Closing barriers: Why you should use mediation to resolve partner disputes

In recent years, many legal practices have disappeared by either closing their doors or allowing themselves to be taken over by rivals. While politicians say that the UK is not in a double-dip recession, the reality is that we are in a worse depression than that of the 1930s.

The traditional partnership model cannot survive in this economic environment and financial stress tends to exacerbate inherent problems and frictions between partners. Mediation is a useful method of settling disputes without the cost, time and risk associated with litigation. It has on average an 80 to 85 per cent chance of success.

Mediation is ideally suited to partnership disputes, as the partners are faced with business decisions that require commercial solutions. It should be at the forefront of any managing partner's mind to remain in control of these situations and to resolve conflicts and problems positively.

Mediation process

Mediation is a confidential and flexible process conducted by a neutral person who assists parties towards a negotiated agreement of a dispute. During this process, the parties retain ultimate control of the decision to settle and the terms of the resolution.

A mediator is there to facilitate a settlement of your case. A mediator will not adjudicate on the merits of the case or provide a judgement, but will work towards an agreed settlement.

A mediator starts the process by discovering the facts before moving to reality test the merits of each case with ?the parties. He will look at the costs that have been incurred and will be incurred going to trial, along with the best and worst case scenarios. Only then will he start to explore ideas for settling the ?case before moving to record the terms ?of settlement.

Advantages of mediation

There are three main advantages to ?using mediation rather than litigation to resolve partnership disputes: speed, ?cost and risk.

1. Speed

A mediation can be organised within seven days if the parties want a speedy resolution to a dispute. The mediation process itself normally takes a day. By comparison, the court process can take 12 to 18 months if all goes well and a court hearing can run into weeks. During this period, the partners' attention will be diverted from running the business and winning new work.

2. Cost

In litigation, you pay the hourly charge-out rate of the solicitor and, depending on the length of the proceedings and the trial, after many months of litigation and disruption to your practice, it is not uncommon for fees to be in the six figures.

By contrast, a mediator will charge, in an average case, something in the region of £1,250 (plus VAT) per party. If the mediation lasts for over eight hours, the mediator will charge a further £150 per hour per party.

3. Risk

Mediation puts you in control of the risk of losing and the adverse costs order. There are two sides to every story and one party is inevitably going to lose. The judge is going to have to form a view of the parties based on how they perform in the witness box.

During mediation, you assess the risks of your own case and find out the strengths of the opposition's case. You ?can then take a view of the risks of litigation and negotiate a settlement ?around that risk and the cost of proceeding to trial.

Disadvantages of mediation

There are no disadvantages to mediation - the only downside is that you will have had to pay for the costs of the day of mediation. However, if you have used the mediation process to its full extent, you will have had the opportunity to reassess the merits of your case with an independent third party.

At the same time, you will have found out the strengths and weaknesses of your opponent's case. Even if the mediation does not produce a settlement, the process inevitably leads to a narrowing of the issues as you go forward, saving you time and money.

 

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Causes of partnership disputes

It is only human nature that there will be conflict in any organisation; partnerships are no exception. The common themes that lead to disputes among partners are:

• underperforming partners;

• partners who feel they are producing more and are not being recognised;

• character clashes;

• failure to move with the times;

• maverick partners;

• underperforming teams; and

• behaviour caused by too much pressure.

Whatever the cause, it is in the interests of the whole firm to embrace the conflict and to resolve it quickly.

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Using mediation

There are occasions when you will ?know that no resolution can be achieved and you will need to follow the litigation route. While every case differs, it is usually wise to use mediation at the earliest possible opportunity.

There are three types of cases in which managing partners can effectively use mediation. Commercial mediation is widely used where there is a challenged expulsion or a retirement notice has been served, but there are two other types of mediation which are underused: early mediation and team mediation.

Early mediation can be used when the managing partner realises there is a problem. Classic examples of this are where the relationship between the managing partner and the 'difficult' partner makes communication difficult or nonexistent. Often, this partner will be cross with underperforming partners, feel his contribution is not being recognised (or his remuneration is not greater than others) and/or feel that the firm is not going in his chosen direction. A mediator can facilitate an exchange of views, an appreciation of the others' point of view and a reconciliation. Where this fails, it at least allows a negotiated settlement and controlled parting of ways.

Team mediations can be used to rejuvenate an underperforming team's performance when it is caused by conflict or poor management. Discussing the issues in confidence and prompting a solution from the partners and the team has a far better chance of success than a partly uninformed solution imposed by the managing partner. Partners and fee earners tend to say to the managing partner what they think he wants to hear, but it is not necessarily the truth and might even ignore their own contribution to the problem.

Pitfalls to avoid?

1. Inactivity

If not resolved, a dispute between partners can cause further problems for the firm. The partners' focus becomes inwards, they lose motivation, they take their eyes off the ball and, at a time when it is really needed, they fail to concentrate on winning new work. Don't let the issues fester.

2. Retaining control

Any loss of a partner has implications ?for the firm's partnership, management, staff and clients. There will also be publicity issues. As far as possible, these issues should be identified and planned. Don't be constantly reacting to new and difficult situations.

3. Lack of preparation

If embarking on an expulsion from the partnership, it is essential to first understand the impact on the firm's taxes, capital and cashflow. If you decide to embark on a course of action, work out the answers to these questions so that the risk can be factored into the equation at the outset. Don't be surprised by the consequences and cost of your actions.

4. The bank

Banks are nervous about the legal sector and they hate surprises. So, if an issue is looming, tell your bank manager. Show him how, as a management team, you are in control and going to resolve the issue. You may need the bank's assistance to raise further capital to buy departing partners out, so don't let him find out second hand.

5. Litigation

If a notice of dissolution or expulsion has been served and issues such as restrictive covenants, client following and members of the team leaving are not resolved very quickly, proceedings will be commenced or injunctions sought. This is not good for either the leaving or remaining partners, or for the firm's staff or clients. It is a very expensive process, with costs quickly escalating into the tens of thousands of pounds. Litigation should really be seen as the last resort; don't stumble into litigation.

Acceptable resolution

Mediation is an effective way of facilitating an acceptable resolution for both sides to a partnership dispute. The commercial nature of partners gives the prospect of success a higher than average (80 to 85 per cent) chance of success.

Mediation should not just be seen ?as a means to settle a dispute once the courts have become involved, but as a useful management tool to control conflict in a partnership.

Mark Whittell is co-founder of Mediate North (www.mediatenorth.com) and ?a commercial litigation and insolvency partner at Gunnercooke ?(www.gunnercooke.com)

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