Litigation, arbitration or mediation?

We all hit conflicts almost every day. We have a disagreement. We talk. We fix it. But not always.

We might fail because we are unable to communicate, someone gets angry, the issues are too serious to give in, or someone is lying.

Why not go to court?

In business, it often seems that all you can do is issue a County Court summons or a writ.

Doing so is really quite easy to start - but not so easy to finish. As the days and weeks go by, as your solicitor asks for his or her fourth payment on account, you begin to wonder whether litigation was really the best way forward.

Probably not.

Having spent many years in litigation, concerned with different areas of law, our most basic advice if you are considering litigation is not even to think about it.

Litigation is uncertain, even if your case seems watertight

The problem with litigation is quite simple. No solicitor knows exactly how the merits of the two respective cases will work out until the evidence is laid in front of the Court.

Judges are human beings. Yours might be having a particularly good or bad day. An emotional appeal by the other side might sway his or her opinion away from your favour.

Or the judgment might be generally in your favour, but not to the extent that you expect.

Even if you win, the proposition that your losing conflict party will pay your legal costs is rarely true.

The rules of Court do not allow for a solicitors costs to get completely out of hand. That usually means your solicitor will charge you for a proportion of time and expenses that he or she has been unable to recover from the other side even though you have won your case.

Very few cases actually get to court

If you have never engaged in litigation, you may have the impression that there is always a winner and a loser.

That is not the case. It is quite unusual for two parties to get as far as to reach court without one or the other realising that his or her chance of success is low, and accordingly making concessions to settle.

You only get to court because you and your conflict party both believe you will win. Clearly, both teams of legal advisers are not going to be right.

However, in many cases the facts are not clear-cut and the judge will be unable to make an order in the same specific terms that one or the other of you really wanted.

That means that both sides leave court with astronomical legal bills, a loss of business management time and without the satisfaction of having achieved very much in that lost time.

Advisers tend over be over optimistic about the chance of success

Some solicitors hope that if a client does not understand what is involved in litigation, a lower cost estimate and a promise of a higher chance of success will win the work from another solicitor.

As a solicitor it is particularly exasperating when your chosen barrister suggests that your client’s case will succeed, but then as evidence is brought together and as time passes his or her optimism tended to fade.

By the time you are at the door of the court and the client has paid thousand of pounds, the barrister has become distinctly pessimistic and is urging the client to settle.

Litigation involves a lot of work

Successful litigation takes a lot of time, thought and care. It involves a vast amount of procedural paperwork.

Talking to potential witnesses and drafting their statements in a form that is open and honest and yet supports your case, takes a lot of time. Add two or three discussions with expert witnesses culminating in their respective reports and you have tens of thousands of pounds of additional costs.

It is difficult not to compare the outcome with what could have happen if the parties had decided, at an early stage, to go to mediation.

Arbitration

Arbitration is often discussed as an alternative form of alternative dispute resolution. The court system has long embraced it. It has been used extensively in international disputes.

Arbitration is a judicial process whereby dispute parties agree to accept the judgement of an arbitrator.

The idea behind arbitration is to create a process that is less formal, less time consuming and less expensive than litigation. It should be simpler and faster than the process following issue of a claim in court.

However, in the UK, arbitration has now become a quasi-judicial process presided over by an arbitrator, regulated by the Arbitration Act 1996.

Arbitrators have subject knowledge not arbitration experience

An arbitrator is usually chosen for his or her specialist knowledge - to match the subject matter of the dispute. So you might have a civil engineer arbitrating a dispute about a road construction contract or a building surveyor about a housing contract. It sounds good, but arbitration is not suitable for all disputes.

Before you even start, both sides have to agree to go to arbitration and also to agree to the identity of the arbitrator.

Most contracts referring to arbitration also make provision for the appointment of the arbitrator.

Usually that is for the president of some professional body to make the appointment. In other words, it is a lottery as to who is chosen.

The most common appointment is of some local senior who has indicated that he is open to such appointments. He may not be experienced as an arbitrator, nor even sufficiently eloquent to keep the parties in order.

Similarities to litigation

The arbitration process is designed to follow similar procedures to those of a court.

The arbitrator has power to "do it my way", but few arbitrators are professionals in arbitration or litigation. Most are ordinary men and women who work as experienced professionals. So they tend to allow the solicitors to walk all over them. Some solicitors take it as a matter of course that the documentary procedures followed in a court process should also apply to arbitration.

Of course, a lawyer has the same obligation to pursue the interest of her client as she has in the handling of a claim in court. As a result, processes like interim orders, requests for documents, witnesses, questions, reasons, can go on forever - and so can the time passing.

The result is that the process is little different from a court procedure. The effect is that if you go to arbitration, you are likely to find that your non-lawyer arbitrator is out of his depth in legal matters and simply divides the case down the middle.

The arbitrator gets his or her fee, but justice may not be served. This tends to happen in particular, in cases where there are technical issues but the conflict is actually about the application of the law.

Rather than use arbitration, you are better off going to court. Processes are firm, judges are very experienced and the outcome is more likely to reflect the application of the law.

Mediation as an alternative

As a better alternative, use mediation, clear the decks and continue to manage your business with a considerably lower level of personal stress.

Business mediation can be used to resolve both internal and external conflict.

Mediation has been around at least since the time of King Solomon (Bible: 1 Kings 3:16-28) and probably earlier. Nowadays, family law takes a gentler view than Solomon did, and many more people use mediation.

Although it usually takes place face to face between two people, it can also take place in other ways: at distance (online or via teleconference) and between many parties.

The advantages of mediation are many. Many mediations today are carried out partially or entirely online.

Mediation doesn't just focus on who is right in law

A frequent contributor to a conflict stems from parties feeling they are not being heard, not appreciated, or misunderstood. In other words there is a substantial emotional element.

The mediator is a neutral observer who is not emotionally invested and can get through to the heart of the matter in order to open up discussions as to how to resolve the dispute. In mediation, the parties are voluntarily participating in the process and, as a result, fear and anxiety are greatly reduced.

The neutral and safe environment that the mediator provides opens up the door to effective communication between the parties. Often, a simple apology or slight change in company policy is a contributor to a happy with the outcome.

Confidential outcome

Court proceedings are on public record. A civil trial may be attended by anyone.

A mediation is confidential. Only the parties to it know anything about it. Reputations are saved, shareholders are happy. There are no nasty qualifications to your accounts that could affect your capacity to borrow.

Whatever inner workings of their business are disclosed during the course of the mediation, do not end up a matter of public record as they do in litigation. The protection of the parties’ right to privacy for their personal and business affairs makes mediation an attractive choice.

Lower costs and faster resolution

Mediation saves not only money but time too.

Legal battles are time-consuming as well as expensive. Small businesses are particularly hard-hit when senior management is tied up in litigation.

On the other hand, the mediation process is usually completed within two or three weeks or, in an emergency, a few days. You can then get back to your real life very quickly without the long distraction of litigation.

Legally and emotionally binding

The final agreement reached is usually recorded in a memorandum of understanding or a heads of terms.

Either document can be treated as binding or not, as the parties wish. A binding final agreement is always to be preferred, even though, in most cases the parties or their solicitors may wish to fine-tune it at a later date.

As well as being legally binding, the agreements reached in mediation are emotionally binding since the parties had a clear voice in the process, put effort and work into the agreement, are happy with the outcome and are therefore less likely to renege on its terms.

Low stress

Compared with litigation or arbitration, mediation is stress free. Most mediators will try to set everyone at ease and will be quick to spot any undue pressure on one party by the other. A day in a hotel or office is a far cry from maybe several attendances before a judge.

Further, neither side necessarily becomes aware of the financial strength of the other of you, so there is less strategic bullying.

Better solutions

Court procedures are strict and formal. You cannot ask for a judgement that is outside the court’s power to make.

Mediation permits more imaginative solutions that may be more appropriate or helpful. You can consider settlements that might involve not only money but questions of timing, quality, changes to established procedures, confidentiality, Internet silence and other matters that are outside the power of a court to impose.

Because you are face to face with your opponent and you both put your cards on the table, there is more trust right away, so apparently intractable problems get solved. That cannot be arranged in a court.

Mediation must be considered before litigation

In court proceedings, it is the duty of a judge to consider alternative means of dispute resolution to taking it to trial.

What is more, the European Parliament endorsed a directive on 23 April 2008 primarily to facilitate cross border mediation. However, this law applies (in the UK since 23 April 2011) to all disputes and not only those with an international element.

So judges increasingly send the parties away to seek their own solution. It follows that if a party either refuses mediation, then it is likely that the judge will assume a lack of cooperation by that party.

So mediation has now come in from the darkness to star status. It provides no magic bullet, but it works. That is why it is regarded as the best bet on the table.