The disclaimer that all lawyers give their clients upfront in litigation is that litigation is lengthily, expensive, and without guarantee.
Disputes, however, do not have to be a binary choice of either entering lengthily acrimonious litigation, or walking away from a claim. Mediation is a recognized preliminary Alternative Dispute Resolution (“ADR”) process available to disputants to try and resolve a dispute before being forced to initiate traditional litigation.
It costs a fraction court case, both in time and money, and its outcome can be priceless.
Our view is that it that mediation is not utlilsed often enough in the South African commercial arena, and even when it is, its prospects are often not maximized due to lack of proper preparation by the parties and their legal representatives.
What is mediation?
Mediation is an informal process which uses a mediator to try find common ground between the parties to cultivate a settlement to resolve a matter. If it succeeds, litigation will be unnecessary. It does adjudicate any merits or equities; it facilitates a dialogue.
It is a simple and flexible process conducted confidentially. It also allows the parties to ‘keep “ownership” of the matter’, and not hand it over to the strict legal process and its gatekeepers (lawyers).
It can also offer a wide range of possible commercial resolutions which litigation would not be able to provide. For example, a relationship can be kept between the parties, terms of an arrangement can be amended, or resolution can be found through new business.
For these reasons, a compulsory mediation process has found its way into many commercial agreements as the gateway a dispute must pass though before an arbitration can begin. The term is created in a Med-Arb clause in the agreement. [The recommended precedent AFSA Med-Arb clause for commercial agreement can be found here].
Mediation is a solution or a tool
The most attractive thing about mediation is that if it is unsuccessful there is no prejudice to either litigant’s case. Furthermore, an unsuccessful mediation process has strategic benefit to subsequent litigation as it will assist in formulating the litigants claim, help the client understand its legal nuances, and obtain information from an opponent that a party would not have got at the inception of the strict litigation process.
We previously discussed Litigation Game Theory. One of the key insights was that a settlement will likely ensue when each party’s respective settlement thresholds overlap, and, they are provided an opportunity in-person to settle.
In traditional litigation, the in-person opportunity usually only comes about on the steps of court, after much time, expenses and emotion have been incurred. A mediation provides a forum for that in-person opportunity to take place at the outset of a matter, far earlier than an adversarial court process.
As a side, we have found that a common denominator for many successful mediations is when both chairman or CEOs of the disputant companies are present in the respective mediation teams, it leads to a successful result.
The paradox of the formal preparation for an informal mediation
Despite its obvious benefits, mediation has a low adoption and success rate. This is down to many lawyers wrongly seeing it as a futile exercise or, at best, a cheap and nasty way of potentially reaching a bad settlement for a client. What’s worse is, that attitude is when a Med-Arb clause is contained in an underlying agreement between the parties! The adoption rate of mediation by choice is, lamentably, minuscule.
The cynics reading this will think that the low adoption and success rates are because lawyers are not incentivised for the mediation process to work as it means less fees, if it is successful.
We do not hold the cynical view. We believe the real reason for the relatively low adoption and success rates is that lawyers don’t realize its potential because of its paradigm shift from litigation; it is informal, has no “judge”, no case law, and no formal pleadings to be filed.
This lost opportunity is significant; a mediated settlement can result in tens of millions of rands in time and fees being saved by the parties and provide a basis where they both can “win”. And even if it is unsuccessful, its cost will not be sunk as the preparation and information will assist both the client and legal team later in the litigation.
The key is to prepare for it properly and give the mediation the respect it deserves. The legal team must prepare and arm the client with the merits, equities, and nuances of a matter as if they were going court. It must have expert reports, submissions, and scenario plans. A well-prepared mediation can be an extremely powerful signalling event that can demonstrate what is to come from a party if the mediation fails.
Yes, mediation if cheaper than litigation, but proper preparation can cost hundreds of thousands of rands, upfront.
Litigation funding is available for mediation and it is something Taurus specializes in. Transactions are tailored around the relatively low cost and short time horizon of the mediation weighed against those present and future risks involved.
The disclosure of a litigation funder having funded the mediation and its preparation is also a powerful signal which would be played early enough in the dispute to haunt the other side, therefore, increasing the mediation’s prospects of success.
If the mediation is unsuccessful, the funding transaction would seamlessly evolve to fund the subsequent litigation with no further agreement needed and no prejudice to the claim, legal team, or client.
We cannot stress the value of mediation enough to any potential litigant. And, when armed with a litigation funder, prospects of success are maximized via proper preparation and the signal that the funded party is willing to litigate to finality via to an appellate court, if necessary.