Today we look at another article written by our Director and Accredited Mediator, Roy Caligari. The article was published on 13th March 2008 in ‘Financial Advisor’.
Relationships between financial advisers, product providers and networks are, in the main, wholly amicable, profitable and in many cases long-standing. The entire industry sector is built upon this foundation of a shared goal with providers, especially networks that openly display a positive approach in a bid to recruit IFAs. But, what happens when the relationship goes sour? Substantial sums in respect of policies can fall off the books, investment in new business fails and possible funding/business development loans remain outstanding.
Providers blame the IFA for maintaining poor persistency levels, the IFA points the finger back claiming lack of support or issues over compliance as the reason for the incurred liability, and are then facing potential litigation action for the outstanding debt.
By this time the IFA may have been suspended or terminated under the contract and the relationship is over. Behind the scenes IFAs and providers face this problem every day, although it is rarely publicised.
Both sides have put all their energy into working together to achieve a common goal, providers need to maintain their image to recruit new business, and advisers equally have their reputation to protect.
Providers have to be seen by shareholders to be recouping potential losses through a professional approach while not wishing to publicise the fact that they have litigated against a member who has been with them for years, and inevitably affected his or her earnings capacity.
Until recently, providers have had no alternative but to consider litigation as the way forward, but the law in the UK has changed significantly since the implementation of the civil justice rules in 1999 which require both the courts and legal advisers to play an important part in encouraging the use of mediation.
The Institute of Credit Management has confirmed that businesses are being seriously let down by the civil court system and penalised by escalating costs and unprecedented delays.
The Institute stated that delays have lengthened despite the fact that the case load has fallen since the implementation of the Woolf reforms, which were intended to encourage parties to settle out of court, and is now calling for a radical overhaul in the way these cases are treated.
So, what are the alternatives to court action when a dispute arises? This article aims to demonstrate a solution that is quicker and far more cost-effective than the conventional route of litigation.
There is a hierarchy of dispute resolution techniques which comprises: negotiation, mediation, conciliation, determination, adjudication, arbitration and litigation.
As we move away from negotiation through the hierarchy, cost and time implications increase while the degree of control exercised by the parties to the dispute diminishes.
Historically, where a dispute of a liability for a liquidated sum exists between an adviser and provider, it has been normal practice to issue legal proceedings against the IFA, thereby beginning the first steps of litigation, which can be both costly and protracted for both parties with no guarantee of the outcome.
The present position in the UK, is that a party who refuses to proceed to ADR without good reason prior to the issue of legal proceedings, may be penalised for that refusal.
Litigants and their advisers should therefore be aware that even after proceedings have been issued they may face strong judicial pressure to consider mediation or face adverse cost consequences.
Importantly, mediation is not only a UK phenomenon. The European Commission is also taking it seriously and all persons who are engaged in a contract or have disputes with parties or organisations in a member state, will be best advised to consider the introduction of a mediation clause – in any contract – or seek to resolve any differences through mediation.
The process of mediation works and significant empirical evidence exists to support this. But decisions to engage in this process are still few and far between in the industry, those with the ability to take advantage of this service are simply not informed. If a provider calculated the costs of their commercial litigation, the figure is likely to be substantial. Many lawyers are doing their best to help clients identify cases that may benefit from the process. However, much more still needs to be done, not only by lawyers but by key decision makers since the commercial benefit to be gained by the early resolution of any dispute is huge.
Mediation enables parties to consider practical commercial solutions beyond those that a court can order. The key questions to be asked of the parties, are do they want to settle and are they willing to compromise? Assuming the answers are yes, they also need to consider whether they have sufficient information on which to negotiate a mutually acceptable outcome having assessed the legal risk. If a solution can be reached through this means, the parties can immediately put the matter behind them and continue generating revenues. Indeed, dispute resolution techniques which can be employed during normal business processes can actually offer the possibility of improving relations and productivity.
As an alternative to conventional litigation or arbitration, mediation has now come to be recognised as a serious and cost-effective means of reaching practical, rapid, and commercially sound solutions to a range of disputes.
The process of mediation is a non-binding and “without prejudice” method of dispute resolution. Parties who volunteer to use mediation are assisted by an impartial and neutral mediator to arrive at a mutually agreed solution to their dispute: a solution that often goes beyond that which a court could order. So the mediator is a third party neutral who shuttles between the parties attempting to broker a deal.
Mediators are specially trained to nationally accredited standards, and unlike arbiters or judges, have no power to impose a settlement on the parties. Mediated agreements, characterised by their intention to meet the full interests of both sides, are arrived at by the parties themselves, with the mediator facilitating the process by which the agreement is reached, but not detailing the specific terms of the agreement.
What happens in a mediation case is that, once both sides have registered their agreement to use mediation, and have accepted the requirement to share the – often relatively low – costs involved, they then attend for the day’s mediation. There is no absolute requirement for parties to bring along legal representation, but parties usually attend mediation along with their solicitors or other legal advisers. The day’s process is uniquely characterised by the disputing parties themselves leading the negotiations, consulting with their advisers as required.
An opening joint session is held on the day, chaired by the mediator. During this part of the process, both sides are given the opportunity to explain their position to the other party and his/her advisers. At this point, the parties or their advisers present a position statement, usually pre-prepared, which describes their view of the dispute and what they wish to see in terms of its resolution. The parties and their advisers then go into separate rooms, and are attended in turn by the mediator.
As the mediator conducts the shuttle process, holding the same number of private sessions with each side, each of the disputants is asked to take a critical look at the merits and weaknesses of their case and to continually weigh up the emerging proposals for a settlement. Any information given in private session is strictly confidential, with the mediator only passing forward between the parties that which they consent to being disclosed.
The parties are encouraged and helped by the mediator to consider as wide a range of solutions as possible, aiming for a compromise between both sides’ financial bottom line. Unlike litigation, there is not an intention that parties should seek to win or lose at mediation. Rather, the intention is that both parties should gain from the mediation, achieving a settlement that keeps them out of court, saves time and money, and ultimately avoids the distraction and worsening relationships that the legal process can bring
Last week we announced that CBC Staff member, Mike Loftus, would be abseiling down the Cunard Building in Liverpool. This abseil was completed at the weekend and Mike raised £191.00 towards his £200.00 target. This was an impressive 96% of his overall goal. If you would still like to donate money please visit -
