Settling liquidation (and other) claims by Mediation – ‘if you are going to miss the bus, make sure you do so running to catch it’
In our first article -n this series –‘The Anatomy of a claim against a Director’ – we looked at the benefits and mechanics of the Director and the Liquidator ‘doing the deal’ to settle a Liquidator claim. But how? In this second article, we explore the settlement of insolvency litigation claims by Mediation.
How might a claim settle?
- In correspondence – often difficult. Lack of trust on both sides and an unwillingness to engage and be ‘reasonable’ often gets in the way.
- In a without prejudice meeting? Possible but without a Mediator in the mix, often very difficult.
- In a Court action. Risky, time consuming and potentially financially ruinous.
- By Mediation.
Mediation – what is it?
Mediation is but one form of Alternative Dispute Resolution (‘ADR’). We are huge fans of Mediation. We have achieved excellent outcomes for both Directors and for Liquidators by Mediation of disputes. We take clients through the Mediation process in all types of contested disputes. The process is non-combative and usually requires the parties to physically be in the same building at the same time – on the Mediation Day.
That is often an emotional (but often ultimately worthwhile) barrier to go through for warring parties. Perhaps, the best analogy is dogs and cats in the Vets waiting room – ever noticed how there’s a sense of ceased hostilities?
That’s the effect Mediation Day often has, not only between combatant litigants but also between opposing legal teams. We have been part of many mediated settlements reached between bitter and warring opponents – the process works.
The Mediator
Is chosen by the parties. The Mediator acts as a referee, facilitator, cajoler, explainer, negotiator and agony aunt on Mediation Day. During the Mediation, he/she conducts shuttle diplomacy between the parties, who often (after perhaps an initial joint opening session – optional) spend the day in separate rooms on Mediation Day.
The presence of a Mediator and the parties knowing that this day is their one great chance to do a deal and end a dispute, is often and must be the strongest catalyst for settlement. Experience suggests that the parties most often get to the actual point of settlement during the last 3 scheduled hours of a Mediation Day.
Maintaining momentum during Mediation Day is vital. That is the responsibility of not just the Mediator, but everyone present.
What is a good settlement?
In our experience, this involves both sides leaving the Mediation day with a signed settlement, perhaps all feeling bruised and with both parties paying or accepting less than is ideal but with the knowledge that:
- The uncertainty of the dispute (and perhaps already started Court proceedings) is ended.
- Legal spend of the dispute is at an end.
- Future financial and emotional risks posed by uncertain litigation are over.
- The parties can all move on.
Other advantages of mediation
- Mediation is a flexible and user-friendly process, unlike the rigid Court process
- It brings warring parties (and their Solicitors) together in a much less confrontational environment than a Court room and often much earlier than would happen in a Court process.
- It allows for flexible outcomes that are not available from a Court.
- There’s often a great lunch provided by the host on Mediation Day (who doesn’t love a buffet?).
A recent example
In a recent case we were involved in, the 2 opponents (brothers) in achieving a settlement, went much further than the subject matter of the mediated dispute (which related to 11 commercial buildings) and also carved out a deal ending their relationship in 2 other unrelated businesses (that were not the subject matter of the mediated dispute). They may not sit down for Christmas dinner together anytime soon, but the route to it has been paved.
When can I mediate?
A Mediation can happen, with the will of the parties, at any point in the dispute process, before proceedings are commenced and up to and even after Trial.
Do I have to mediate?
It appears so! The Court of Appeal in the recent case of Northamber Plc v Genee World (2024) imposed costs sanctions on a party who failed to Mediate in breach of an Order to do so. Mediation will, we predict, become mandatory in commercial disputes in the foreseeable future.
Keys to a successful Mediation outcome
- Be enthusiastic. Explore with your Solicitors/your family/your business partners what your parameters of settlement are before you go to Mediation – get key people (often family members) to understand and buy into the reasons why you may want to settle (i.e. remove that barrier) and explain to them, the likely cost (financial or otherwise) of not settling and the benefits that may flow from settlement.
- We regularly use Mediation as a form of dispute resolution for our clients. Recognise that it is effective, quicker and cheaper than litigation.
- Choose a Mediator who understands the legal principles of the claim (i.e. who has the right skill set) and who gets stuck in on Mediation Day, cajoling and prompting when needed, to ensure momentum during the day so that the process has the best prospects of a successful outcome.
- Answer the Mediator’s questions. He/she will be trying to help, having spoken with your opponent. Notice how the Mediator reacts. The Mediator is a neutral party.
- Commit to the Mediation process ahead of and on Mediation Day. After 10 hours of sitting in a room with your legal team and a Mediator on Mediation Day (not unusual), most people want to do a deal and go home. Stay focused.
- Attend Mediation Day with a realistic financial (or other) settlement proposal in mind. Do not set red lines in advance. Be prepared however to ‘go further’ and do what it takes to get the deal done, to achieve certainty and avoid future financial risk. Quite often, the ‘high point’ of a client’s willingness to settle (i.e. ‘I won’t go beyond £50,000) becomes a higher number by the end of the day, to reflect the huge advantages of settling. Be prepared for that.
- Recognise the cliff edges. A mediated settlement avoids future cost, worry, Court attendance, distraction from business and family as compared to the uncertainty, risk and cost that comes with contested litigation. Absent a mediated settlement, the alternative may be the often significant cost and uncertainty of the Court litigation process – remember that.
- Be creative. Think outside the box. ‘Can I offer something other than just cash’ (perhaps over an extended period) to settle this dispute? Meditation as a process allows for all sorts of staged payment and other solutions to be agreed – compare that with a rigid Court process.
- Engage with the opponent’s points. Give their decision makers the justification and reason to settle.
- Be prepared (if necessary) to confront and sit with your opponent on Mediation Day. A handshake or an apology or just taking time to listen can sometimes unlock problems. Do whatever it takes.
- Allow seemingly stalling negotiations on Mediation Day (and that point is inevitably reached), to be invigorated and revived by, for example, a chat between Solicitors (without clients present) or between members of each side. It may unlock the problem and allow barriers to be removed/progress to be made. Do what it takes to maintain momentum.
Conclusion – always consider mediation for settling Liquidation Claims
Mediation has been an available settlement process for decades. Lawyers have been slow to embrace it. We are huge fans of it. The Courts are now imposing it so get used to it!
