Win, lose or draw

Litigation has developed since pre-Norman trials by combat and the system remains. Today, however, the rules of court have been refined so that manoeuvres of the past, such as issuing proceedings without prior notice or serving evidence just before trial, have largely fallen away.

The parties now skirmish before battle (using pre-action protocols) and strict rules govern the early disclosure of evidence. Litigation by surprise has gone but it can still be a very bruising encounter, not least in terms of costs.

We all know mediation is a beneficial method of resolving disputes. Taking the 'trial by combat' analogy one step further, it is the parlez before battle: the final time opponents can negotiate and try to resolve their differences before engaging in full-blown litigation, with all the risks of losing and - even if winning - coming out badly damaged.

So why is mediation the better option?

Control

A key advantage for any party is the control they exercise over the process, compared with the court process or the vagaries and risks of trial.

Of course, once parties are in trial, they are at the mercy of the judge.

Flexibility

This is particularly advantageous to those parties who can put into effect a solution that the court cannot, of itself, achieve. For example, in 'all or nothing' will validity disputes where the court is bound to find a particular will or intestacy takes effect, the parties can agree a sharing out of the estate, which more accurately reflects the risks of winning and losing.

In a recent mediation, we were able to rearrange the distribution of assets in the estate, terminating a trust with an awkward provision limiting the surviving spouse's interest.

A further benefit can be the tax-saving advantages, which may be present in any dispute. For example, settlement of a surviving spouse claim under the Inheritance (Provision for Family & Dependants) Act 1975 will engage the application of the spouse exemption for inheritance tax and usually bring about a 40 per cent saving for the estate over the nil-rate band.

Early settlement

The courts emphasise that the parties should properly engage early in some form of settlement process. Mediation provides a mechanism for that to happen far in advance of any trial, which has significant cost savings for all concerned.

Again, in a recent mediation with cross-claims against an estate by a number of beneficiaries, we were able ?to mediate before the proceedings ?had commenced. The costs saved ?were a six-figure sum.

It is, of course, still sensible to mediate at a later stage. But clearly the savings to be achieved will be less.

Relations

A trial and the outcome will usually bring about an irrevocable breakdown in relations between the parties, particularly in the emotional familial context of estate or trust disputes.

On occasions, mediation can (though perhaps rarely) bring about a rapprochement, if not immediately then at a later stage. In family situations, that can only be a good thing.

Preparation is vital for successful mediation. Some parties treat the process as a conference with counsel and have not clearly worked out their position in advance, which wastes everybody's time.

So, there is a good degree of work to be done to have a productive negotiation. In most instances, the parties will have engaged in a pre-action exchange of information and views, but issues that need to be clarified are typically: the valuation of properties ?in the estate, the position regarding ?any foreign assets (not least forced heirship rules), and the tax liabilities ?of the estate.

 

Lloyd Junor is an associate at Thomas Eggar

He writes the regular in-practice article on wealth structuring for Private Client Adviser

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