Chris Todd

Partner, Bowmans

The source and extent of a lawyer’s professional duty to inform a client about the possibility of mediating a commercial dispute, and in appropriate circumstances to recommend it, is regulated differently across different jurisdictions. In some, it is an explicit rule of professional practice or ethics. In others, it is merely encouraged or referred to in guidelines for lawyers.

The lawyer's professional duty to inform clients about mediation

In South Africa, evolving standards of corporate governance best practice, growing judicial support for mediation in appropriate circumstances, and the introduction of Rule 41A of the High Court Rules leave no room for doubt that commercial litigators now have a duty to explain to clients what opportunity mediation presents for resolving their dispute. Parties must necessarily be empowered to make informed decisions on their approach to mediation either when instituting or defending proceedings.

Reasons to recommend mediation to clients

Apart from the legal professional duties involved, extensive research has been conducted across multiple jurisdictions into the reasons why lawyers either recommend mediation to their clients or avoid it in the course of commercial litigation.[1]

In the book on this topic first published in 2012 [2] we suggested that the business community and commercial lawyers were inherently conservative in the arena of dispute resolution, that mediation was often perceived as a ‘soft’ process that reflects weakness or indecisiveness on the part of disputants, and that there were vested interests in slow and expensive adjudication processes. A recent survey conducted by Scottish law firm Morton Fraser[3] found that while the overwhelming majority (90%) of lawyer respondents believed that they had a good understanding of what is involved in mediation, and a majority had been trained to represent clients at mediation, only 16% would suggest mediation to clients in most cases, and 13% would never suggest it.

The main reasons given for not suggesting mediation to clients were cost (including a reluctance to add further costs to the dispute and a sense that costs of mediation were unnecessary when competent lawyers should be capable of negotiating settlement themselves), a belief that their own clients or the opposing side would not be interested in mediating, a fear that proposing mediation might be perceived as a sign of weakness, and concern about the timing of mediation - it was either too early to consider it, or too late!

The results of this survey are familiar. Writers on the topic have produced numerous articles over the years responding to a perceived reluctance to mediate, dealing with common myths or misperceptions about mediation, and similar topics. There is of course a risk that proponents of mediation might either overstate its benefits or downplay legitimate concerns about the timing or potential abuse of the process. But there can be no doubt that in South Africa the full potential of mediation in the resolute of commercial disputes has not yet been realized. In the UK, CEDR estimates on the strength of its Ninth Mediation Audit that for the year to 31 March 2020 (immediately before the covid-19 pandemic) the size of the civil and commercial mediation market in England & Wales was some 16,500 cases per annum. This represented a 38% increase over the 12,000 cases estimated in 2018, suggesting a continued acceleration of growth in the use of mediation for commercial disputes in that market.[4] The settlement rates remain high, with mediators surveyed recording that 72% of cases achieved settlement on the day of mediation, with a further 21% settling shortly after mediation. Settlement rates reported by lawyers were slightly lower, at 85% overall.[5]

The usefulness of comparators should not be overstated. Nevertheless, despite its obvious potential within the dispute resolution system in South Africa, and despite the structural recognition now afforded to it within that system, it is fair to say that mediation remains under-utilized in commercial disputes, and its potential in the more complex area of cross border disputes is largely unexplored.

While there are no doubt many different reasons for this, and we hope that research planned in the first quarter of this year will bring some of these reasons into sharper focus, there are a number of considerations commonly cited as discouraging mediation. For the present, I single out three of these, which I have little doubt are relevant in our market. They are costs, timing, and skills (of lawyers and mediators).

Costs

On costs, mediation is sometimes oversold as being cost-effective when the reality is that a high-quality mediation process requires detailed and thorough preparation, and enough time for meaningful engagement between the parties, with the result that it involves significant legal costs. Mediation is not necessarily either a quick or a cheap alternative. The real benefits of mediation are frequently not a result of a reduction in direct costs such as legal fees (even though early settlement can produce a significant reduction in those costs). What needs to be brought into account as well are productivity costs (time taken and lost by litigants, with consequent opportunity costs), relationship costs (including the impact on valuable past and future business relationships), emotional costs, and reputational costs. Mediation as a process designed to promote settlement is capable of producing very significant advantages over traditional adversarial litigation processes across all of these areas. This means that a proper assessment of the cost of mediation does not assume that it is a cheap alternative but rather assesses its potential in tackling complex or protracted disputes that might have ongoing negative consequences for parties or businesses for so long as they remain unresolved.

Timing

On the question timing of mediation, and the sequence of steps in a dispute resolution process, competent commercial litigators think carefully about the timing of attempts to negotiate settlement, the sequence of steps involving litigation and negotiation, and the value that might be gained from introducing a mediator into those steps. Where there have been serious attempts to negotiate resolution of a dispute before litigation commences a party may believe there to be little point in attempting mediation prior to issuing summons. And the course and sequence of litigation might itself produce new information or a change in background circumstances that dictate a shift in strategy over time. As a result hard and fast rules about when, where and how to propose or engage in mediation are not realistic. [6] The main point is that, in particular following the introduction of Rule 41A of the High Court rules, it is not optional for a litigator to give careful consideration to the potential use of mediation, and its timing.

Skills

On the question of skills, a common reason given for mediation being considered an unnecessary expense is that lawyers have (or should have) the ability to negotiate successfully themselves. As a result, lawyers fear that recommending mediation to their clients may be perceived as a sign of weakness on their part, or that they don’t have the skills to litigate successfully or negotiate good outcomes. Mediation is in fact most likely to be successful in complex commercial matters when the parties are represented by effective lawyers with strong negotiation skills. But this does not mean that they can do it themselves. That overlooks a key characteristic of mediation, which is the value brought to a negotiation by the introduction of a skilled outsider, the mediator, who is able on a confidential basis to get insight into the stance and approach of each side separately and in that way to help unlock the possibility of common ground that the parties might have found it difficult to identify without the benefit of side meetings with the mediator.

With commercial mediation still in a relatively early stage of its development in South Africa it is perhaps not surprising that a significant number of commercial litigators have not yet had much practical experience of successfully resolving complex disputes through mediation. And it takes more than one example. Experience is accumulated over a long period of time, and through experience of significant numbers of mediation processes. This means that building experience is an inherently slow process, and it will inevitably take time for commercial litigators to grow more confident in mediation as a dispute resolution process.

As a result, it is essential to continue to grow the exposure of litigants and their lawyers to the role and benefits of mediation. This requires ongoing effort from mediators too, who must be able to demonstrate and showcase excellent mediation skills to those involved in disputes and who have taken the step of initiating mediation processes. If parties are confronted by ordinary mediators with ordinary skills, it will not be surprising to find them being reluctant to commit the time and resources necessary for effective mediation in the future.

The opportunity

There is an extraordinary opportunity to improve commercial dispute resolution in South Africa by growing the use of mediation at the appropriate time in almost every dispute that cannot be settled by negotiation between the parties. Collective effort is required. Putting in that effort is no longer optional. Both litigants and their lawyers will prosper if we get it right.

[1] Look out for the Conflict Dynamics survey on this topic that will be taking place during the first quarter of 2022. The objective will be to ask practitioners to provide insight into the main drivers of mediation in commercial disputes and to identify obstacles to its growth.

[2] Commercial Mediation, Juta, 2nd edition 2016 at p4

[3] Published at www.morton-fraser.com/insights/why-lawyers-dont-use-mediation

[4] The survey does not cover either community or family mediation, or include the statutory ACAS service or Small Claims Mediation Service

[5] Ninth CEDR mediation audit at p16

[6] On factors relevant to the decision to mediate, see generally Commercial Mediation, Juta, chapter 6