Dealing with risk and uncertainty in mediation

There comes a point in all mediations where the parties need to decide whether or not to accept an offer.  To make that decision they need to compare the offer on the table with what would happen if they rejected the offer.  Rejection usually means going to court.  Going to court means risk and uncertainty.  No matter how bullish the advice a party receives, there is always a chance that a judge may see things differently.  So how do you decide if the offer on the table is better than going to court in the face of this uncertainty?

There are various tools to help put a value on an uncertain future event.  At the heart of most approaches is the notion of "expected value".   If I toss a fair coin with £10 on heads and nothing on tails, then the expected value is £5.  This is calculated as (£10 x 0.5) + (0 x 0.5) = £5.  Similarly, if your chances at court are 50-50 and you get £10m if you win and nothing if you lose, then the expected value is £5m.  If the offer in the mediation is greater than this, say £6m, then it is clear that you should accept the offer rather than go to court: £6m is better than £5m.

The cost of winning...

Talk to anyone who has been through litigation and a trial and they may well tell you the process was cripplingly expensive and the outcome unsatisfactory.  Why is it then that people, their companies, and sometimes their lawyers, more often than not, seem to regard any form of mediation as a sign of weakness rather than a sensible first step?   Maybe most people want to "win" or prove a point.

If that isn't true, why is it that so very few disputes going through the Courts are mediated?  After all, mediation does work in resolving around three quarters of disputes. 

And it is not just disputes that can be addressed. At the very early stages of discussions about a potential dispute, where the parties just differ but have not fallen out, or maybe where parties are trying to negotiate contract terms, a good mediator can help sort things out.

Refusal to Mediate affects Costs Entitlement

The Court of Appeal, in its February 2011 judgment in the case of Rolf –v- De Guerin has taken the opportunity to reiterate that the conduct of parties during litigation, and in particular a refusal to mediate or attempt other forms of alternative dispute resolution, will have a significant impact on the costs award at the end of a case.  The well known 2002 case of Dunnett –v- Railtrack Plc established that a party who refused to mediate, even if successful in litigation, may not be awarded costs.  This was clarified somewhat in 2004 in Halsey –v- Milton Keynes NHS Trust which set out the factors which a Court should take into consideration in deciding whether or not a party had unreasonably refused to mitigate.  The non-exhaustive list of considerations included whether a case was intrinsically unsuitable for mediation (very few cases would fall into this category), the merits of the case and in particular did a party reasonably believe it had a water-tight case, other attempts to settle, whether costs of mediating would be disproportionate, whether it would case delay to the trial and the prospects of success of the mediation.