstacle to the establishment of mediation as a universally accepted alternative. Nevertheless, many have observed an increase in the value of the cases they mediate, reflecting returning economic stability in a number of jurisdictions including the US, confidence in the mediation process and the increasingly international nature of many cases.

A key trend to be highlighted in our research is mediation’s industry diversification. While workplace, finance, insurance and project-related cases have continued to flourish, mediators have welcomed an embracing of the process in other areas. In a key example, franchising and distributorship has become established as an area that is particularly amenable to the benefits of mediation. Distributorship deals are ideal for mediation because settlement and termination can often be achieved and cost-effective agreements can be reached. As one US-based expert noted, “The focus is often on ways to enable an ongoing business relationship; with a lot of money at stake, franchisors have a continuing interest in brand reputation and smaller company owners have invested heavily to acquire the rights.” With private equity and investor confidence also returning in major markets including the US and the Far East, commentators have also seen a corresponding spike in the number of disputes arising out of complex M&A transactions, with levels in this area “at their highest for three years” for some. A definite growth area is deal mediation, whereby the parties involved are not engaged in a dispute, but have chosen the process in order to negotiate and finalise a commercial agreement. For many, this development could symbolise a shift from mediation as a means of risk avoidance to proactive use of the system in order to establish stronger business relationships.

The field’s internationalisation represents a major opportunity for practitioners with cross-border experience, both in terms of full-time mediators and lawyers at global law firms who are planning a move into the sector. Mediation centres have recently been established in Singapore and Florence, reflecting the general growth in the method’s profile and the confidence of those who lobby for its use on a wider scale. A key challenge for practitioners is the varying attitude of different cultures towards conciliatory resolution procedures, with the method achieving greater success in countries where a culture of settlement at an earlier stage of the dispute is accepted. The market for practitioners is also likely to become more competitive as parties from different countries look for varying traits in their appointed mediator. As one source put it, “Some higher authority cultures would look to a mediator to take a more hands-on approach, whereas those from lower authority cultures might find such an approach offensive.” London and the US remain very busy hubs for mediation, while Hong Kong’s entrenchment of English law and status as a thriving commercial centre makes it an attractive destination for mediators looking to expand their practice; there is also growing enthusiasm for the sector in non-common law jurisdictions.

The sector’s growth has undoubtedly been aided by the courts in several countries adopting a strict response to parties which do not proactively attempt to resolve disputes via mediation. In the US, for example, mandatory court-ordered mediation has been highly successful in raising the method’s profile, with “more and more companies coming out of the process with a newfound appreciation for its cost-effectiveness and straightforward process”. According to one expert, “one in five cases at the New York Supreme Court commercial division are now going to mandatory mediation”, and in a major victory for proponents of the discipline, the court decided on mediation as its default ADR method. Feedback in the state has been very positive, particularly with regard to the tailor-made solutions that can be agreed between parties in mediation. Further growth in the area could also result from the positivity among general counsel at major corporations, who are often stretched by increasingly tighter in-house legal budgets and see mediation as a logical solution when faced with potentially expensive disputes. Clients are more nuanced than ever in their perception of legal spend, and the use of mediation as a central component of business strategy at board level, rather than a desperation measure, is expected to result in further industry diversification in terms of the disputes going to mediation.

As has always been the case, lawyers are essential to mediation’s progression and their understanding of the process is a major factor in the advice they give to clients who want to achieve a commercial success at the lowest possible cost. Given the desire of clients to pursue a claim on the basis of principle and commercial gain, it can be challenging for lawyers in terms of when to advise on mediation as the preferred course of action. The client’s experience of mediation can also vary depending on the approach taken by lawyers involved, which in turn depends on their understanding of the process. While settlement is often a possible outcome of mediation, several experts expressed a concern that lawyer intrusion can “essentially make the process a settlement conference”, where an exploration of the potential business relationship between parties can lead to the best commercial outcome for those involved. In a positive development, contributors mentioned that there are now “more and more lawyers with a better understanding of non-adjudicative processes, who can therefore pick the right moment for their clients to pursue mediation as the best form of ADR”. The leading figures in our research also reported a surge of interest from potential new entrants into the field, in terms of lawyers leaving private practice and former judges and barristers. While it remains difficult to establish a full-time practice in the area, the sector’s growing international appeal may be a positive step for lawyers at firms with a global network; as one contributor noted, “A strong contact list is one of the true measures of success in this field.” While mediation “continues to be dominated by familiar faces, namely those with 15-plus years’ experience across a range of disputes”, there is a sense that the next generation of lawyers with knowledge of the process can start to break through over the next few years.

In terms of the skills needed to succeed as a mediator, it is widely accepted that adaptability to the commercial context and demands of each individual case is a crucial competency. While the “evaluative versus facilitative approach” debate received some mention in our research, contributors generally agreed with the individual who opined, “A leading mediator will position themselves at different points along the spectrum as the situation demands it; a supposed facilitative mediator should still be able to ask tough questions of parties at given moments in the process.”

Looking ahead, there are many opportunities for growth as clients in various industries are exposed to the procedure’s benefits in terms of cost and business strategy. As awareness of mediation among lawyers, corporate counsel and board members grows, and more individuals look to build a practice in the discipline, the area’s diversity of sector and internationalism looks set to continue. Central to mediation’s growth is education about the process, from judge-level down to those looking to embark on a career in the legal profession.

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