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Back to basics

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Mediation has long been underused as a form of dispute resolution. Now, however, dozens of global companies have signed a pledge to bring it into the heart of business practice. In-House Perspective's Rebecca Lowe talks to lawyers determined to go back to basics.

Once upon a time, men arguably wiser and more sensible than those of the present era settled their disputes by sitting down together in a civilised fashion and talking until the problem was solved. No courts, no judges, no longwinded wrangling over technicalities; just a chat by the fireside, overseen by a fine, shrewd fellow with a knack for negotiation.

This was the method favoured by Confucius, and others before him through 4,000 years of Chinese folklore. Buddha championed it in India, while Japanese chukaisha (mutual friends) have long helped businesses resolve their differences. Not to be outdone, the Roman Empire later picked up the tradition, with intercessors, internuncios, interpolators and interlocutors frequently shuttling to and from antagonistic parties in a diplomatic bid for peace.

Over the generations, however, the realm of dispute resolution gradually became more convoluted and complex. Flexibility and prudence gave way to formality and structure. While a fair, regulated court system is doubtless something to be celebrated, it has – some believe – served more to quash the world of common sense negotiation than to complement it.

Now, however, the world of common sense is making something of a comeback. With litigation and arbitration becoming ever-more expensive, time-consuming and aggressive, companies are looking for a less expensive, less complicated method for settling their quarrels. Mediation, it seems, may be the answer. The 21st Century Corporate Alternative Dispute Resolution (ADR) Pledge, launched in November in the UK and ten months earlier in the US, commits companies to resolve disputes through ADR – first and foremost mediation – where possible. Sponsored by the International Institute for Conflict Prevention & Resolution (CPR) and the Centre for Effective Dispute Resolution (CEDR), the pledge currently has 33 multinational signatories and is rapidly growing in popularity.

For Lord Woolf, former Chief Justice of England and Wales, whose seminal 1996 Access to Justice report became a catalyst for the development of ADR in the UK, the time to champion mediation is long overdue. ‘Mediation has progressed from being a marginal activity of limited significance to becoming a major player on the dispute resolution landscape,’ he announced in a speech at the Singapore Mediation Centre in October. ‘The issue is not whether it will continue to be a valuable resource in the future. It is whether it can achieve the greater potential that enthusiasts like myself are confident it has.’

No downside, no-brainer

Mediation does seem to offer a wealth of advantages over the courts. Cheap, quick, confidential and consensual, it can help both sides amicably reach a mutually-acceptable agreement with little damage caused to this relationship. It is unsurprising, then, that growing numbers of companies are turning to mediation as the first step in tackling the bulk of their disputes, leaving the option open to arbitrate or litigate further down the line, should a settlement fail to be agreed upon.

Why businesses have taken so long to incorporate mediation into their strategy – and why so many continue to avoid the option – is something of a mystery, says Michael McIlwrath, Associate General Counsel for Litigation at GE Oil & Gas, a supporter of the pledge. ‘Beats me,’ he tells In-House Perspective. ‘Maybe it’s because they don’t understand the advantages of mediation. It’s a no-brainer, and there isn’t any downside. At a recent conference, some general counsels of large companies in the Nordic countries spoke about mediation as if it was an abstract concept they had never tried.’

 


‘Mediation has progressed from being a marginal activity of limited significance to becoming a major player on the dispute resolution landscape’

Lord Woolf, former Chief Justice of England and Wales


 

GE was one of the founding signatories of the original CPR Corporate Policy Statement for Alternatives to Litigation, which encouraged companies to focus on ADR in the 1980s. The updated version does not replace the original pledge, which has more than 4,000 companies as signatories, but aims to expand it beyond a focus on individual disputes, to a broader systematic approach, whereby mediation is absorbed into everyday best practice.

At Royal Dutch Shell, another pledge devotee, a new in-house global litigation group was created 18 months ago to centralise control over escalating disputes. Whereas the company was previously almost entirely reliant on hundreds of external counsel, it now has a team of 135 in-house lawyers and support staff to coordinate how disputes are managed and resolved across the world.

For Brad Nielson, Shell Global Litigation Group General Counsel, it is the lack of control which companies have over dispute management that has led to mediation falling under the radar. ‘In the past we’ve dealt with litigation by throwing it over the fence to external counsel, instead of taking accountability and responsibility for the dispute,’ he says. ‘It’s about getting out of the litigation mind-set and saying, what is this really about, where is it going and what do we need out of it?’

Onerous lawsuits

With Shell currently facing more than 9,000 disputes across 90-plus countries, any system that reduces litigation costs and complexity is likely to prove popular. Nielson hopes, however, that mediation doesn’t go down the same route as arbitration – and the key, he believes, is keeping creativity in the mix.

Some feel that dispute lawsuits are becoming burdensome, to the benefit of the professionals involved, which may be why a handful of lawyers across the world vehemently oppose the shift towards mediation. Whereas most seem to accept it as good practice – certainly for their clients, if not for them – some have proved uncompromisingly hostile. In Italy, the reaction has been particularly antagonistic, with the professional and regulatory bodies opposing the move and a new mediation law being struck down after lawyers repeatedly went on strike.

‘There has certainly been resistance from lawyers in continental Europe,’ says LawFed BRSA partner Mauro Rubino-Sammataro, Chair of the European Centre of Arbitration and Mediation and President of the IBA Mediation Committee, who recommends giving lawyers a financial incentive to achieve a mediated settlement. ‘Lawyers earn more with litigation or arbitration. But our profession has as a fundamental rule that it gives priority to clients’ interest, even if it’s not in line with our interest, and if we don’t respect that rule of professional ethics, we are merchants and not lawyers.’

 


‘It’s a no-brainer, and there isn’t any downside’

Michael McIlwrath, Associate General Counsel for Litigation at GE Oil & Gas


 

If support for mediation is lacking among certain corporate lawyers it is perhaps understandable why some multinationals are finding it hard to move away from the more traditional forms of dispute resolution. However, while corporate ignorance about mediation remains a problem, the tide is slowly turning. According to CEDR Chief Executive Karl Mackie, awareness is blossoming across the world – from Africa to the Middle East, to Asia and the West. Singapore is pushing to become the international mediation centre of choice, while the Qatar International Court and Dispute Resolution Centre recently struck up a partnership with CEDR to provide ADR services.

‘Regions are moving at different paces with mediation, but there is definitely interest,’ says Mackie. ‘If you named a place, I could probably describe some development there already. There are particular heat spots, but there is a degree of momentum across the EU and in most jurisdictions.’

Enforceability vs flexibility

A mediation award becomes legally binding as soon as both parties have signed the agreement, and is as enforceable as any commercial contract. Yet, while parties are more likely to abide by mediation agreements than awards stemming from adversarial proceedings, global cross-border enforcement remains an issue. Companies can prove fickle, after all, and fortunes and minds can change before the ink is dry.  While suing for breach of contract is the obvious way to ensure compliance, it is not seen as an ideal solution; it was, after all, exactly this kind of litigation the business was trying to avoid when it opted to use the mediation process to resolve the original dispute.

One idea, rarely tested, is for mediators to magically transmogrify into arbitrators and issue an award enforceable under the New York Convention. Yet few have chosen to go down this route and its effectiveness remains unclear. Specialists seem to agree that while mediation awards issued by an arbitrator – known as a med-arb procedure – are likely to fall under the Convention, awards made by mediators who have since morphed into arbitrators after a settlement has been reached would not.

The question clearly needs clarification – but Rubino-Sammataro’s Mediation Committee is on the case. ‘We are studying the issue,’ he says. ‘It will take time, it will not be easy. It has been thought of for a long time; the problem is making it materialise. But with the current success of mediation, we think the time is right to take this project up again and try to implement it.’

Others caution, however, against setting up any enforcement regime that is too rigid and may undermine mediation’s virtues. ‘If we get into enforcement mechanisms, we’re heading down the road of the next arbitration,’ says Nielson. ‘For me, mediation is really about communication, creativity, flexibility and objectivity. If you can combine those things without a more formal process then I think it will continue to work.’

 


‘Our profession has as a fundamental rule that it gives priority to clients’ interest, even if it’s not in line with our interest. If we don’t respect that rule of professional ethics, we are merchants and not lawyers’

Mauro Rubino-Sammataro, LawFed BRSA partner and President of the European Centre of Arbitration and Mediation


 

Need for regulation

For Woolf, it is clear that both corporations and individuals must start prioritising mediation as their initial go-to dispute resolution mechanism of choice – yet the system can be improved, he believes. The lack of independent regulation remains a problem, he says, with no current rules about who can and cannot call themselves a mediator.

‘Without [independent regulation] I fear it is inevitable sooner or later that there will be allegations of abuse that could be extremely damaging to the positive image of mediation,’ he told the audience at the Singapore Mediation Centre, before going on to make a series of specific recommendations, including: screening, appraisal and training of mediators and a ‘robust disciplinary process’. Woolf stressed, however, that any regulation should not be overly onerous – and that ‘masters of the art’ with natural skills should continue to enjoy relative levels of creativity and freedom.

Referring to his friend Lord Griffiths, whose 80th birthday party he had recently attended, he conceded that achieving the right balance between professionalism and informality was a delicate task. ‘Lord Griffiths is one of these outstanding natural mediators and has a formidable reputation in the UK for his abilities,’ he said. ‘Any suggestion that he should receive training or be mentored in any way would be regarded by him as an outrage.’

 

The 21st Century Pledge

‘Our company believes the costs, delay and damage to relationships resulting from adversarial litigation practices have risen to levels that are unsustainable in the present day global business arena. Alternative dispute resolution (ADR) practices developed over the last 30 years have encouraged more cost-effective and collaborative solutions.

Nevertheless, we recognise innovation and advancement need to continue. We believe it is a priority to explore the use of cost-efficient, sustainable, dispute resolution; We believe that our businesses can and should engage in a systematic and collaborative approach to dispute management and resolution with domestic and global customers, suppliers, partners and competitors;

We believe that outside counsel can be an integral part of our dispute management team and law firms schooled in ADR can better serve our legal needs;

We believe that disputes can be resolved using ADR methods so that the outcome enhances both the company’s short and long term well-being, as well as sustaining its vital business relationships. In recognition of the foregoing, we subscribe to the following statement of principle on behalf of our company and its global subsidiaries’.

‘Our company pledges to commit its resources to manage and resolve disputes through negotiation, mediation and other ADR processes when appropriate, with a view to establishing and practicing global, sustainable dispute management and resolution processes.’

Signatories (as of 27 November 2013):

Marks & Spencer ConocoPhillips Microsoft
Royal Institution of Chartered Surveyors Danaher Northeast Utilities
Tesco Du Pont Pepsico
TNT Post Fluor Pfizer
Virgin Media FMC Technologies Raytheon
AAR General Electric Rodan and Fields Dermatologists
AEGIS GlaxoSmithKline Shell
AkzoNobel HP Teradata
Amgen IBM Virgin Media
Bechtel International Paper Walgreens
BP Johnson & Johnson Xerox

 

 

Rebecca Lowe is Senior Reporter at the IBA and can be contacted at rebecca.lowe@int-bar.org.

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