Trust In Meditation?

The purpose of this article is to assess three issues:

• whether there is a duty to mediate;
• whether trust related disputes are specially suitable for mediation; and
• how to prepare for a mediation.

Duty to mediate?

Are practitioners currently under any obligations to consider mediation or some other form of alternative dispute resolution? The ACTAPS Draft Pre-Action Protocol for the Resolution of Probate and Trusts Disputes states at paragraph 2.9:

“Parties and their legal representatives are encouraged to enter into discussions and/or negotiate prior to starting proceedings. The parties should bear in mind that the courts increasingly take the view that litigation should be a last resort, and that proceedings should not be issued prematurely when a settlement is in reasonable prospect.”

In the CPR, the recently updated paragraph 4 of the Practice Direction on Protocols deals with cases not covered by an approved protocol, in other words trusts disputes (the ACTAPS draft Protocol is just that and not part of the CPR). Paragraph 4.7 states:

“The parties should consider whether some form of alternative dispute resolution procedure would be more suitable than litigation … The Courts take the view that litigation should be a last resort … if this paragraph is not followed then the Court must have regard to such conduct when determining costs.”

There are thus significant differences between the ACTAPS guidance and the CPR. While the ACTAPS Protocol merely encourages discussions, the Practice Direction places a duty on parties to consider whether some form of ADR would be more suitable than litigation. The ACTAPS Protocol states that “the courts increasingly take the view that litigation should be a last resort”; the Practice Direction confirms that the Courts do now take that view. Finally, the Practice Direction states clearly that the Courts must take into account whether a party has complied with its duty to consider ADR when determining costs. The ACTAPS Protocol is silent on this. Altogether, the Practice Direction is appreciably more strident about mediation.

Practitioners should be in no doubt therefore that they are now under a duty to consider mediation. The Courts, however, have stopped short of imposing a duty to mediate per se. The Practice Direction goes on to state:

“It is expressly recognised that no party can or should be forced to mediate or enter into any form of ADR.”

It is submitted that the Courts have struck the right balance. One of the features of mediation that gives the process genuine force is the fact that it is voluntary. Mediation is an opportunity for parties to negotiate and resolve a dispute with expert help (in the form of the mediator). There is a world of difference between parties being forced to negotiate and volunteering to do so. A party coming to the process because he or she wants to try to resolve a dispute is psychologically much more likely to achieve a settlement than someone forced to attend. This is why practitioners must choose the time of the mediation with great care. The issues must be sufficiently clearly defined to make it a useful exercise, equally the parties must understand the financial and emotional toll that a prolonged dispute may take; they will then be in the best frame of mind for a successful mediation. If you leave it too late, the costs saving incentive diminishes and the parties may feel that they have been through the worst of the financial and emotional pain. The willingness to mediate diminishes correspondingly.

So, while there is no formal duty to mediate, there is a duty to consider mediation and other forms of ADR, and there will be costs sanctions if a party fails to carry out that duty.

Do trust related disputes have a special suitability for mediation?

A significant proportion of trust disputes have a family element to them. Family disputes often carry the distinguishing features of personal animosity or bitterness and this tends to have a direct correlation with unusual expense. Parties have a tendency to adopt a particularly uncompromising attitude: every point is taken and disputed. Correspondence and witness statements recount long and involved justifications and explanations of past conduct. It is also fair to say that the law often struggles to provide an effective remedy for a family dispute where the underlying complaint can be more to do with a perceived lack of respect from another family member than anything else.

Each of these features: bitterness; unusual expense; and the difficulty of providing an appropriate legal remedy for the real cause of the dispute make family trust disputes particularly suitable for mediation.

Mediation provides a forum in which the causes of a dispute can be discussed rationally and in a controlled way. When a party says that he wants his day in Court, he probably means that he wants to speak to his opponent and explain his grievance. He probably does not mean that he wants to be cross examined on his evidence by a skilled advocate intent on discrediting him. That is going to be his only direct contribution to the case in Court. In a mediation, parties can speak to each other, if necessary through the mediator. It provides a far better opportunity for the parties to understand their respective positions than a Courtroom and therefore a far better chance of resolving them.

The often disproportionate expense of such disputes should provide a greater incentive to settle. Perversely, the bitter nature of such disputes can blind parties to the financial risks that they are taking. Those parties need to realise how ruinous the litigation could be. A mediator is often more effective than a party’s adviser in delivering that message for two reasons. First, the client may have become immune to warnings from his solicitor over the life of the retainer; the mediator is a new, objective voice saying the same thing. Second, the mediator has training and expertise in forcing a party to confront such realities; it is an important part of any mediation.

The only limit to the menu of remedies at a mediation is the imagination of the parties. By comparison, the Court has a very limited number of orders it can make. An apology or gift of a particular heirloom might go a long way to resolving a dispute, but the Court cannot order those. This is a major incentive to mediate.

In conclusion, family trusts disputes do have a special suitability to mediation. It is accepted however that in a case where an emergency injunction is involved, mediation is not suitable before that application has been made. Similarly, where a case requires a binding precedent or declaration from the Court, for example, as to the true construction of a trust instrument, it is probably not appropriate for mediation.

How to prepare for a mediation?

This is potentially a very wide subject, so this article is confined to three points.

Establish with your clients their best and worst case scenarios at trial. The best case scenario is that they prevail on all the issues in dispute between the parties and they are awarded their costs. Usually, costs will be awarded on a standard basis, so there will be an element of irrecoverable costs. There is a difference between what a client pays his legal advisers/experts and what he recovers from the other side if he wins on all points. That means that even if a client wins on all points, he will need to reduce any judgment award by that difference. The worst case scenario is that your client loses on all points in dispute and has to pay his own costs (in full) and the costs of his opponent (on a standard basis). Any offer made at the mediation should be considered in the range between the two figures arrived at. If the range is -£200,000 (worst case) and +£100,000 (best case), an offer that your client pay £50,000 is the midpoint and it values his chances of success at 50/50.

Secondly, consider with your client his bottom line settlement figure on the basis of your legal advice. Value each element of the claim on the basis of the advice received. If you carry out a rigourous assessment of the value of the claim, your client will appreciate what value is attributable to each head and why. For example, Counsel might advise that if your client’s evidence of a transaction is accepted he will be able to establish a breach of trust and achieve Result A. If during the mediation, it becomes clear that your client’s evidence as to the transaction is credibly challenged, the client will understand that Result A is no longer certain and should alter his bottom line accordingly. Mediation creates a momentum towards settlement which can influence a party unduly unless that party has carried out the above exercise and has his marks in the sand.

The third point is that you need to understand the mediator’s agenda. At a two party mediation there are in fact three parties with different agendas. Two litigating parties want the best deal that they can achieve; the mediator is more interested in achieving a settlement and is less concerned with the detail of the settlement terms. There is a danger that a mediator keen to achieve a settlement could take advantage of a poorly prepared litigant or one with little resolve (notwithstanding their good legal case). The parties need to understand that and to be prepared for the mediator to focus on the weak points of their case. This reinforces the importance of carrying out a proper risk assessment with your client.

Conclusion

Mediation is becoming increasingly mainstream and must now be considered for every dispute. While trusts disputes are often well suited to mediation, they can also present difficulties. For example, if a minor or unborn is involved in the dispute, then any deal struck by the parties is most likely to be subject to the Court’s consent. This means that Counsel for the minor or unborn should attend the mediation so that they can assess whether they would recommend a particular settlement for Court approval. It is rare that the difficulties outweigh the benefits of trying the process.

Gibson & Co