Why mediate? Won’t a settlement meeting be just as effective? A recent case got me thinking…
At the end of last year, I mediated a case between a bank and a married couple who were property developers. It was a sadly all too familiar story of outwardly successful developers borrowing increasing sums of money against a number of properties, before the portfolio came crashing down in 2007. Since 2007, the borrowers and the bank had worked together (not always harmoniously) to attempt to resolve the position. Some 10 years after the first default, and as a precursor to the issue of legal proceedings, the parties agreed to mediate. At the mediation, a settlement agreement was entered into whereby the remaining properties were sold voluntarily over a period of time, with the proceedings divided up between the parties depending upon the overall sale value of the portfolio. The benefits to both parties were obvious: the bank got repaid; the borrowers retained their matrimonial home and were incentivised to sell the properties for the maximum amount so that they obtained a cash benefit. All good. Which got me thinking: why had the parties spent 10 years in dispute over the debt and why, despite all the many many meetings between the parties over those years, had it taken a mediation to resolve the matter?
Firstly, I believe it was something to do with the process. The borrowers felt powerless in face of the bank and its legal representation. This wasn’t down to anything the bank had done – in fact, the bank had gone to great lengths to try to address any perceived power imbalances. Nonetheless, the borrowers were at a disadvantage legally and procedurally, making settlement meetings direct with the bank quite difficult for all parties. Having an independent mediator in charge of the process and the structure of a settlement meeting can go a long way towards addressing any actual, or perceived power imbalances. Ultimately this benefits both parties.
Secondly there was something around the purpose. Everyone knew that the purpose of the mediation was to try to find a resolution. It was a hitherto elusive “end point” as opposed to “yet another meeting to discuss potential options”. People understood that mediation involves an element of compromise on all sides and, I believe, came to the mediation with a different mindset on that basis. They also came armed with the information they needed to make a deal. Given the attraction of reaching a final resolution, no-one wanted to have to adjourn the meeting, or make an agreement provisional on the obtaining of a missing piece of the puzzle. Again, this had not been the case with previous settlement meetings.
Finally, there was something around the solution. The structure of the solution was actually proposed by the borrowers (and on a separate note, the case provided very clear evidence of the benefits of being the first party to make an offer in a negotiation). Although it was a solution which worked for everyone, it was one which would have been completely impossible for a Court to order. I believe that the fair process and clear purpose empowered the borrowers to propose that solution. Furthermore, because it was a solution suggested and negotiated by the parties (rather than one imposed on them), research strongly suggests that they will all abide by it.