Costs Benefits Buttons Show Value And Analysis
“The first thing we do, let’s kill all the lawyers” – Henry the Sixth, Part 2 Act 4, scene 2, 71–78 William Shakespeare.
At the outset, the quotation should not be interpreted by the reader literally! It is a lawyer joke – “The first thing we do,” said the character in Shakespeare’s Henry VI, is “kill all the lawyers.”
Contrary to popular belief, the proposal was not designed to restore sanity to commercial life.
“Rather, it was intended to eliminate those who might stand in the way of a contemplated revolution — thus underscoring the important role that lawyers can play in society.”
[See Dickstein Shapiro Morin & Oshinsky LLP Firm Profile].
It has been for a considerable period that the writing of this article has been contemplated.
The precipitating factor that led to the said contemplation has its roots in an article authored and posted by Lorene Schaefer-Hooi, Esq. ‘Workplace Conflict: The Continuum of Dispute Resolution’ LinkedIn September 10, 2014.
In the article by Schaefer supra the author in passing made the following observation, “A discussion I had with a group of business people at various stages of their careers is the genesis for this blog posting.
In the discussion, we were talking about the different dispute resolution processes we might use to resolve a dispute that was happening in their workplace. In the course of the conversation, two things became clear.
First, we were not all using the various dispute resolution terms in the same manner.
Second, we were not all clear on when the various tools might be used to resolve workplace conflict and the pros and cons of each of the processes.
In that discussion, I found myself sketching out on a piece of paper a dispute resolution continuum. My simple sketch got us through that conversation, but when I got back to my office I decided to “pretty it up” a bit and created the [a] chart…” [See depiction of the chart below].
Shortly thereafter, an article of significant edification was published on LinkedIn by Professor Barney Jordaan “When Ignorance Isn’t Bliss: Corporate and Lawyer Resistance to Mediation” Nov 21, 2014.
[Barney Jordaan is a Professor: Negotiation, Mediation, Conflict Resolution].
It took some time to ‘intellectually digest’ the importance of the two articles referred to above, where after the election was made to share the substance of the articles, to wit the collective wisdom contained therein with fellow LinkedIn professionals and other colleagues.
Having done diligent research I came across an interesting observation as to the ancient historical roots of mediation as a means of dispute resolution.
The said observation has been quoted hereunder for the sake of completeness and for ‘those not educated in the divine’ [that includes me]:
“Once upon a time, men arguably wiser and more sensible than those of the present era settled their disputes by sitting down together in a civilised fashion and talking until the problem was solved. No courts, no judges, no longwinded wrangling over technicalities; just a chat by the fireside, overseen by a fine, shrewd fellow with a knack for negotiation.
This was the method favoured by Confucius, and others before him through 4,000 years of Chinese folklore. Buddha championed it in India; while Japanese chukka isha (mutual friends) have long helped businesses resolve their differences.
Not to be outdone, the Roman Empire later picked up the tradition, with intercessors, internuncios, interpolators and interlocutors frequently shuttling to and from antagonistic parties in a diplomatic bid for peace.
Over the generations, however, the realm of dispute resolution gradually became more convoluted and complex. Flexibility and prudence gave way to formality and structure. While a fair, regulated court system is doubtless something to be celebrated, it has – some believe – served more to quash the world of common sense negotiation than to complement it.”
[See article posted by Rebecca Lowe “Mediation Back to basics – In-House Perspective”, March 2016, LinkedIn].
In the article by Lowe the following observation has been recorded, “Why businesses have taken so long to incorporate mediation into their strategy – and why so many continue to avoid the option – is something of a mystery, says Michael McIlwrath, Associate General Counsel for Litigation at GE Oil & Gas, a supporter of the pledge’.
[‘Pledge’ signed by the original CPR Corporate Policy Statement for Alternatives to Litigation, which encouraged companies to focus on ADR in the 1980s. The updated version does not replace the original pledge, which has more than 4,000 companies as signatories, but aims to expand it beyond a focus on individual disputes, to a broader systematic approach, whereby mediation is absorbed into everyday best practice].
“Beats me,’ he tells In-House Perspective. ‘Maybe it’s because they don’t understand the advantages of mediation. It’s a no-brainer, and there isn’t any downside.
At a recent conference, some general counsels of large companies in the Nordic countries spoke about mediation as if it was an abstract concept they had never tried.’ [Emphasis added].
After reading the above and eventual realisation of the importance of mediation before litigation this article was conceptualised and drafted, obviously with noble intentions and in the utmost good faith.
PURPOSE OF THE ARTICLE:
At the outset, it should be recorded that postings on the network should preferably be brief and not protracted; nor should it be perceived by the reader as if a comprehensive or an authoritative work of reference on the subject matter.
The objective is to edify, within the confines of the medium and to generate interest and possible debate on the subject matter.
The purpose of the article is to alert litigants as to legal costs that may be incurred in litigious proceedings.
Furthermore, to advise litigants that adjudication may not be an appropriate process to ‘settle scores’ or to vent anger due to unjust treatment by the opposing party and the all time favourite that a resolution of a dispute is impossible because ‘It’s a matter of principle.’
The same considerations, even more so apply to mediation as a means of dispute resolution.
Prospective litigants should engage with the assistance of their legal representatives in what is commonly referred to as a cost benefits analysis prior to litigation in the Courts or tribunals.
COST BENEFIT ANALYSIS:
The question that comes to mind is what is a cost benefit analysis and the rationale for considering the exercise?
Parties may find it of considerable value to conduct a cost-benefit analysis (CBA) prior to conciliation/mediation/arbitration or adjudication.
CBA involves comparing the total expected cost/risk of the non-settlement of a dispute against the benefits of a settlement, in order to establish whether the benefits of a settlement outweigh the costs/risks of non-resolution, and by how much.
It happens ever so often that at the outset of conciliation/mediation proceedings the representative of a party would as an opening remark inform the conciliator/mediator that he/she has “no mandate to settle” – with a follow up comment that the issue in the dispute is, “a matter of principle”.
An experienced colleague [Mediator/Arbitrator] and friend, CCMA Commissioner Paul Botha, when a party raises the ‘matter of principle argument’ from time to time responds, ‘You do not see them, however, these corridors are strewn with the corpses of costly principle issues’, or words to that effect.
Suffice it to mention that there is no obligation in law to settle a dispute.
However legal battles are notoriously costly and protracted.
In order to provide some indication of legal costs it has been deemed appropriate to refer to an article by the celebrated author HJ Erasmus “Cost and Fee Allocation in Civil Procedure – RSA” (Stellenbosch, Cape Town, 82 to 95 – [Article discussed at CCMA Commissioners Indaba (2013)].
“[VII] Examples [See Erasmus 94 to 95] [Please note the article was published in 2009].
The examples are given below of total costs for both sides, at first; the instance is no more that approximations. The cost of any litigation is ultimately determined by the nature of the issues, the bulk of the documentation, the need (or otherwise) of expert testimony, and the amount of work the legal representatives have to do. In a given case, the total of costs and fees may be considerably higher than the examples given.
- Small claim: if within the limit of jurisdiction of the Small Claims Court (R7 500.00 or less): there will be no costs.
- Small to medium claim: if within the limit of jurisdiction of the Magistrate’s Court (R1 000 000.00): R25000-R40 000. [The CCMA would fall into this category].
- Medium to large claim (say a claim for R750 000.00 in High Court): R250 000.00. [Some cases at the CCMA will fall into this category].
- Large claim (say an application for R7 500 000.00 in High Court): R450 000.00
- The total cost liability of a plaintiff who loses a claim of R10 million may, depending on the issues, the need for expert testimony, the length of the trial, the bulk of documentation, between R250 000.00 and R700 000.00.
- The total cost liability of a defendant who loses a claim of R10 million may be in a similar range to that of a losing plaintiff.”
Therefore, an envisaged fee as a deposit may be requested by legal representatives and determined as reasonable having regard to the technicalities and legal complexities inherent in the cause of action.
An approximate and initial amount of security for costs ‘give or take’, say R 20 000.00 cannot be said to be exorbitant, unreasonable or disproportionate.
A number of obstacles arise when attempting to assess if costs in civil litigation are reasonable or proportionate.
In an article by Paul Taylor, ‘Proportionality and legal costs’ UK Law Society Gazette, 12 March 2014, wherein the author addressed legal reforms in the UK with the purpose to limit legal costs.
The under mentioned quotation is of value:
“The Jackson civil litigation reforms introduced in April 2013 have the concept of proportionality of costs at their core. The idea is that costs should be proportionate to the dispute and this arises in two main contexts:
- At an early stage, the court is required to determine whether the cost of taking a particular step in the litigation is proportionate (for example how many independent expert reports are required). The implication is that if the cost is disproportionate, a different (less expensive) approach will have to be used.
- Secondly, in those cases where the losing party is required to pay the winning party’s costs, the court will limit the costs that the winning party can recover to those costs that were proportionate.”
However, the meaning of proportionality is not straightforward and the new rules applicable in the UK do not provide clear guidance on how proportionality should be applied.
The suggestion seems to be that a body of law will develop on a case-by-case basis until gradually the meaning will become clear.
Until that happens, litigants, legal advisers and judges will have to guess at what costs will be considered proportionate in particular circumstances.
Taylor then made the observation in the article referred to supra:
“[T]hat the best (and arguably the only) person that can decide whether a particular investment of legal costs is proportionate (that it is a risk worth taking) is the litigant.”
To a large extent and in general the same considerations as to legal costs apply in South Africa and elsewhere.
Of value and instructive is an article by Heidi Grant Halvorson, PhD’, ‘How to Cut Your Losses When It’s Not Working – Learn how to make it easier to cut your losses and move on.’ Psychology Today, Feb 10, 2011,
“You realise that pursuing whatever it is that you’re pursuing – whether it’s being successful in your current career, mending a troubled relationship, or renovating your house from top to bottom – will cost you too much financially or emotionally, or take too long. But instead of moving on to new opportunities, all too often you simply stay the course and sacrifice your own wellbeing in the process.”
The above serves as an example or rationale to resolve disputes timeously, not only confined to the workplace but in all spheres of life.
The longer a matter continues unresolved the prejudice that the parties stand to suffer increases exponentially.
The article by Schaefer supra is instructive and should be kept in mind by disputants.
A discussion of and reference to the article by Schaefer follows hereunder.
Workplace Conflict: The Continuum of Dispute Resolution:
[By Lorene Schaefer-Hooi, Esq. published in Leadership & Management and LinkedIn September 10, 2014]
Defining the Dispute Resolution Processes:
Schaefer opens by defining dispute resolution processes as set out hereunder:
“In negotiation, two or more parties discuss directly their conflict and try to resolve it. There are no third-parties involved.”
“In mediation, the parties in conflict ask a third-party (the mediator) to try to help them resolve their conflict. The mediator is a neutral and does not decide what is “fair” or “right.”
Rather, the mediator’s role is to moderate and guide the process in an attempt to bring the parties together by defining issues and eliminating obstacles to communication.
Although a mediator may point out to the parties potential strengths or weaknesses in their positions in an effort to help facilitate resolution, the decision-making power remains always with the parties to the conflict.”
“In arbitration, the parties to the conflict have agreed that a third-party (the arbitrator) will hear the evidence presented by each of the parties and make a decision.
The arbitrator’s decision can either be binding on the parties or non-binding depending on the terms of the parties’ arbitration agreement.”
“Litigation is the term used to describe the filing of a lawsuit in court and the process that follows the filing of the lawsuit.
Most commonly in litigation involving workplace disputes, issues of law are decided by a judge and issues of fact are decided by a judge or jury.”
Analysis of the dispute resolution continuum:
Parties Retain Control on Left and Cede Control on the Right:
Transgressing from the left to the right the parties increasingly cede control for decision making to a third-party. Many readers may perceive it as of no consequence.
It is inevitable that some disputes cannot be resolved by the parties themselves. Therefore, hand the issue to a third-party and let them decide.
Schaefer then makes the observation, “When I discuss the potential of having a jury decide a dispute with parties in a mediation, I often ask them whether they agree with who gets voted on and off of “American Idol” each week. I know I don’t.”
“Those same voters are members of the jury pool. If you are the person involved in a workplace dispute query, whether you want to make the decision of how to resolve the issue or whether you are comfortable turning it over to the “American Idol” voters?”
The Likelihood of a Win-Lose Answer Increases as You Move to the Right:
A continuation to the right on the continuum, the parties also increase the likelihood that one of them will be a loser and one of them will be a winner. Notice the missed opportunity for a win-win resolution.
Monetary and Non-Monetary Costs Increase as You Move to the Right:
Costs of lawsuits include not only the legal fees that each of the parties will pay their attorneys but also fees associated with court filings, depositions and expert witnesses. For the employee, there is also the reality of foregoing a regular paycheck if he or she is not working.
There are also the non-monetary costs.
Non-Monetary – Employers:
For employers, there is the productivity drain that an on-going workplace dispute causes. Research shows that simple incivility or bad behaviour in the workplace (much less the distraction caused by a pending lawsuit) has a significant cost.
According to research by Professors Christine Pearson and Christine Porath reported in their book ‘THE COST OF BAD BEHAVIOR: How Incivility Is Damaging Your Business and What To Do About It’, among workers who’ve been on the receiving end of incivility:
- 48% intentionally decreased their work effort;
- 47% intentionally decreased the time spent at work;
- 38% intentionally decreased the quality of their work;
- 80% lost work time worrying about the incident;
- 63% lost work time avoiding the offender;
- 66% said that their performance declined;
- 78% said that their commitment to the organisation declined;
- 12% said that they left their job because of the uncivil treatment;
- 25% admitted to taking their frustration out on customers.
Non-Monetary – Employees:
For the employee, there is the personal distress. As Atlanta plaintiff’s attorney Steve Mixon explains, “employees cannot start their real healing until the lawsuit is over. While the lawsuit is pending, employees are forced to essentially relive what happened every time they have to answer their attorney’s questions, respond to discovery or give testimony.”
The Workplace Dispute Becomes More Public as You Move to the Right:
One of the biggest benefits to employees and employers who can successfully resolve their dispute through either negotiation or mediation is that they can agree to keep the resolution – and perhaps even the dispute – confidential.
In a workplace dispute, this can be particularly beneficial to both the employee and the employer. Depending on the terms of the arbitration agreement, it is also possible to have an arbitration and the arbitration decision kept confidentially.
By contrast, litigation is public.
It is particularly important for parties to a workplace dispute to understand this point as it is increasingly easy for any interested party to go on-line and read all of the various documents that make up a lawsuit.
As such, investors or potential buyers of a company will often, as a part of their due diligence, read court pleadings to get a feel for the corporate culture.
Similarly, potential employers might read court pleadings as a part of their reference checking.
Insights for Employees and Employers:
Schaeffer’s advice is, control your own conflict!
‘Sit down and talk to each other face-to-face and see if you can negotiate a resolution.’
If you can’t do it on your own, retain an experienced mediator who knows the applicable laws and can work with you to find a win-win resolution.
Articles posted on LinkedIn and in the broader media shows a global trend towards compulsory mediation process prior to litigation.
In an article by Caroline Jan ‘A global trend towards mediation: views from lawyers in 13 countries – Dispute Resolution Law Blog’, 6th May 2014, the author states that in England and Wales, recent case law highlights that parties in commercial litigation risk adverse costs sanctions if they unreasonably refuse to mediate or if they ignore a request to mediate without providing any justification.
Whilst judges cannot compel parties to mediation, many judges appear to take an active role in case management issues and are keen to encourage parties to agree to mediation.
The same or similar process has been adopted in South Africa where designated magistrate’s courts in Gauteng and the North West have introduced court-based mediation. A litigant will now be able to approach the registrar in writing and request mediation prior to instituting legal action, either by a summons or notice of motion.
The reasons for court-based mediation are many, but its foundation is based on the need to ensure that access to justice is available to all, and to alleviate the burden on our courts which are inundated with civil lawsuits.
It will mean a dispute can now be referred to mediation prior to the institution of legal proceedings or after their commencement but before judgment is handed down.
The registrar has greater powers to convene conferences between parties to a dispute and to explore whether they are amenable to holding mediation.
The office of the registrar will play an important administrative role in ensuring that parties mediate disputes. A litigant can also apply to the court to have a matter mediated and the court has the power to refer the matter to the Registrar to be mediated if there is agreement from the other party.
The court can also mero motu inquire from the parties whether a dispute should not be referred to mediation and if the parties have considered mediating the dispute.
The writer is aware that many lawyers have attended extensive training in civil mediation and received due accreditation as mediators.
Other African countries like Nigeria and Rwanda have had court-based mediation as part of their justice system for some time, and so it will be interesting to see how South Africa fares with its attempt to introduce the process.
[See article by Munya Gwanzura ‘Pilot of court-based mediation under way’, December 9, 2014 – Munya Gwanzura is a director in the dispute resolution practice at attorneys firm Cliffe Dekker Hofmeyr].
In an insightful article by the celebrated author and a doyen of South African Labour Law, Professor Barney Jordaan, “When Ignorance Isn’t Bliss: Corporate and Lawyer Resistance to Mediation” Nov 21, 2014, the learned author inter alia deals with resistance amongst lawyers to compulsory or even voluntary mediation.
After perusal of the article by Jordaan, supra writer is of the considered opinion that the resistance to engage in mediation by some legal practitioners would to a large extent be diminished.
Jordaan persuasively submits that the primary goal of a civil justice system is the just resolution of disputes through a fair but swift process, at a reasonable cost. Justice has both a process and a substantive dimension.
The outcome must be just, but the process used to achieve a just outcome must also be fair, i.e., creating a level playing field and be designed to operate without unnecessary delay or excessive expense. Otherwise, the justice system could be rendered inaccessible.
Under the heading ‘Problems with litigation,’ the author observes that the rights-based justice system provided by law and the courts is usually depicted as involving a set of known, certain and well-established rules and legal principles.
These are supposedly applied by independent courts to all persons equally, through a process which is fair and in which the substantive outcomes are determined through the objective application of the established norms.
According to Jordaan, this idealised view overlooks a number of factors, such as the impact of the cognitive errors even experienced lawyers (like everyone else) are prone to: see Wistrich, Andrew J. and Rachlinski, Jeffrey J., ‘How Lawyers’ Intuitions ProlongLitigation’
These errors distort lawyers’ choices about what advice to provide their clients concerning settlement. As a result, they sometimes may be encouraging their clients to delay settlement when they should not, or advising them to reject settlement offers that they should accept.
Consequently, litigants will invest more resources in litigation than they need to, their excessive investments will drain from the economy resources that could be more productively deployed elsewhere, and courts will be forced to waste their limited resources by making decisions that are unnecessary.
Litigation should be the alternative if a problem-solving process such as mediation fails to provide a mutually agreeable solution to a dispute. Currently, however, most legal practitioners view mediation as the (soft) alternative and litigation as the primary process for resolving differences.
The author submits that mediation certainly is not a panacea for all disputes nor is it always appropriate, e.g., where urgent relief is needed to prevent financial or other imminent harm, a precedent is required or where one party adopts devious tactics.
However, mediation does offer many benefits to disputing parties, including speed of resolution, cost containment (considering the time value of money); confidentiality; risk containment; control over the final outcome; less stress and formality, and limitation of damage to ongoing relationships.
Compare this to litigation, which essentially involves entrusting one’s problem to a system over which we have no control that is renowned for its high costs and delays that are more than likely to destroy whatever business or other relationship we have with the other party to the conflict – all in pursuit of an outcome that is totally uncertain.
Jordaan contends that the above scenario is absurd and makes neither economic nor business sense. It certainly does not assist in managing risk or creating the kind of certainty and control business strives for.
Add to this the fact that all the effort, stress and strain of litigation will in any event probably result in an out-of-court settlement before trial after massive costs had been incurred, and the picture becomes even more absurd.
The benefits of mediation for business are succinctly captured by the author, “Perhaps most important is the adverse effect that disputes and litigation unquestionably have on business relationships – relationships with customers, suppliers, joint venture partners, and others”.
Disputes often result in a significant and ongoing disruption in business relations – or even a complete termination of those relations – resulting in lost business opportunity for both parties. In any successful commercial enterprise, business relationships are critical, and they are as easy to lose as they are costly to develop and maintain.
‘Litigation does not build relationships; it destroys the value associated with them. It can also have a serious negative impact on a company’s reputation’.
The writer deemed it appropriate to quote directly the concluding remarks by Jordaan and references to the words of Mahatma Gandhi hereunder:
“My challenge to the legal profession out there is to acknowledge that clients are entitled to accurate information about mediation, an honest assessment of each dispute for its suitability for mediation and cogent reasons if the advice is that mediation is not appropriate in a given case.”
“My challenge to shareholders and other corporate stakeholders is for them to require accountability for every company decision that involves a choice of litigation over mediation.”
“I had learnt to find out the better side of human nature and to enter men’s hearts. I realised that the true function of the lawyer was to unite parties riven asunder.”
“The lesson was so indelibly burnt into me that a large part of my time during the twenty years of my practice as a lawyer was occupied in bringing about private compromises of hundreds of cases.”
‘I lost nothing thereby – not even money, certainly not my soul’ – Mahatma Gandhi, after persuading two litigants to settle their differences.
April 29, 2017
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