This article first appeared in the May 2022 edition of The Journal of the Law Society of Scotland.

Insolvency disputes can be varied, complex and multi-faceted. Office holders have duties to maximise recovery for creditors. It is therefore imperative that in bringing any claim, there is an expectation of increasing rather than depleting the money available for creditors. For defender directors, mediation affords an opportunity to have claims against them resolved quickly and in a private and confidential forum.

Mediation also has very high success rates – the Civil Mediation Council and CEDR report settlement rates in excess of 90% either on the day or in the days following the mediation. In England & Wales, insolvency disputes are routinely mediated. The value of mediation for insolvency disputes is finally becoming recognised north of the border too, perhaps driven by the increase in claims being funded or purchased by third party funders, many of whom seek resolution by negotiation or mediation wherever possible. So, why mediate insolvency disputes?

Commercial process

Mediation is a commercial process, not a legal one. It is an opportunity for parties to reach a commercial settlement that they can live with. It allows them to retain control of the outcome and take into account factors that would not be relevant to a judicial decision. For example, it enables both sides to build into a settlement agreement the defender director’s ability to pay, and to agree instalments or some other creative repayment plan. Further, research shows that a paying party is more likely to comply with a settlement agreement they have negotiated themselves than one imposed on them by a judge. Reaching an agreement in mediation therefore also decreases the likelihood of the insolvency practitioner requiring to take enforcement action, which may be throwing good money after bad.   

For insolvency practitioners, a commercial process also means an opportunity to maximise recovery for creditors at minimal cost, particularly if the mediation takes place pre-litigation or during its early stages. Successful outcomes are often negotiated without significant legal costs having been incurred in presenting a claim to court. A commercial process can also be of benefit to insolvency practitioners, who often lack documentary evidence such as contemporaneous company books and records, which, depending on the claim, can be imperative for proof in court; and to defender directors who cannot rely on a lack of books and records as a defence to certain claims such as repayment of their director’s loan account.

Managing litigation risk

Mediation manages litigation risk on both sides. Claims in the context of an insolvency, for example gratuitous alienation, unfair preference, wrongful trading and fraud, routinely involve complex factual investigation and disputed matters of law. For these complex claims, the litigation risk can be high and prospects of success can be very difficult to assess or predict. Winning in court can be far from certain, and legal costs on both sides can quickly become disproportionate or even exceed the value of the claim.

Multi-party claims

Mediation is well suited to multi-party disputes where all parties can get round the table to reach a commercial deal. It is not unusual for an insolvency dispute to involve, for example, claims against multiple former company directors who are all blaming each other, or competing claims between insolvency practitioners and HMRC or other third parties. Not only does this serve to increase costs; it increases the time it is likely to take to resolve claims in court. Mediation offers an opportunity to resolve multi-party claims without having to pursue multiple claims in court.

Emotional imbalance

Mediation manages the emotional imbalance between the defender director and the insolvency practitioner. Defender directors often have a strong sense of unfairness, injustice or even outrage. Rightly or wrongly, they can see themselves as the victim of wrongdoing by former co-directors or inappropriate advice from professional advisers. On the other hand, the insolvency practitioner has a job to do and for them, the dispute is all about the money and maximising recovery for creditors. This is not to say that they do not have empathy or even sympathy for the defender director: often they do. But that cannot affect their legal duty to prioritise recovery for the creditors.  

Of course, disputes in this field are not restricted to claims against directors. There can be claims against former office-holders for breach of duties, such as the claim raised by the liquidators of Rangers against the former administrators. In addition, there can be claims against professional advisers of the insolvent company or other third parties. In all cases mediation offers the parties a quicker, convenient and cost-effective way of resolving disputes out of court, and an opportunity for better net financial outcomes for the parties involved.  

Squaring Circles is the trading name of Squaring Circles Dispute Management Limited, registered in Scotland. Registration number SC641319. Registered office at Caledonian Exchange, 19a Canning Street, Edinburgh EH3 8HE.

This article first appeared in the December 2021 edition of The Journal of the Law Society of Scotland.

Mediation is likely to lead to better outcomes than litigation when it comes to inheritance disputes, Rachael Bicknell believes. 

Then there is the complexity of succession planning in a modern and less traditional society. The rise of divorce rates and blended families – those brought together by new relationships, resulting in step or half siblings – and families living across jurisdictions with different succession laws, presents many more opportunities for conflict.

When it comes to disagreements over the validity or interpretation of a will, it isn’t the case that the better the drafting, the less likely a dispute. That assumption ignores the significance of emotion in these kinds of conflicts. A relative who has been disinherited, particularly if contrary to their expectations, will frequently refuse to walk away from even the most tightly drafted will or trust, simply because the law may not be on their side.

Disputes in this field are not restricted to contesting a will. It is estimated that two thirds of the Scottish population have not written a will, and disputing rights on intestacy can similarly create significant family conflict. Increasingly, children are claiming their legal rights to non-property assets on the first death of a parent, often at the expense of the surviving parent. And executors can find themselves caught up in valuation disputes, or being sued on allegations of a breach of trust or duty, mismanagement of the deceased’s estate or even negligence.

Strong emotions

The consensus among the speakers at the Law Society of Scotland conference on trusts, wills and executry disputes, was that litigating these claims should be avoided like the plague because they are notoriously complex, time consuming and expensive. This is, in part, explained by the central person being, uniquely, the deceased. They cannot explain or justify the reason for their wishes (unless these are expressly set out in a side letter, which appears to be unusual, even if best practice), or clarify whether they were coerced into changing their will. This can leave surviving relatives with no answers and feeling betrayed, helpless, heartbroken, angry and shocked. All in all, it is easy to see why disputes arising from the death of a family member present some of the most painful and emotionally charged conflicts that solicitors and mediators see.

For that reason alone, trusts, wills and executry disputes are very well suited to mediation. Dealing with the emotional concerns or needs is just as important as dealing with the legal positions and financial demands. Mediation can offer breakthroughs which can disentangle the emotional pain of an inheritance dispute. While mediators are under no illusion that mediation is a magic wand, it can be transformational. It can rebuild relationships between siblings or other family members. It can rehabilitate the testator’s place in the family and restore what they meant during their lifetime to those in dispute.

Counting the cost

There are other reasons too. Inheritance disputes are usually factually and legally complex. They routinely involve multiple parties, multiple witnesses and expert witnesses. Evidence gathering from family members, advisers and carers can be required for significant periods. Obtaining and reviewing medical or social care records can be time consuming and expensive. For complex cases, the “litigation risk” can be very difficult to assess. Winning in court can be far from certain, and legal costs can quickly become disproportionate or even exceed the value of the claim.

It is also not unusual for an inheritance dispute to involve multiple family members even if there is only one claim. Not only does this serve to increase costs; it increases the time it is likely to take to resolve claims in court. A litigated claim or claims can add several years to the time needed to wind up an estate. Mediation offers an opportunity to resolve claims involving multiple family members, or multiple claims between aggrieved relatives.

Then there are the monetary and non-monetary costs of litigating inheritance claims. Legal costs on both (or all) sides can run to tens if not hundreds of thousands of pounds. Mediation can bring about an end to the financial and emotional toll of a dispute by getting to the heart of the conflict at a far earlier stage.

It is rarely always about money and winning. It might be about a particular item of property which has some unknown or misunderstood sentimental value to the claimant. It might be about how one party was treated by other members of the family. It might be about sibling rivalries with each other or with a stepparent. Whatever it is, mediation affords the best chance of giving the clients the closure they need to allow them to move on, and will almost always leave them in a better place than they would be after a lengthy and costly court battle.

Squaring Circles is the trading name of Squaring Circles Dispute Management Limited, registered in Scotland. Registration number SC641319. Registered office at Caledonian Exchange, 19a Canning Street, Edinburgh EH3 8HE.

This article first appeared in the October 2021 edition of The Journal of the Law Society of Scotland.

The value of mediation is becoming recognised in agricultural disputes, and not only those relating to tenancies. Rachael Bicknell explains its particular attractions in this sector.

It has been said that Scotland was born fighting. Battles over landownership can be traced back to at least Roman times, and the bloodline of our nation is stained with centuries of clan warfare, struggles for territory with the English, and the brutal evictions of the Highland Clearances.

To this day, while the feuds are conducted in a more civilised forum, conflicts over or relating to land and property ownership are often acrimonious and costly. Probably the most notorious litigation in recent times is the bitter 20 year boundary dispute between Perthshire pensioners. It was reported they had spent £500,000 in legal fees in a seven year court battle over a strip of land less than a metre wide, before the sheriff encouraged them to drop their case, saying that it was difficult to identify the benefit in continuing when judged against the effort and expense involved.

The costs of litigation as compared to mediation have been the subject of much discussion over the last year, particularly in the context of the convenience and cost-effectiveness of remote or online mediation. While an important consideration, costs are not the only reason for parties in dispute to consider mediation over litigation, particularly when it comes to agricultural disputes.

Art of the possible

One of the main benefits is that the parties retain control of the outcome. Mediation allows them, with the help of the mediator and their solicitors, to come up with an agreement that can work for everyone, and actually solve the problem – something that is often not within the gift of a court.

Significantly, this is recognised by the Scottish Land Commission and the Tenant Farming Commissioner, who recently set up a panel of approved mediators for the benefit of agricultural landlords and tenants. Following a two year pilot scheme the TFC reported that those who took part in mediation in the tenant farming sector said the outcomes achieved would not have been possible in a court process.

Added to this is the constant stream of changes to agricultural legislation over the past 20 years, for example relating to assignation and succession, landlord’s improvements, diversification, right to buy, rent reviews and relinquishment, meaning that, now more than ever, there are more routes to conflict. For some disputes, little case law exists to inform how a dispute might be decided by a court, making “litigation risk” difficult to assess and outcomes difficult to predict.

Why agriculture?

Of course, agricultural disputes do not only arise in the context of landlord and tenant. In the past few months alone, I have been involved in the mediation of access disputes, a partnership dispute, a professional negligence claim and a board and workplace dispute, all involving farming businesses. Disputes relating to succession planning within farming families are common, as are trust, wills and executry disputes involving farming businesses or assets. Outwith the family context, commercial disputes regularly encountered by farmers include compensation for land acquired under compulsory purchase, leases for telecommunication masts, disputes relating to access, boundary and building defects and disputes with suppliers or machinery providers.

What makes agricultural disputes particularly well suited to mediation? First, farming disputes often involve conflict within a family and can therefore be highly emotional for those involved, particularly where the dispute involves legacy conflict passed down through generations. Mediation gets to the heart of the conflict and is far more suited to resolving the “people problem”, which can be just as important as, or more important than, the substantive legal issues when it comes to finding a solution or settlement.

Secondly, farming disputes often arise in the context of an ongoing relationship. Litigation is well known for tearing apart business and family relationships. Mediation, on the other hand, often results in outcomes which preserve or restore those relationships, in part because it is a flexible process which can be adopted early in the life cycle of a conflict, before significant (sunk) costs are incurred, and positions become entrenched or escalate into formal intractable disputes.

Thirdly, commercial disputes in any context are hugely time consuming and expensive. Preparing animals for sale or slaughter, milking cows, attending auction marts, ploughing fields and sowing, spraying and harvesting crops need to be done when they need done. Everything else needs to come after that, and a farmer’s work is never really finished. Pursuing or defending a claim in court is a huge inconvenience and can add considerable stress to farming life. Further, even the most profitable of farming businesses may struggle to meet the costs of pursuing or defending a claim in court, especially since the onset of the COVID pandemic, with many farms needing to diversify to stay afloat. Mediation costs a fraction of litigation and is widely considered the most cost-effective way of resolving even the most difficult and contentious disputes.

Squaring Circles is the trading name of Squaring Circles Dispute Management Limited, registered in Scotland. Registration number SC641319. Registered office at Caledonian Exchange, 19A Canning Street, Edinburgh EH3 8HE.

One of my favourite television adverts was the genius O2 campaign “Be More Dog”. You might remember that it follows a day in the life of a cat: “I used to be a cat, aloof till lunch then coldly indifferent after”. Suddenly the cat realises its tedious existence could be fun if only it could “be more dog”. Cue the cat, its head now on a dog’s body, launching out the cat flap to Queen’s “Flash”, chasing a ball, catching a frisbee and digging holes (“running… amazing, chasing cars… amazing, sticks… amazing!”). In a comical way, it epitomised what commitment to a change of mindset can achieve.

For years, many dispute resolution lawyers have been beating the mediation drum, seeking to change the mindset of those litigation lawyers of a more traditional courtroom culture. The COVID crisis has put mediation, particularly online, in the spotlight. For the first time, the global dispute resolution community of mediators, arbitrators, litigators and others are widely promoting mediation as an effective and appropriate way of managing the huge surge in litigation, and the backlogs in civil justice generated by the crisis.

Scotland: stuck in a tunnel

However, in Scotland, the uptake of mediation remains comparatively low. In the US, perhaps surprisingly, the majority of disputes (for example around 98% of litigated cases in California) are mediated as soon as court proceedings are commenced. That’s largely influenced by costs not automatically following success, and the prevalence of lawyers charging contingency fees. In England, parties are often incentivised to mediate due to the potential for adverse judicial costs (expenses) awards if a reasonable offer to mediate is refused. In some regions of Ontario, Canada, mediation has been a mandatory and automatic stage in the court process for 20 years. This could soon be extended to the whole province, following support from the Ontario Bar Association.

In Scotland, mediation is an entirely voluntary process, requiring both or all parties to consent to engage in. There are no incentives to consider or recommend mediation, as there are England. Nor do we have a culture of contingency fees which aligns the lawyers’ interests in getting paid with the clients’ interests in a quicker and more cost effective resolution. So, while it is common for one party to a dispute to advocate for mediation, in reality getting all parties round the table is often a negotiation in itself.

There may soon be some light at the end of the tunnel. The Scottish Government plans to consult on the proposals of the Scottish Mediation Report, Bringing Mediation into the Mainstream in Civil Justice in Scotland. In a nutshell that report makes bold recommendations to introduce an element of compulsion to mediate. So, it is possible we will see legislative changes to promote the use of mediation in civil justice in Scotland.

Agree in advance

Until then, transactional lawyers, in-house lawyers and business leaders have a secret weapon at their disposal: the insertion of clear and concise dispute resolution provisions in contracts. A dispute resolution clause is one of the most vital provisions in any contract. It allows the parties to agree within the contract the process to be followed in the event a dispute arises. There is much to be said for agreeing how a dispute will be dealt with while the parties are on good terms. Once a disagreement or dispute raises its ugly head, parties are usually less willing to adopt a collaborative approach to the process of resolving their differences.

Multi-tiered dispute resolution clauses (sometimes called dispute escalation clauses) are increasingly used by businesses, enterprises and organisations across all sectors and in a wide range of contracts to assist with resolving disputes quickly, efficiently and cost-effectively, and potentially preserving the contractual relationship. Such clauses allow a claim to be escalated in stages, typically by binding the parties to engage first in negotiation at different levels within each party’s business, followed by mediation, as a precondition to arbitration or litigation. Often the clauses will go further and name the organisation from which a mediator (and arbitrator) must be chosen, thereby preventing further potential for disagreement and delay in choosing a third party neutral (www.squaringcirclesodr.uk/dispute-resolution-clauses/).

Provided the terms of a dispute resolution clause are sufficiently clear to create an enforceable obligation, the courts will enforce the terms the parties agreed when they executed the contract. While there have been no reported decisions on the enforceability of such clauses in Scotland (perhaps an indication that they are not used nearly enough), in a number of decisions in the English courts over the last 20 years, parties have been prevented from progressing with court proceedings where the dispute resolution clause has created a contractual obligation to engage in mediation as a condition precedent to litigation. There is no reason to believe the Scottish courts would have decided these cases any differently.

This article first appeared in the October 2020 edition of The Journal of the Law Society of Scotland

Sixty one years later, a very different crisis is changing the world. Social distancing restrictions have catapulted the global legal profession into the 21st century by forcing the universal use of technology. Scottish courts, especially sheriff courts, have been slow to adapt, with only very limited business yet capable of being dealt with remotely. Most Scottish tribunals are closed to existing and new business. Mediators have been quick to move their face-to-face practice to Zoom. Suddenly, online alternative dispute resolution (“ODR”) is in the spotlight.

ODR combines ADR processes, technology and impartial independent experts. It is recognised internationally as a specialised and highly effective form of ADR. Its origins date back to the 1990s when it was created to resolve disputes resulting from online transactions and interactions between parties in different jurisdictions. In 2013, Lord Neuberger, then President of the Supreme Court, said in a speech on Judges and Policy: “We may well have something to learn from online dispute resolution on eBay and elsewhere.” The eBay Resolution Center now handles over 60 million disputes each year, while courts have been slow to adopt online or hearing-free models. 

All methods of exploring the resolution of a dispute with the assistance of technology are ODR. It can involve advanced technologies and processes such as machine learning, artificial intelligence and cognitive computing which are being developed and promoted to resolve specific types of disputes. More importantly for the practice of law, it is the movement online of face-to-face mediation, arbitration and other resolution processes, using videoconferencing combined with secure onboarding, e-signing of agreements, document sharing and online communication, to deliver fair, proportionate and effective redress for commercial and civil disputes.

The momentum of global ODR continues to increase in many jurisdictions in Europe, the US, Canada, Australia and New Zealand, in the public and private sectors. Hong Kong has recently announced a scheme as part of its measures to support individuals and businesses affected by the COVID-19 crisis. The tragic loss of life and collapsed businesses are undoubtedly the “danger”. But there is also an “opportunity” for disputes lawyers in Scotland.

First, ODR (and ADR) gives lawyers an opportunity to better serve their clients and society as a whole. Access to justice is problematic for many businesses and individuals in Scotland. Litigation, even in the commercial courts with judicial case management and specialisation, is disproportionately expensive, slow and uncertain. A dispute which runs to proof is unlikely to cost much less than £100,000. For many disputes, that figure is conservative. Legal costs for commercial disputes will often run to several times that figure, resulting in parties spending as much time arguing about the costs as over the claim.

Secondly, ODR gives lawyers an opportunity to grow their client base and their income. There are a huge number of commercial and civil disputes in Scotland which get nowhere near law firms due to the cost of taking legal advice, commencing and running litigation. Other professionals are assisting clients with all sorts of disputes and attempts to negotiate resolutions. Professional bodies such as the RICS offer well regarded dispute resolution services for a wide range of property disputes. As we enter what is predicted to be the biggest recession in centuries, litigation is going to be a non-starter for an even greater proportion of Scottish businesses. Research from the US reports that by using ODR parties can save as much as 80% of the costs of litigation in as little as 20% of the time. The economics of ODR mean that claims that were previously unaffordable or cost-prohibitive can be progressed or pursued.

Thirdly, ODR gives lawyers an opportunity to make face-to-face dispute resolution more efficient and cost effective. The background to a dispute can be explored in more detail using online processes such as videoconference, secure and confidential discussion “channels”, or parties to the dispute uploading video statements explaining the dispute from their perspectives. This allows the neutral expert to clarify key elements in more detail and to hit the ground running when the face-to-face dispute resolution process starts.

It is difficult to argue that ODR will not be at the core of the future of dispute resolution. The world today is very different to how it was even two months ago. The new normal will see a continued use of remote working with the use of technology, and lawyers will need to embrace ODR. In the long run it will result in more work and happier clients. And for the sceptics, some wise words from a pioneering Scot, Alexander Graham Bell: “When one door closes, another opens; but we often look so long and so regretfully upon the closed door, that we do not see the ones that open up for us.”

This article first appeared in the May 2020 edition of The Journal of the Law Society of Scotland

Have you heard the one about the dancing bear? “Litigation is like dancing with a bear. You decide when the dance starts. The bear decides when it stops”. The sentiment is not a new one. In the late 19th century an American journalist wrote “litigation is a machine which you go into as a pig and come out of as a sausage”.

In the UK (pre-COVID-19) disputes cost business £33 billion a year, taking up 20% of leadership time and potentially losing up to 370 million working days. In 2018 the estimated value of commercial claims mediated was £11.5 billion, saving businesses around £3 billion a year in wasted management time, damaged relationships, lost productivity and legal fees. In the US, perhaps surprisingly, it is standard practice to mediate as soon as court proceedings are raised. Similarly, in England, disputes are mediated at a far earlier stage in the lifecycle of a court action than they are here. Now, more than ever, businesses are going to need fast, efficient and cost effective disputes services.

The last 18 months has seen the Scottish Parliament Justice Committee report “I won’t see you in court”; the Scottish Mediation Network report “Bringing Mediation into the Mainstream in Civil Justice in Scotland” and a proposed Mediation Scotland Bill from Margaret Mitchell MSP, all recognising the need for a culture change to normalise the use of alternative (appropriate?) dispute resolution in Scotland. The benefits of negotiation, mediation and ADR are well known, so why are so many disputes litigated either before collaborative attempts to negotiate (in the true sense of the word) or by engaging in alternative or online DR processes? And how should businesses manage differences and disputes?

First, it is important to develop (or improve) and implement systems to identify where your business is at risk of conflict (both internally and externally) and to better manage conflict. This would include better use of dispute resolution or dispute escalation clauses in contracts; conflict policies and procedures, risk assessment tools and delivering appropriate training to those managing conflict within your organisation.

Secondly, adopt a robust risk assessment as part of an overall negotiation strategy when a disagreement or dispute arises. Parties to a dispute are susceptible to confirmation bias where they focus on the facts and evidence which support only their version of events, in turn feeding over-confidence bias. Research shows that lawyers are more susceptible to over-confidence bias than under-confidence bias when predicting the likely outcome of litigated cases. Cognitive biases can be better managed if a more systematic approach is taken to assessing prospects of success and alternatives to litigation.   

As a very basic example; you have a claim for breach of contract or negligence. If you go to court, you need to prove, first, that there was a contract between you and your opponent; secondly, that your opponent breached the contract; and thirdly, that you suffered a loss as a result of your opponent’s breach. What do the prospects of success look like on a statistical analysis? Even if your lawyer is 95% sure of proving there was a contract, if the prospects of proving that the party you are suing breached the contract are only 70%, and 60% that that party caused the loss you claim to have suffered, you actually have less than a 40% chance of winning the case overall. If your chance of proving that the party you are suing breached the contract and caused your loss both drop to 50%, you have less than a 25% chance of winning, meaning a £100,000 claim is really worth £25,000, and your legal costs to run it in court will far exceed that.

Thirdly, as part of the robust risk assessment conduct an objective analysis of each party’s best (or worst) alternatives to court. Without such an analysis, it is impossible to develop an effective strategy to determine whether you are better to negotiate and what a good result looks like. For example, you have a £2 million claim. It has cost you £100,000 on legal fees and £50,000 on expert reports to investigate. You are told court action is likely to cost £400,000 in legal fees, and you have a 60% chance of success. You anticipate your opponent’s legal costs will also be £400,000. The true value of your claim is therefore £940,000 (60% x 2,000,000 – £160,000 (40% of your irrecoverable judicial expenses) – £100,000 pre-action costs, assuming you will get full recovery of your experts’ fees). Or put another way, your best alternative to negotiating an agreement is £940,000. On this scenario it would be unwise to decline a settlement offer of £1 million, which is more than your best alternative in court. If no such offer was on the table, it would be wise to consider mediation or arbitration as an alternative. If parties were to agree to arbitration, particularly fixed fee or online models which simplify the procedure, keep costs to a minimum and cap the sums that the successful party can recover in costs, the best alternative would look quite different. If parties were to mediate “the pie” would be instantly bigger because significant legal costs would not yet have been incurred. The robust risk assessment is the only way to inform the decision on how best to proceed to resolve the dispute.

Finally, instead of raising court proceedings “to protect positions” (unless of course there are concerns a claim may time-bar and parties cannot agree to arbitrate to stop the clock) consider whether the better use of your resources is to de-escalate the conflict and explore workable solutions through negotiation, or mediation (or med-arb). The threat of court is always there whether court proceedings are raised or not.

Squaring Circles is the trading name of Squaring Circles Dispute Management Limited, registered in Scotland. Registration number SC641319. Registered office at Caledonian Exchange, 19A Canning Street, Edinburgh EH3 8HE.