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Mediation economics: Picking the appropriate path to a resolution

by Chris Crowe on 28 Feb 2014

mediation economics

Professional card players in Las Vegas work on the assumption that they will win more than they lose. Based on experience, gut-feel and statistics, they make decisions that are dictated by the bigger picture. They play the long game.

Litigators faced with the challenges of how and when to settle a case are increasingly far-sighted in assessing the options. Factors to consider include the client’s financial position; its commercial relationship with other market players, and those with whom it is in dispute; its legal position, and whether it might deteriorate or strengthen over time as the process unfolds;  and its appetite for conflict and willingness to invest management time in litigation. Veneered on top are considerations about the relationship between law firm and client, whose influence on the timing of settlement merits some examination.

Attitudes towards fighting or settling cases have altered somewhat in the decade since the Woolf Reforms. For litigators scrutinising their business models, the biggest change has been the so-called “front loading” of costs; whereas prior to the reforms, lawyers would fire off writs early and unmeritorious claims were quickly and informally settled. The introduction and observance of pre-action protocols before issuing a claim have added to the complexity and therefore the cost of litigating. They have, however, achieved one objective of keeping matters out of the courts.

These days, the skill of the litigator in protecting and promoting clients’ interests is somewhat more nuanced. Post-Woolf, litigators approach a case from the point of view of putting their client in the strongest possible position to settle. But at what point do you settle?

The case might be stronger with more expert reports or additional document disclosure. Or perhaps it might be better to settle sooner if witnesses are weak and lack credibility. The client’s shorter-term financial and commercial interests may be better served by an early settlement, or they may get a better result by investing more into the case.

Further still, a client’s legal expenditure is more closely scrutinised today than previously. Board-level executives and procurement departments are having much more influence on the purchase of services, including legal services. It all means that the results that litigators achieve - and the costs associated with the results - are integral to promoting their reputation and preserving client relationships.

Some like to  suggest that legal advisers’ primary interest is in inflating billable hours and generating fees; none of the JAMS International mediators interviewed for this blog, however, had sensed that cases were being unduly prolonged for the lawyers’ self-interest. Their longer-term success depends on being associated with commercially viable, cost-effective and intrinsically successful settlements. Firms bolster their reputations, simply by demonstrating that they have the client’s interest at heart.

Lawrence Pollack, a mediator and arbitrator at JAMS says that when a partner at LeBoeuf, Lamb, Leiby & MacRae in 1988, which later became Dewey & LeBoeuf, he liked to encourage clients to use mediation as a means of resolving their disputes, or at the very least, getting a better idea of the strength of their case. By going through a mediation, the client and its legal advisers are better able to assess the chance of success and what further investment, if any, is required to achieve it. He explains: ‘Mediation is a good way of creating a menu of options including what the price of a settlement could be and what the price of litigation could be. If the client goes ahead with a trial, they do so with their eyes wide open. It is their decision to fight the fight.’

Even without an immediate settlement, Mr Pollack says that clients have a sharper view of the case:I saw tremendous benefits in developing parallel resolution tracks, one for a mediated result and the other for a litigated result. Even if the mediation did not succeed at first, I cautioned that from frustration still comes opportunity. You may not settle in the first mediation, but you learn a lot and you can establish benchmarks. You can determine what the critical moments in the litigation are likely to be and maybe leverage that knowledge into a settlement.’

Mr Pollack sees great danger in pursuing a lengthy trial simply to bolster a firm’s finances: ‘If you take the case and don’t embrace the possibility of a resolution and you take it to trial and lose it, then you probably won’t get the next case. Even if you win it you still may not get the next case if the client has developed a belief that there were other cost-effective resolution options. There is a risk that the client may think that you are a good lawyer but an expensive option and try someone else next time.’

For Mr Pollack and others, a successful dispute resolution model is one that clients will use repeatedly and recommend with confidence. Like the professional gambler on the Las Vegas strip, the modern day litigator always sees the bigger picture. That’s how to play the long game.

This post was written by Chris Crowe who is a freelance journalist. He can be contacted at chris@crowemedia.co.uk

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Topics: Mediation

Chris Crowe

Written by Chris Crowe