Mediation: No duty to put meat on the bones

17 Oct 2013

The scent and smoke and sweat of a mediation can be nauseating at three in the morning, as Ian Fleming might have written had he declined a successful career as a thriller writer in favour of the less glamorous life of a commercial litigator. It is a sentiment which clearly resonates even in the Court of Appeal, as revealed in the Court’s judgment in Frost v Wake Smith &Tofields [2013] EWCA Civ 772 last month.

The facts were these: David Frost and his brother Ron had been in business together as small-scale property developers for decades, but their family and business relationship had soured and they had fallen out spectacularly. By the time David walked through the doors of Wake Smith & Tofields seeking ways of removing Ron from their shared business interests, their mutual animosity bordered on the fratricidal. Unfortunately for David, because their business had grown informally and organically for many years, with property and commercial assets held in different forms, there was no clear and decisive way of disentangling the brothers from their lethal embrace, at least not without the goodwill and cooperation of both. And that was in very short supply.

It was, in short, a case crying out for mediation, a process uniquely suited to resolving ill-defined commercial disputes where personal animosity is preventing the parties from seeing that their best interest lies in mutual cooperation and compromise instead of interminable dispute. These brothers were ready to litigate each other into bankruptcy, or the grave, whichever came first.

So a date was fixed for mediation, and that mediation proceeded along familiar lines. Boredom, anxiety and speculation, (fuelled by coffee and a surfeit of biscuits) until an agreement was reached in the late afternoon for a division of the properties and other assets owned by the brothers. It fell to the defendant solicitors to write up the agreement, which they did in abbreviated form, for both brothers to sign. A new Ron emerged from the mediation; the champagne corks popped. Only after the hangovers had subsided the following day did Ron think better of the deal he had done, and immediately raised a storm of disputes about the agreement, ranging from a misapprehension about the nature of one of the brothers’ business assets to claims that the entire agreement had been procured by fraudulent misrepresentation. The old Ron was back.

The defendant solicitors sought counsel’s advice on whether the mediation agreement was capable of specific performance, and given its abbreviated form and provision for the transfer of proprietary interests in land held by third parties who were not signatories to the agreement (which therefore fell foul of s2 Law of Property (Miscellaneous Provisions) Act 1989), counsel unsurprisingly advised that it was not. Nevertheless it was felt worth issuing proceedings for specific performance, if only to force Ron back to the negotiating table. Fortunately the agreement signed at the mediation had contained a mandatory referral for a second mediation of any disputes arising out of the first, and in defence to David’s claim for specific performance, Ron invoked that provision. So a second mediation was arranged, which the defendant solicitors attended, this time armed with a draft framework which was intended to achieve greater finality. It achieved that end, after a fashion, but the division of assets was less favourable to David than it had been the first time round. He sued the solicitors for the difference, arguing that they should have made the first mediation agreement "watertight" (as it was alleged they had with the second mediation agreement) and had they done so he would have received an enhanced property portfolio, and also avoided the many years of continuing strife with his brotherwith all its attendant costs.

The Claimant lost at trial. The trial judge found that the solicitors had not been under a duty to obtain a binding agreement when the circumstances of the dispute did not lend themselves to such a resolution. It was unrealistic to expect that a final and fully enforceable agreement would emerge from a single day’s mediation where the extent and complexity of the brothers’ business interests, and the depth of their antipathy towards each other, was so great.

Although criticising the way in which the trial judge conducted the trial, the Court of Appeal agreed with his ultimate conclusions. It was not possible for the solicitors to produce an enforceable agreement when the parties had not themselves made one, and it was not for a solicitor to fill in the gaps.

The Court of Appeal’s conclusions, and in particular the general remarks made by Tomlinson LJ about the nature of mediation, are of wide application, and should be taken as a message of support to litigators advising clients in a mediation. He said:

"Mediation has proved a flexible and immensely valuable process of dispute resolution. No doubt in some situations immediate and binding agreement is possible, whereas in others, of which this was a paradigm, flesh will need to be put upon the bones. It would be regrettable if any decision of this court were to cause practitioners to approach the process of mediation with anything other than maximum flexibility, although I need hardly emphasise that it will be normally be part of a solicitor’s duty to advise his client, especially a lay client as opposed to a professional litigator such as a liability insurer, of the nature of the process and of the status of any agreement reached as a result."

Mediations are often highly pressured experiences. They are litigation’s equivalent of trench warfare – moments of frenzied activity when clear and quick thought are required, often punctuating concentration-sapping periods of intense boredom. The Court of Appeal had no desire to send the message to litigators that the goal of every mediationmust be a specifically enforceable agreement, and a solicitor fails in his duty of care if he does not succeed in drafting one. To have done so would have encouraged agreement for agreement’s sake when in many cases the client’s interests are better served by agreeing a road-map for peace, with the details left to be worked out in a more conducive and thoughtful environment than an airless consultation room at three o’clock in the morning. And so long as the client understands that the process is not complete until a binding agreement is executed, there is nothing wrong with that. It seems that the Court of Appeal accepts that, however much a mediation looks set to be a case’s denouement, the drama can continue elsewhere.


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