NEW ERA DAWNS FOR COMMERCIAL DISPUTE RESOLUTION

Monday, January 14, 2008
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By Chris Todd and John Brand
 
Mediation has a long history in South Africa as an effective method of resolving labour, family and community disputes.
 
The expertise of South African mediators has been recognised internationally and has been employed in volatile negotiations in Northern Ireland, Spain, the Middle East and elsewhere.
 
Surprisingly, disputants in the commercial arena have been slow to recognise the power of mediation, perhaps because of:
 
·        The inherent conservatism of the legal system;
·        A belief that mediation is a “soft” process reflecting indecisiveness on the part of disputants; and
·        The absence of any established mediation agencies.
 
The good news is that decisive steps are now being taken to change this. Before looking at these in more detail, it is useful to survey developments elsewhere in the world.
 
In the UK, new civil procedure rules were introduced in 1999 following growing case backlogs, increasing costs of litigation and corresponding concerns about access to justice for poorer citizens.
 
The changes introduced the requirement that Courts manage cases actively. This included the Courts encouraging parties to use alternative dispute resolution (ADR) procedures if they considered this appropriate.
 
The Courts were also empowered to order the stay of proceedings pending the use of ADR procedures and were required to consider the settlement efforts of parties in making costs orders.
 
Most significantly, the UK Government recognised the importance of these new developments. In March 2001 it pledged its commitment to ADR, vowing that in future Government would only go to Court as a last resort and that, instead, Government legal disputes would be settled by mediation or arbitration whenever possible.
 
Industry bodies and a significant number of major companies followed suit, pledging their support for ADR, and most major law firms committed themselves to exploring ADR where appropriate.
 
The result? Some 3 000 commercial disputes are mediated in London annually.
 
In the US, similar developments have taken place, with 1 500 law firms and 800 companies pledging to support ADR processes before litigating. Mediation is mandatory in several states. JAMS, a leading American dispute resolving body, handles over 10 000 cases a year.
 
In mainland Europe, active mediation takes place in the context of commercial disputes in most countries, while commercial mediation is emerging in Russia, Bosnia, Slovenia, the Czech Republic and Slovakia.
 
These trends are now expected to result in a European Commission directive aimed at harmonising the practice of mediation in European dispute resolution systems.
 
In Asia and the Middle East commercial mediation is either established or emerging in Singapore, Hong Kong, China, Thailand, Japan, Bangladesh, India, Saudi Arabia and Israel.
 
And elsewhere in Africa, in Nigeria, Ghana, Kenya and Uganda, commercial mediation has been or is being established as a mainstream process for resolving commercial disputes. The African Mediation Association has been formed to promote mediation across the continent.
 
Why is this happening? A 2006 study revealed that conflict in British business cost some £33 billion a year. Less than 20% of this went to lawyers. UK research has also shown that a dispute with a value of £1 million typically burns up more than three years of a line manager’s time.
 
Arbitration, while still adversarial, is frequently preferred to Court litigation because it is generally thought to be quicker and more convenient to arrange.
 
Research in the US, however, shows that even arbitration takes an average of over 16 months from the filing of a complaint to an award, while the costs of management time and focus are often not quantified at all.
 
And the cost to a country of providing a court system to deal with adversarial conflict is substantial. These costs combined present an enormous financial drain on an economy.
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For the parties there are other significant disadvantages of adversarial litigation. Court decisions are frequently unpredictable, and adjudicators are usually limited to declaring one party a winner and one a loser on a key issue in dispute.
 
Parties must focus on asserting their rights or perceived rights in a public forum. And in the course of adversarial litigation, the relationship between the parties is frequently harmed irreparably. Finally, litigants who simply cannot afford the cost of the exercise may ultimately be deprived of access to justice.
 
These disadvantages of adversarial commercial litigation contrast with the characteristics of commercial mediation, the most obvious advantage of which is the speed at which the process can be convened and concluded.
 
In the UK, CEDR estimates that of the approximately 3 000 commercial disputes mediated in London each year, 70% to 80% are settled within one or two days, and a further 10% to 15% within a few weeks of mediation. These outcomes are usually achieved at a significantly reduced cost.
 
In addition, because of its essentially consensual nature, as an extension of a negotiation process with the assistance of a third party facilitator, the parties retain ultimate control over both the process and its outcomes.
This may have a positive impact on relationships that have deteriorated in the dispute.
 
The negotiation process inherent in mediation enables the parties to address causes of the dispute and to manage the attendant complex business interests. Indeed, the process may deliver outcomes characterised by mutual gain.
 
Other advantages include the possibility of bridging mistrust, poor communication and lack of skills – characteristics that make it particularly suitable for disputes where an ongoing business relationship is important.
 
Significantly, where mediation has been implemented effectively, an 80% to 90% settlement rate is realistically achievable in the right environment.
 
The considerations that have driven the growth of commercial mediation elsewhere are equally applicable in South Africa.
 
The establishment of commercial mediation in legal practice in South Africa should provide a strong incentive to foreign investment. Its dispute resolution system must be world class and appropriate to the resolution of potentially complex and significant cross-border or multi-jurisdictional disputes. Commercial mediation will inevitably play a critical role in establishing and developing South Africa’s reputation as a reliable business destination.
 
Against such a background, South Africa must continue to train and develop world class mediators. We already have a rich heritage of mediation, particularly in political and community disputes, in labour disputes and family disputes. There will be no shortage of suitable mediators, but formal accreditation with an internationally recognised mediation body is essential to the credibility of commercial mediation in South Africa.
 
Important steps have recently been taken to achieve this.  World class commercial mediator training has been procured and provided by CEDR, the Centre for Effective Dispute Resolution in the United Kingdom.  South Africa now has thirty five CEDR accredited commercial mediators and this number will probably increase to more than fifty by early 2008.  A leading agency in the field of labour mediation will shortly launch a major commercial mediation service, and other agencies may follow suit.
 
Critically, Government and the legal community should encourage disputants to pursue ADR as an alternative or an adjunct to litigation. The same pledge may be sought from private sector players. There has been a positive response to this kind of initiative in the UK and the US.
 
Sound corporate governance dictates this approach and the draft new Companies Bill makes specific provision for ADR as an alternative to applying for relief to a court.
 
Amendments to the rules of the High Court and other adjudication fora would assist.  In the context of employment law, the Labour Relations Act provides that the Labour Court may refuse to determine any dispute, other than an appeal or review before the Court, if it is not satisfied that an attempt has been made to resolve the dispute through mediation.
 
The introduction of active case management into the rules of civil procedure could incorporate similar provisions.
 
Although there is still much to be done, the growth of commercial mediation can offer huge benefits. Nothing should stand in its way.
 
John Brand and Chris Todd are directors of law firm Bowman Gilfillan. The former specialises in dispute resolution and the latter in commercial and employment law.