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Commercial Mediation: Never Having to Say You're Sorry (LExpert)

Thursday, May 31, 2007

By Julius Melnitzer

Mediation is rising on the international business radar as mor eJurisdictions make it mandatory for at least some claims. But that doesn't make litigation skills dispensable

Apart from the style of wigs on display, the proceedings would have looked pretty much the same to a disinterested observer. One took place in London and one in Toronto. Both were commercial cases. In London, the  distinguished jurist overseeing the case was Justice Stephen Tomlinson of the English High Court; his counterpart in Toronto was Justice Stephen Goudge of the Ontario Court of Appeal. Among the respected counsel on hand in London was famed barrister Gordon Pollock; appearing among the lawyers in Toronto was Brect Ledger of Osler, Hoskin & Harcourt LLP.

The London proceeding was a trial, the infamous case of Bank of Credit and Commerce International v. Bank of England, an action by the failed bank's liquidator against Britain's central bank. The suit lasted 13 years and cost the parties $225 million in legal fees, having made its way to the House of Lords on an unsuccessful summary judgment motion and gone through two years of trial.

The case ended abruptly when the liquidators discontinued the case after the Chancellor of the High Court, Sir Andrew Morritt, ruled that to continue pursuing it was no longer in creditors' interests.

The governor of the Bank of England called the proceedings "the most expensive fishing exercise in history." Justice Tomlinson called it "a farce" in his 86-page ruling dismissing the action.

Not as much detail can be provided about the Toronto proceeding,which was not a trial but a mediation—mediations are confidential—that took place before a claim had been filed in a major commercial dispute. With the permission of the Chief Justice of Ontario, Goudge had agreed to oversee the case, producing a settlement after a few weeks of mediation, thus saving
the parties and the system millions of dollars.

"The parties agreed that Goudge had the necessary qualities to bring about a settlement and it turned out to be entirely successful," says Brett Ledger's partner, Larry Lowenstein.

The success is not isolated. The London-based Centre for Effective Dispute Resolution (CEDR), one of Europe's largest mediation organizations, reports that 70 to 80 per cent of mediated commercial disputes are settled within two days; another 10 to 15 per cent reach a settlement within a few weeks.

There's no doubt that mediation is rising on the international business radar. For many years, it was a weak second sister to arbitration in the alternative dispute resolution (ADR) frenzy that began in the late '90s.

But arbitration has lost some of its lustre. Consider, for example, the dispute between recently merged beer giants Molson and Coors over Coors' right to jettison its licence giving Molson exclusive rights to market the American brand in Canada. The billion-dollar arbitration even had trouble getting off the ground: it took the parties almost a year to decide on a chair for the distinguished three-person panel that adjudicated the dispute. It took another 18 months to get to the hearing, and another three months of hearing days for the parties to present their case. Add it all up, and the process took almost three years, perhaps not as long as it might have taken to litigate the case, but hardly the time frame envisaged by those looking for the expeditious and less costly proceedings originally associated with arbitration.

"The dispute mirrored the litigation process and ended up being nothing less than a full-fledged trial," says Kent Thomson of Davies Ward Phillips & Vineberg LLP, who with Torys LLP's Sheila Block successfully represented Coors.

But at least the civil Courts foot the bill for the adjudicators and the  courtroom. "Not only did the parties have to pay the arbitrators, we had to build a courtroom and chambers for them by taking a half-floor at First Canadian Place in downtown Toronto," Thomson notes.

If that's not enough of a horror Story of failed expectations, take the case of a recent case in which a panel that included Yves Fortier of Ogilvy Renault LLP, who ranks among the world's elite international arbitrators, had to issue 24 procedural orders during the process that led up to a two-week hearing.

"I'm told it's a record for an arbitration," Fortier says.

Even if it's not a record, it makes the point about the deficiencies of arbitration even more forcefully. The criticisms focus on a widespread perception that arbitrations have become too lengthy and too costly. US arbitrations, for example, take an average of 16.7 months from the beginning of the process to the release of the arbitrator's decision. Indeed, many blame the encroachment of US-style litigation techniques, including
the use of depositions, expert witnesses and extensive document production, for the problems that have plagued the arbitration process.

"Clients are souring on arbitration because the process is increasingly starting to look like the litigation process, with the added burden of finding and paying arbitrators," says Paul Morrison of McCarthy Tetrault LLP.

At the same time, the "vanishing trial" phenomenon, a term coined by University of Wisconsin law professor Marc Galanter, has not abated. In a paper he wrote for the American Bar Association in 2004, Galanter concluded that only 2 per cent of US civil cases were going to trial, an 80 per cent drop from 11 per cent in 1962. Federal Court tort cases ending in a trial dropped in similar proportions between 1985 and 2003.

Meanwhile, more and more jurisdictions are making mediation mandatory for at least some claims. In Canada, the Ontario Mandatory Mediation Program (OMMP) has been a fact of life for some time in Toronto, Ottawa and Windsor.

"Although there have been problems dealing with the cost of administering the program, the statistics suggest that the program has been an unqualified success from the perspective of the parties and the courts," says Alan Stitt of dispute resolution specialist group ADR Chambers, who sits on various OMMP committees.

California, Florida, Oregon and Texas also have mandatory mediation programs. Finland and Denmark are considering moving in that direction even as the European Union prepares to issue a directive on harmonizing mediation procedures. Elsewhere, Argentina, Australia, France, Greece, Israel and Singapore have policies in place that encourage mediation. For its part, the UK has resisted mandatory mediation although courts are increasingly suggesting its use and imposing costs sanctions when parties refuse.

In June 2004, the International Institute for Conflict Prevention and Resolution (CPR) joined with the China Council for the Promotion of International Trade (CCPIT) to establish a jointly administered Center for Commercial Dispute Resolution with offices in Beijing and New York. A UK-China mediation centre with offices in Beijing and London also opened recently.

CCPIT is the largest trade promotion entity in China, with more than 70,000 member enterprises. New York-based CPR is a non-profit dispute resolution organization founded in 1979 by a group of general counsel who sought to develop alternatives to commercial litigation and arbitration. Four thousand operating companies and 1,500 law firms (including 400 of America's 500 largest firms) have now committed to a CPR agreement committing them to explore mediation before litigating a dispute with a co-signer. The  organization's members include many Fortune 500 companies such as Coca-Cola, General Electric, General Motors, Intel, Pfizer, Prudential, Time Warner and UPS.

The move to mediation is also firmly ensconced in Canada."I would say that most commercial counsel in Canada are believers in the advantages of mediation," says Barry Leon of Torys LLP.

They probably don't have any choice—not when their major clients are on the bandwagon in a big way.

"The growth of mediation has been pretty much fuelled by the corporate folks, and it's happening all over the world," says Richard Naimark, senior vice-president of the American Arbitration Association (AAA). "The lawyers do it because the clients insist on it."

Interestingly, a recent AAA survey reveals that cost saving isn't always the catalyst for mediation: the most sophisticated one-third of corporate counsel lean to it for strategic reasons.

"Once people get a taste of mediation, it just starts to grow," says Kathleen Bryan, president and CEO of CPR, who formerly worked as in-house head of worldwide litigation for Motorola. "That's why its application has evolved from routine court processes too complex commercial matters."

Indeed, it's increasingly rare to see the one-paragraph "submit to arbitration" clauses that used to permeate commercial contracts when ADR first appeared on the horizon. "We're now seeing multi-step clauses mandating negotiation, then mediation, then arbitration or litigation in contracts all over the world," Bryan says.

In fact, contracts now frequently impose an escalating mediation process.

"That's a process where there's a first mediation between the executives, then perhaps the company presidents and then a more formal mediation process involving counsel," Morrison explains.


It is somewhat unfortunate, however, that mediation and arbitration have both fallen under the rubric of ADR. On close examination, it's clear that litigation and arbitration have evolved to the point where they resemble each other more than either has ever resembled mediation.

"The main difference between mediation, and arbitration or litigation, is that you're not trying to convince anyone of anything because there is no adjudicator around to convince," Leon says.

"What you're trying to do is arm the mediator with information and ideas that will help him or her to persuade the other side of the value of taking a certain position or abandoning one. If you're in a joint session, you're trying to influence the client representative for the other party."

Indeed, it is the active role of the client that is among the most unique and compelling features of mediation.

"In my view, the key advantage of mediation is that it gets the lawyers on all sides together with the clients on all sides," says Robert Bell of Borden Ladner Gervais LLP. "Having everybody in the room and talking to each other presents tremendous opportunities."

The opportunities arise because mediation is an interest-based solution.

"Where clients take an active role in the process, their interests surface in a way they don't in an adversarial environment," says Lowenstein. "This provides a context for negotiations because everyone realizes that a simple right or wrong or a winner-take-all scenario is not really palatable. Bur there has to be a will to make mediation work at the client level."

Still, the client's omnipresence can have some disadvantages.

"You still run into people who feel they have to give a jury address to impress their client," Leon says. "Any experienced mediator knows that quite apart from being ineffective, that Sort Of behaviour can be counterproductive."

Not all litigators seem to understand the difference between advocacy in a courtroom and advocacy in mediation. "The skill set's different because counsel has to give up a little bit of control to the process and use other skills like listening, creativity, communication and understanding," Bell says. "Counsel also has to avoid the tendency to cross-examine the client on the other side and replace it with listening to and communicating strengths and weaknesses."

It's also important that counsel prepare the client for the mediation.

"It's different than preparing a client for litigation or arbitration," Leon says. "Because the client tends to playa greater role, counsel must teach them to be effective in a different way than in court."

According to Stitt, who has trained hundreds of lawyers in mediation skills, lawyers frequently approach mediation with the wrong attitude.

"Too many lawyers go to mediation focused on what they believe is the objective correctness of their client's position, the fact that their client is telling the truth, the fact that the law supports their client's position and their belief that their client should prevail" he says. "But the reason for mediation is that the judge may believe the lies of the other side and the question is what the right result should be rather than who should prevail from a legal point of view.

"There are too many lawyers who have convinced clients to walk away from deals whose rejection they later regretted."

According to Bryan, the right result for most clients is the result that is right for the business. "The win-lose results that flow from mediation or litigation may not satisfy the parties even if they win because those results do not necessarily take business realities into account," she says. "When I was at Motorola, it wasn't about the case, it was about the needs of the business, which turns on much more than just money."

Lowenstein says that good mediation advocacy requires an emotional intelligence that may not be as central in a courtroom. "It makes sense that an interest-based approach requires a broader emotional base than an adversarial approach," he says.

The difficulty, Bryan says, is that there's a "knowledge gap" about mediation among litigators. "Lawyers are sometimes not knowledgeable enough about the alternatives to arbitration and litigation, and it takes a pretty progressive firm to understand that and offer the proper training to its professionals," she says.

"Nowadays the training can't be exclusively about litigation as war. There has to be an emphasis on the softer side, which includes listening skills and a talent for digging in and getting involved with the parries themselves."

On the bright side, many of the skills that make good courtroom advocates—like presentation and negotiation abilities—are transferable to the mediation process. Indeed, Kent Thomson believes that the perception of a realistic threat that the adverse parry could win in court is critical to successful results in mediation.

"If I don't regard my opponent in mediation as a serious threat in the courtroom, I'll take a harder position than I would otherwise," he explains. "But if what I see is a good advocate on the other side, [then] resolving the case becomes not only sensible but required."

The upshot is that clients want lawyers with more than one arrow in their quiver. "I don't know of anyone who has a reputation as a good mediation counsel who also doesn't have the reputation of being an effective trial counsel," he says.

That's handy if it means that there will be more mediation, and more mediation with successful outcomes. As Bryan puts it, mediation means never having to say you're sorry.

Julius Melnitzer is a freelance legal affairs writer.

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