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In-House - June 2006

(In-house Lawyers' Association official publication)

In-house Management of Business Disputes

Disputes cost European businesses millions of pounds each year. The vast majority of these costs are centred around the actual cost of bringing or defending legal proceedings in Court. Michael Lind explores how in-house counsel are reducing their companies’ legal bill by mediation.

In-house counsel plays a significant role in the effective management of an organisation’s internal and external legal affairs. Reporting direct to the Board, in-counsel direct and often heavily influence final corporate decision making on the resolution of dispute or potential disputes. Management within budget is an underlying theme. Use of external panel law firms feature in the majority of bigger cases and are unfortunately a big drain on corporate reserves. In some cases their fees are unrecoverable.

The hidden cost of conflict namely human resource, diverted management time and lower productivity is often absorbed as part of an operational overhead. By the time a dispute ends up before a Judge or Employment Tribunal Chair, a total of 12.8 internal management days may be spent (2004 CIPD Survey on the average time taken to defend an action in an employment tribunal). When this diverted management time is added to

in-house legal overheads and any external legal expenditure and any compensation or award payable, the total cost is not insignificant.

In a further survey of leading European companies operating internationally, released by leading European law firm DLA Piper Rudnick earlier this year, it revealed that only 28% of respondents managed disputes very effectively and less than a third said they had successfully avoided disputes altogether. Interestingly, litigation remains the predominant way of resolving disputes, but 40% of companies considered this a poor approach.

The reality is that this ‘lost’ time could have been avoided or managed more effectively by mediation. In-house legal counsel are extremely well placed to make decisions about the path of a dispute. The process of mediation involves the appointment of a third party neutral who assists the parties to reach a sensible commercial solution without the cost and time of having to go to trial. Mediation does not have to go through a panel law firm, although in the past this has been the preferred route.

ADR Group’s mediation statistics show more in-house counsel participating directly in mediation referrals on behalf of their own organisations. The reason behind this appears to be that in-house counsel are increasingly confident in their knowledge of the mediation process, their detailed knowledge of the background and facts to a particular dispute and more importantly hold sufficient authority to reach a binding settlement on behalf of the organisation.

The commercial advantages of mediation are numerous:

Improve profits:

• Mediation allows in-house counsel as key decision makers to participate in focused settlement meetings where decisions of commercial importance can be made (unlike Court decisions which are based on legal not commercial imperatives). Appropriate and timely resolution of a large dispute through mediation will undoubtedly save a hefty trial fee and add to the organisation’s bottom line

• Mediated solutions are less likely to be reneged upon and the processcan facilitate discussions including the re-negotiating commercial contracts with future revenue generating potential. Settlements are mutually agreed and not imposed on the parties. Reality testing techniques and risk assessment exercises (both financial and legal) are used to effectively guide parties to sensible commercial outcomes. In the UK, the average settlement rate for disputes referred to mediation is just over 80%.

Cut costs:

• Early and effective resolution of disputes enables businesses to minimise on-going legal expenditure and diverted management time and focus on performance, profitability and generating shareholder value. Settled cases allow in-house counsel to focus on other corporate and legal affairs that are not suitable for mediation
• Mediation can be used for internal (shareholder, HR or employment) and external (customer or supply chain) disputes - the process is flexible and can be applied in any business sector

Mediation is a voluntary process. Parties involved in conflict cannot be forced to mediate. More importantly parties cannot be forced to settle if they participate in the process. But the Courts recognise the real value mediation may offer parties in dispute and are increasingly directing parties to consider mediation. Failure to consider mediation in any litigation or when directed to do so by the Court may result in an adverse costs order, even if you are successful in your principle claim. There is no immunity granted to organisations represented by in-house counsel. There is now a body of legal precedent supporting this position and evidencing the general ground swell of pressure from the Courts to encourage mediation.

In response, many organisations now incorporate dispute resolution clauses into their business and employment contracts. The reason for this is that it places a contractual obligation on both parties to attempt the early resolution of any disagreement that arises pursuant to the contract, before resorting to the conventional (and often costly) route of litigation. It is important to seek appropriate legal advice prior to including any such term in a contract.

Example of a simple ADR clause:

Mediation is more than an alternative to litigation - it is a commercial tool; a pro-active management device and one that is becoming common currency in the competitive business environment.

In addition to arranging mediations, ADR Group is training an increasing number of in-house counsel as mediators and, more recently, as mediation advocates. The core skills and competencies acquired through a comprehensive mediation programme not only assists the practitioner in the direct resolution of disputes, but can be applied on a daily basis as an effective communication and management tool. No-one is ever too old or too important to acquire new skills. Carpe diem!

To find out more about mediation and how it can help your business please contact Michael Lind, Managing Director of ADR Group

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