Is your dispute ‘over-ripe’ for mediation?

A commonly reported rule of thumb is that 95% of civil litigation cases settle before judgment. In reality, statistics on settlements (as distinct from ‘finalisations’) are thin. However, my experience is that, indeed, the vast majority of cases do not reach trial. Most of those that end before trial involve some sort of settlement.

But not all settlements are equal. Most litigators have experience with disputes that settle early, on sensible terms, and with contented clients. Most also have experience with disputes which settle on the doorstep of the trial simply because the parties have run out of time, willpower, money, or some combination. Sometimes these factors force a party to accept an unfavourable settlement that does not represent a fair compromise.

It has also become commonplace for courts to encourage parties to mediate before trial. Most courts have rules or practice notes that specifically refer to mediation and other forms of non-litigious dispute resolution. The Federal Court of Australia Central Practice Note (CPN-1) refers to alternative dispute resolution in many places. For example, alternative dispute resolution options are a standard agenda item at the first case management hearing.

Case Management Hearings

8.4 The first case management hearing is integral to case management. The aim of the hearing is to identify issues at the earliest possible stage. At the first case management hearing, consideration will be given, in particular, to the following:

• the appropriate course of efficient preparation of the matter and the steps truly required, including … the most appropriate method of trial;

• the possibility of listing the matter for hearing… where possible, within 6 months of the case management hearing, to set a date for hearing with a hearing date as early as reasonably possible … ; and

• the available dispute resolution options, including mediation.

Regrettably, even here, mediation is only the third item, and it is presented in a way which makes it seem secondary to the process of preparing the matter for trial.

Without wishing to be critical of the Federal Court’s initiative, what I have observed, and even felt myself, is a sense that mediation is a box (and one of the last) to be ticked before trial.

A consequence is that some lawyers have come to see a mediation held before a matter is ready for trial as being early. Where mediation occurs before discovery of documents or filing of evidence, parties (or, more accurately, their lawyers) may be reluctant to make concessions without seeing that evidence. If the ‘early’ mediation fails, a common refrain is to say that the matter was ‘not ripe’.

These lawyers believe they have their client’s interests at heart. Nevertheless, the implications of the statement are, first, that the resolution of the dispute by mediation depends primarily on an evaluation of legal rights and associated risks, perhaps to the exclusion of other interests and, secondly, that the court proceedings must continue until a large portion of the potential legal costs have already been incurred.

A hypothetical

Say we have a dispute between a property owner and the builder engaged to construct a group of shops. The owner and the builder each think that the other has breached the contract, perhaps by not finishing work on time or not paying everything that is owed. One threatens litigation.

At that point in time, the owner’s interests may include getting the construction completed as soon as possible, paying the lowest reasonable price, maintaining a relationship with the builder, and keeping potential tenants informed and happy. The builder’s interests may include paying employees, paying suppliers and subcontractors, performing high-quality work, maintaining a good reputation, and making a profit.

If the builder sues the owner, as is quite common, the litigation may follow the usual path where both parties focus on their perceived legal rights — who is right or wrong under the contract terms. Often there is fault on both sides, but even if the blame is not shared equally, each party will still believe they are in the right. The lawyers will caution their clients about the time, expense and stress of litigation. Still, at the same time, they will advise on the strength of each party’s legal position or the further investigations required before giving final advice.

This is a mixed message. The opportunity for a non-litigious resolution can be deferred or overlooked until the advice on legal rights is clearer.

Regrettably, in this scenario, the parties go down the litigation path. Pleadings define the dispute in legalistic terms. Discovery puts everyone to considerable effort, focusing on those documents which will help or harm the legal case. Potential witnesses are encouraged to give evidence supporting one side or the other.

Six months later, a judge encourages the parties to consider mediation. The lawyers think they now have a good understanding of the strengths and weaknesses of the case. The matter is now ‘ripe’ for mediation.

However, in those six months, the project stalled, the owner terminated the contract and has now engaged another builder for a higher price, completion will be delayed by a year, potential tenants have found alternative premises, the builder is fighting off claims by unpaid subcontractors, and the builder’s reputation for quality work has been undermined. In addition, both parties have been distracted from potential business opportunities and have spent a small fortune on their lawyers.

In mediation, the parties’ interests have boiled down to vindication, compensation, and minimising future legal costs.

Hypothetically, suppose the parties had mediated before litigation, even without knowing the full extent of their legal rights and risks. In that case, they could have reached a settlement where the contract terms for time and cost were adjusted, everyone’s reputation was maintained, the project could be completed successfully, and both businesses could profit. By waiting until legal rights were more apparent, the underlying interests were ignored.

The National Mediator Standards model

In Australia, mediators may be qualified under the National Mediator Accreditation System. The NMAS practice standards promote a mediation style that focuses on the parties’ self-determination:

Mediation is a process that promotes the self-determination of participants and in which participants, with the support of a mediator:

(a) communicate with each other, exchange information and seek understanding

(b) identify, clarify and explore interests, issues and underlying needs

(c) consider their alternatives

(d) generate and evaluate options

(e) negotiate with each other; and

(f) reach and make their own decisions.

In particular, this model says there should be a focus on interests, issues and underlying needs, considering alternatives and evaluating options.

What happened in my hypothetical scenario was a focus on rights, positions and demands at the expense of the party’s other motivations — their true interests.

Early in a dispute, those interests can be addressed in more than one way. As the dispute progresses, positions become entrenched, and costs are incurred. Flexibility in dispute resolution is lost.

In my view, the dispute became ‘over-ripe’. The best options for resolving the dispute had withered on the vine.

Any lawyer who has litigated for a while will be very familiar with cases where legal costs become the critical driver of a case. The parties feel they can’t afford to settle without recovering the costs, but they can’t afford to proceed to trial and incur more costs.

Both parties will probably be unhappy with both the outcome and the process that got them there. Any settlement may be a relief by that point, but it will still leave a bad taste in the mouth.