It was Winston Churchill who said that ‘jaw-jaw' is better than ‘war-war', and that guiding principle lies behind the continuing surge of interest among commercial re/insurers in the practice of mediation. The concept of mediation is in itself a very simple one to grasp – that you should only fight out a disagreement in court as a very last resort, and that it is much better to arrive at a mutually agreeable solution. As so often happens, however, there can be a sharp difference between theory and practice.

Mediation has long been common practice in North America, especially the US, and in Australia. It has tribal roots in South Africa and an ethnic base in China. Modern commercial use is increasing in the UK and it is emerging to provide early solutions to disputes in eastern and central Europe. A seminal event in the development of mediation use in the UK was the decision by the Lord Chancellor to integrate the approach into the new civil justice system in England and Wales, which took effect on 26 April 1999.

Changing attitudes
The UK change has international significance because so many large risks around the world are written, at least in part, in the London market, particularly in the marine and aviation sectors. Nearly two and a half years on from the formal introduction of mediation, it comes as little surprise that long-standing confrontational habits are proving to be deeply ingrained. Nonetheless, despite the inevitable resistance in some quarters to cultural change of this order, attitudes are altering, as shown in a recent review by the Lord Chancellor's Department*.

Alternative Dispute Resolution (ADR) is one of the most important features referred to in the review. During the 13-month period to June 2000, the Commercial Court made 130 orders to stay proceedings whilst resolution by ADR was attempted. ADR is almost synonymous with mediation, although it should not be forgotten that there are several other techniques that may be appropriate. These techniques can also be used within arbitration.

The courts support the view that mediation must remain voluntary, leaving the parties to approach independent service providers or a mediator direct. The mediation service provider acts as administrator of the process, and will identify perhaps three suitable mediators, leaving it to the parties to choose which one to use. The choice is for the parties to make, and they will be looking for a mediator who not only understands the legal issues and subject area, but also possesses the necessary personal communication skills. This is in contrast to litigation or arbitration – which remains popular within the reinsurance industry – where the arbitrator has the power to impose a binding settlement.

Mediation is about structured negotiation where the appointed mediator seeks to manage the aspirations of the parties in order to understand what is in reality achievable and in what timeframe. A resulting agreement is then reduced to writing, which on signing becomes legally binding. This can be enrolled as a judgment or arbitral award to add weight to the parties' agreement, as well as sometimes making enforcement easier. This would be appropriate, for instance, in cross-border disputes where an arbitral award can be enforced under the New York convention.

Commercial interests versus legal rights
Mediation is not an entirely new concept in the UK. Andrew Fraley and Robert Whatton first introduced it from the US in 1989 with the formation of the ADR Group. Since then, there has been a steady increase both in the number of trained mediators and in a slow but sure development of a marketplace for commercial service providers. It also reflected solicitors' recognition that their clients' commercial interests were at least as important as their legal rights in any dispute. They found mediation responded speedily and effectively to clients' commercially-based needs. What the Lord Chancellor's 1999 decision did was to give a powerful stimulus to a process that was already gathering momentum.

At the forefront of the change is the London insurance market. This is reflected in the market mediation initiative, instigated by David Taylor of the International Underwriting Association (IUA), a marine lawyer. A central feature of the initiative, undertaken in association with Lloyd's, is a series of weekly mediation clinics.

The clinics provide a confidential forum where insurance practitioners, including claims managers, brokers, adjusters and reinsurers, can meet with experienced mediators to explore interests and objectives in resolving a wide range of cases. The clinics also enable wider discussion on revising procedures to enable ADR to be introduced.

These clinics are a positive response to market demand. The fact that 11 top London law firms are taking part demonstrates that cultural change has, indeed, occurred. The growing interest in and use of mediation extends to several groups that previously had been reticent about using these types of remedies, most notably some medical negligence and personal injury cases.

The way mediation is used is evolving rapidly from being solely a step in litigation to becoming an effective front-end case management tool. Generally speaking, solicitors remain central to the process, but other groups such as insurance claims staff and in-house case managers can and do consider mediation at a much earlier stage than they have done in the past.

Mediation works – usually
So why has mediation proved so popular? Firstly, because it works. For example, a more than 90% success rate is reported by Intermediation, a leading mediation service provider in the City of London. As a result, many corporate bodies are seeking to introduce a mediation step within their own dispute resolution procedures. Solicitors have recognised that clients are concerned not only about their legal rights in a matter, but also about their commercial interests. Litigation takes company time and effort, as well as financial resources. Messages about the case filter through customer and supplier bases, and there is always the media in the background waving the flag of public interest. Thus mediation is responding to companies' cultural and commercial demands.

In addition, the anatomy of the process has been made user-friendly. One of the earliest stumbling blocks was the perception that mediation was to be instigated by the weaker party, often an insured. Case management with many insurers has gradually brought forward the consideration of mediation from a process of last resort to making reference to it early in correspondence as a preferred resolution option.

What's more, Civil Procedure rules require active consideration by legal advisers and parties alike and, if dialogue between parties is not possible, almost all service providers offer free initial contact with the opposing party.

It is particularly important to ensure that all parties understand the rules of the game. To this end, there is a pre-mediation contract for the parties to sign. This has important implicit and explicit functions, which are:

  • identify the parties (something that may not even have been clear before);
  • set out what is expected by way of conduct for the parties, e.g. negotiation with the intention of obtaining resolution and not merely playing at attending a procedure;
  • set out the structure for the mediation, explaining the mediator's role;
  • check that a decision maker will be attending or available by telephone;
  • detail termination procedure;
  • remind the parties of the without prejudice nature of a mediation and absolve the mediator from being called or having to report to any other forum; and
  • set out payment provisions, remembering payment is in advance.

    One common mistake is for legal advisers to recommend a particular mediator and then find themselves in trouble when a client is disappointed at the outcome. The message is, ‘don't do it – leave the final decision to the client'.

    Explain the selection criteria, which must start with the ability to mediate rather than having expertise in a particular field. The mediation is about applying personal skills to a problem; having the creative ability to listen to the parties' concerns; distilling, questioning and analysing the problem, and then translating this to the other side. The mediator is not there to offer opinion, but to encourage the parties to work out their own resolution, so that they have ownership of the outcome.

    Both sides should be prepared to take part and send people with final decision-making authority, rather than leaving the work solely to legal representatives. Do not expect sweetness and light and, whatever the provocation, it is vital to remain civil. A good mediator will be able to take control of the proceedings, and must be confident enough to deal with outbursts. He or she will not, however, tolerate a verbal rough house or become merely a messenger or accept a challenge from one party to “go and tell the other disputant…”.

    A case can often turn on how expert witnesses are used. Experts often feel they are ‘on show' and that they need to defend their professional integrity at all costs. A mediator in private session can both help the experts with open dialogue and achieve any face-saving that may be needed.

    The mediator, however, does not need to become bogged down by what amounts to a sub-mediation. Neither is he or she there to provide legal advice, although a working knowledge of the relevant legal background is essential.

    Each mediation soon acquires a dynamic of its own. In most cases, matters become clear within a day. Either the dispute is settled or the issues are reduced in complexity or number, laying the foundation for fruitful negotiation to follow.

    Of course, there are failures too. Parties do walk out. All a mediator can do in these circumstances is to caution against the cost of failure in terms of time, money and effort; persuasion of a moment's salutary thought has rescued many a mediation.

    The control and use of time whilst a mediator is in private session with another party is important. This is a time to focus energy on examining personal viewpoints against legal principles and balance commercial interests.

    Thus mediation does usually deliver results, and the chances of success are high provided each side wants it to work. There is one rule learned from experience and that is even if lunch is not ready, do not allow the parties to adjourn to the nearest hostelry!

    * Emerging Findings. An early evaluation of the Civil Justice Reforms.

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