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31 January 2011 |
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Introduction Welcome to our first ADR ebulletin of 2011. Late 2010 was a busy time for Herbert Smith's ADR practice. In October we hosted an Institute for Conflict Prevention and Resolution (CPR Institute) corporate focus group looking, amongst other things, at changes in the way business users approach mediation across Europe. November saw our client academy seminar on the implementation of the EU Mediation Directive (see item 13 below). And as we move into 2011, the pace of development in the use and promotion of ADR, both within the UK and internationally, shows no sign of slowing. We have already seen the publication by the Insurance Institute of London of a new textbook on ADR tailored for the insurance and reinsurance industry (see item 7 below). Across Europe member states continue with measures to implement the EU Mediation Directive by May 2011 (see item 1 below). Finally, we are delighted that Herbert Smith has
recently been recognised, both in the UK (by CEDR) and the US (by CPR
Institute), for its
contribution to ADR in the sphere of commercial dispute resolution (see
item 14 below).
UK - ADR Legal and Practice Developments 1. Implementation of the Mediation Directive in England & Wales As reported by us in previous ADR e-bulletins, an EU Directive on mediation in civil and
commercial matters was adopted on 23 April 2008 by the European
Parliament. The Directive applies only to European cross-border
disputes, rather than disputes within any one Member State and
covers five broad areas: (1) promotion of mediator training and the
development of and adherence to a voluntary code of conduct; (2)
judicial encouragement of mediation; (3) enforceability of
settlement agreements; (4) mediation confidentiality; and (5) the
suspension of limitation periods during mediation. 2. Coalition government announces plans to promote greater recourse to ADR The UK coalition government has publicly committed to a greater use of mediation and other forms of ADR in the civil justice system (see the Ministry of Justice website for more details). As a first step the government has announced its intention to consult on the role of ADR with a view to developing proposals as to its wider use in the civil courts. We await the results of any consultation, but at this stage we expect that one outcome is likely to be a greater use of court-annexed mediation schemes. The government is also expected to strengthen its 2001 ADR Pledge to resolve public sector disputes by way of ADR as far as possible. It remains to be seen whether the UK's devolved assemblies follow the
UK Government's lead in committing to ADR. As highlighted in a recent
paper, the Scottish Mediation Network considers that the UK
government has saved £36 million through the adoption of the ADR Pledge
and suggests that Scottish taxpayers could be saved £40 million over
four years if the Scottish parliament voted to adopt a similar pledge. 3. CEDR launches research on conflict management CEDR's recent market research,
Tough times, tough talk,
reviews the attitudes of 1,000 people working in the UK to find out how
conflicts arise in the workplace and if they are getting worse. CEDR addresses what can be done about
difficult conversations, how conflict can be managed and how
full-blown disputes can be resolved most effectively. CEDR estimates
that the cost of business disputes amounts to £33bn per year,
comprising legal fees (£6bn) and the damage incurred by business as
a consequence of disputes (£27bn). 4. Scottish Courts re-examine the scope of adjudicator's decision In the 2010 case of WH Malcolm v AMEC [2010] CSOH152, the Scottish Outer House Court of Session returned to an often-raised subject, namely the scope of an adjudicator's decision. This involved two adjudications in relation to the same contract. In the first, the adjudicator had found that a particular method of measurement, the "Standard Method of Measurement 7" (SMM7) was to be adopted. Subsequently, in the second adjudication, the claimants had sought an injunction to prevent the second adjudicator considering any submissions to the effect that SMM7 was the correct method of measurement and prohibiting the second adjudicator taking a decision contrary to that of the first adjudicator. The adjudication was conducted under the TeCSA Rules which provide that no party shall make an application to the court in relation to the conduct of the adjudication until the adjudicator has made his decision and it has been complied with. The court held that this alone barred the claimant's claim. The issue of whether SMM7 was to be used was clearly a matter for the adjudication and should not be questioned by the court unless, as the TeCSA Rules provided, bad faith applied. Even then, the court concluded that the central issue in dispute in the first adjudication was not whether the subcontract provided for SMM7. This issue had not been raised in the Notice of Referral and whilst it was part of the first adjudicator's reasoning it was not part of her decision. The injunction was refused on this basis and the second adjudication continued. The decision illustrates that a Notice of Referral will define the
scope of an adjudication and other matters will not become part of the
referred dispute purely by virtue of having been raised in a response.
5. New guidance on workplace mediation produced by the TUC and ACAS In a newly published document entitled "Mediation: A guide for trade union representatives", ACAS and the TUC provide guidance in relation to the use of mediation in workplace disputes, with a view to raising awareness amongst trade union representatives of the benefits of mediation. The guide suggests that mediation can complement trade union representation, rather than replacing or undermining it, and highlights the benefits of mediation, including confidentiality, the avoidance of unnecessary grievance procedures and tribunal claims, the opportunity to maintain the employment relationship and the flexibility of outcomes when mediation is used. The guide also sets out several circumstances to which the use of mediation may be particularly well suited, such as relationship breakdown or personality clashes, perceived bullying and harassment or discrimination issues, situations where managers may not be well placed to tackle an issue due to perceived bias, or where negotiations between unions and management have broken down. The guide also outlines how trade union representatives can assist with the mediation process. It explains that employers should consult trade unions in relation to any plans to introduce mediation schemes, and gives guidance in relation both to how such schemes may impact on existing collective agreements, and how representatives should provide support to members of the mediation process where required. Interestingly, considering its authorship, the guide emphasises that mediations are most successful when trade union representatives are not present. It also states that due to the confidential nature of the mediation process, trade union representatives should only be informed about the fact that mediation is taking place, its details, and that it has taken place with the express permission of the parties involved.
6. CEDR launches mediation service in Northern Ireland for smaller disputes On 21 October 2010 CEDR launched its CEDR Solve Northern Ireland Mediation Service. The service will provide a mediation scheme for disputes up to £25,000. At a cost of £325 per party for a four hour mediation (plus £75 per hour for each extra hour) it is expected to provide a significantly quicker and cheaper alternative to litigating through the courts, particularly in respect of disputes which are not eligible for the court's small claims track. In addition to the low cost of the service, it is intended that the scheme will provide for mediations to be set up in as little as one week.
7. Insurance Institute of London publishes new ADR guide for the insurance and reinsurance industry On 5 January 2011, the Insurance Institute of London launched its
latest book, 'Alternative Dispute Resolution in Practice', to which
Herbert Smith litigation partners Alexander Oddy and Chris Foster and
associates Sam Vardy and Claire Goodwin made a major contribution. This book is believed to be the first ADR text dedicated to the insurance and reinsurance industry. In his foreword to the text, Lord Woolf describes it as a "most valuable" book, that "will fill a real need of those in the insurance industry for a practical, reliable and easily understood handbook on the contribution ADR, and in particular mediation, can make to resolving the disputes with which they are inevitably involved". To order a copy of the book, click
here. International ADR legal and practice developments 8. Increased role for mediation in Ireland In a suite of legislative changes culminating in the Rules of the Superior Courts (Mediation and Conciliation) which came into force in October 2010, the Republic of Ireland has amended its domestic ADR framework to promote further the use of ADR. In particular, Circuit Court and High Court judges will now be allowed to adjourn proceedings to facilitate the use of ADR and the High Court has been granted discretion to impose costs consequences for litigating parties who refuse or fail to engage in ADR. Existing rules, in place since 2004, permit the Commercial Court (dealing with cases over at least €1 million in value) to adjourn proceedings for up to 28 days in order to facilitate mediation, conciliation or arbitration. This development encourages the use of ADR in larger commercial cases. The new rules seek to increase the use of ADR in lower value disputes by way of similar provisions. The new rules for Circuit Court proceedings (for disputes below €38,092.14 in value) came into force on 1 January 2010 and contain a similar provision to the Commercial Court rules. In addition, the Rules of the Superior Courts now include two provisions: one giving greater powers to the courts to order ADR, and a second, more significant, provision giving the High Court and Supreme Court discretion to consider a party's refusal or failure to engage in ADR in any order for costs.
9. Mediation in Hong Kong: the Civil Justice Reforms two years on Mediation has been a particular focus in Hong Kong over the last year. In April 2009 the Civil Justice Reform (CJR) was introduced, following the appointment by the Hong Kong Chief Justice of a Working Party to recommend improvements in access to justice, particularly in respect of the speed and cost of civil litigation. In part the CJR represented a 'cherry picking' of the aspects of the English Civil Procedure Rules of 1999 which were viewed as having been successful. In addition, there was a greater focus on the use of ADR in civil disputes and it was made explicit that not only would facilitation and encouragement of ADR be an aspect of the courts' case management powers, but that parties and their advisors would be expected to seriously consider using ADR to resolve their disputes. It was envisaged that judicial "encouragement" would, as in England and Wales, take the form of a stick as well as a carrot, the former in the shape of cost sanctions against parties who unreasonably refuse or fail genuinely to engage in or consider ADR. In practice, ADR has been little used in Hong Kong. For that reason, the Practice Direction on Mediation published as part of the CJR did not come into effect until 1 January 2010, to allow practitioners more time to become familiar with the mediation process. In addition to introducing the possibility of adverse costs orders where there has been an unreasonable refusal to mediate, the Practice Direction introduced the requirement to file a Mediation Certificate at an early stage in litigation. In the Certificate, which must be signed by both the parties and their legal representatives, a party must confirm that it has been advised as to the use of mediation (including the relative costs benefits and possible sanctions for non-use), whether it has considered ADR, and if not, why not. Now, one year on from the PD coming into effect, it is clear that, whilst the use of mediation by civil litigants has increased in Hong Kong, it remains in its relative infancy compared to more mature jurisdictions, both in levels of use and sophistication. Julian Copeman, a London-based disputes partner recently seconded to our Hong Kong office found that "while many cases are now being mediated, it is often the case that these are the first mediations undertaken, not just by the parties, but also by their legal advisors. There is a lot of interest, and as cases are successfully settled, litigators' confidence will increase." The Hong Kong Law Society issued a circular in late 2010 stating that parties should not engage in unnecessary tactical manoeuvring by, for example, engaging in extensive correspondence contesting logistical issues, and reminded solicitors that they have a duty to advise clients in appropriate cases to engage in genuine attempts to settle through mediation. However, more positive trends are emerging and knowledge within both the practitioner and user community is increasing. In light of recent developments in this area Herbert Smith plans to host a client academy seminar on the subject in Hong Kong later in 2011.
10. Implementation of the European Mediation Directive in Germany In July 2010, the German Federal Ministry of Justice published a draft bill which, if passed into law, will deal with the implementation of the European Mediation Directive (the Directive). The draft bill implements most of the key provisions of the Mediation Directive and in some cases exceeds its requirements, in particular in its application to domestic as well as cross-border disputes, and the enforceability of settlement agreements resulting from mediation. Article 6 of the Mediation Directive provides that Member States must ensure that parties can request that the content of a written settlement agreement resulting from a mediation be made enforceable. However, the Directive also provides that Member States need not make the settlement agreement enforceable if the law of the Member State does not provide for its enforceability. The draft bill goes further than this, providing that such agreements can be declared enforceable even if they contain parts without enforceable content under German law. In addition, it allows the courts to make changes to the content of a settlement agreement in consultation with the parties in order to ensure that the agreement is specific enough to be enforced. Whilst the draft bill contains no provision dealing with the suspension of limitation periods whilst mediation is ongoing, the German Civil Code already provides for this in wider terms than is required under the Directive (Section 203 of the German Civil Code provides for a suspension where parties are "negotiating" about the claim – a term to be interpreted broadly). The draft bill also determines duties to disclose certain activities of mediators in order to safeguard their independence and impartiality, and empowers courts to recommend mediation proceedings to parties to litigation.
11. Supreme Court of India holds that mediation proceedings are confidential On 7 January 2011 the Supreme Court of India, in the case of Moti Ram (D) Tr. LRs and Anr. Vs Ashok Kumar and Anr (Civic Appeal No. 1095 of 2008), held that mediation proceedings were confidential in nature, and that only an executed settlement agreement or alternatively a statement that the mediation proceedings were unsuccessful, should be provided to the court by the mediator. In this case the Supreme Court had made a direction for the parties to take part in a mediation in order to try and settle their dispute. After the mediator had provided a report of the mediation proceedings to the court, the Supreme Court held that mediation proceedings were confidential in nature, although such confidentiality could be lost in the event that the mediation proceedings were disclosed. The court gave guidance to mediators in relation to preserving confidentiality by holding that, if the mediation proceedings resulted in a settlement, the mediator should only provide a copy of the executed settlement agreement to the court, and not disclose anything about what transpired during the mediation proceedings. Alternatively, if the mediation proceedings did not directly result in a settlement, the mediator should only provide the court with a statement setting out that the mediation proceedings were unsuccessful. Prior to this judgment, whilst parties were free to make a contractual agreement to maintain confidentiality of mediation proceedings, no statutory authority provided that mediation proceedings were confidential. The judgment is expected to improve the popularity of mediation as a method of resolving disputes in India, particularly amongst non-Indian parties. 12. Russian Mediation Law comes into force On 1 January 2011, the Federal Law on Alternative Dispute Resolution Procedure with the participation of an Intermediary (193-FZ) came into force in Russia. The law was promulgated on 30 July 2010 following several years of debate regarding the need for ADR in the Russian justice system. 193-FZ regulates the mediation procedure in disputes arising from civil law matters, including business and commercial activities, as well as disputes arising out of employment and family law matters. Russia has already seen a number of attempts to establish a clear basis for mediation proceedings with several draft laws having been prepared from 2006 onwards. Consideration of previous drafts was halted with the submission of drafts of the new laws. Please find further discussion on these matters in an article by Francesca Albert of our Moscow office.
13. Herbert Smith hosts ADR Client Academy Seminar On 23 November 2010, Herbert Smith hosted a breakfast seminar to
update clients and contacts from a range of industry sectors on ADR
developments. Alexander Oddy,
partner in the Litigation and Arbitration division and head of the
firm's ADR practice, Anita Phillips, senior professional support lawyer
in the firm's core ADR team, and Simon Madden, Head of Civil Justice
Transformation and Customer Insight at the Ministry of Justice addressed recent cases on
mediation confidentiality and privilege, the implementation of the
Mediation Directive in the UK and its impact on mediation practice, and
changes to the way mediation is being used in commercial disputes.
14. Herbert Smith wins ADR awards on both sides of the Atlantic At a ceremony for over 200 guests from the legal and ADR community held at the Waldorf Hotel on 17 November 2010, the 8th biennial CEDR Awards for Excellence were announced. The Awards marked the 20th anniversary of the creation of CEDR (the Centre for Effective Dispute Resolution), now Europe's largest independent ADR centre. The panel of judges comprised The Rt Hon Lord Woolf of Barnes, Sir Alex Jarratt (CEDR's Life President), Patrick Deane of Nestlé, Noel Campbell of Holman Fenwick & Willan, Martin Josephs of COLT and Deborah Prince of Which? We were honoured to receive an award for significant achievement in the field of dispute resolution. CEDR commented that Herbert Smith, a founder member of CEDR back in 1990, "won for demonstrating a consistently high-level of dedication to ADR use, internally and externally, through a variety of comprehensive and effective ADR programmes in the UK and overseas." Following this achievement, on 11 January 2011 we were awarded the Large Law Firm ADR Award for Excellence at the CPR Institute's 2011 Annual Meeting in New York. The award was judged by in-house counsel from Exxon Mobil, Johnson & Johnson, GE, Abbott Laboratories and Du Pont as well as academics from the University of Missouri and Pepperdine University in California. The judges complimented the firm on its efforts in this field: "Not content to rest on its laurels as the winner of the 2008 CPR Law Firm Award, Herbert Smith pushed the envelope by expanding the profile of ADR through their international network of offices". Naturally we are delighted to hold ADR awards on both sides of the
Atlantic simultaneously from leading ADR organisations and that our
commitment to all forms of ADR as part of our pre-eminent disputes brand
is recognised.
The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication. Herbert Smith LLP, Gleiss Lutz and Stibbe are three independent firms which have a formal alliance. © Herbert Smith LLP 2011
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