How to prepare the case and the client for mediation

Many people, both clients and lawyers, approach mediation as something which must be complied with, simply because the Courts (and the Federal law) now expect some bona fide attempt at resolution of disputes. This is a gross underestimation of the utility of this process.

Mediation does present a rare opportunity for the parties and their advisers to get together. However, one must break away from the mindset that the mediation is the single or best attempt the parties have to come together and try to work things out. Certainly, mediation brings about a unique set of circumstances, however from the very beginning of instructions, the opportunities to bring about a resolution must be considered simultaneously with prospects and conduct of the processes leading to trial.

In short, whilst the process is invaluable, the approach to mediation should only be a reflection of the approach to the whole litigation. That is, from the commencement of instructions (not just commencement of the proceeding), we must consider how we can bring about a resolution of this dispute, while getting benefits for our client which they would not get, if they were unsuccessful at a hearing or even better, if they were successful at a hearing.

So that there is no confusion of the terms, I will in this paper use the term ‘mediation’ in the pure sense of the appointment or appointments to attend a formal mediation rather than in the often loose sense of a settlement conference or other form of meeting to find a resolution.

General principles

There are several basic principles which should and will become second nature.

Raise the risk factor for the other side

The first principle is that you will not get anyone’s attention to resolve the matter upon favourable terms unless you raise the risk factor for the other side.

Essentially this means that you have to elevate the risk of continuing for the other side. It goes beyond simply stating your own case and saying something like “As our case is strong you have a risk of losing”. By mediation, the other side has a good idea of your case, so repeating it will not only cause no surprise but will not heighten the risk, which they should already have assessed.

A more effective method to heighten risk is to white ant or raise doubts about the opponent’s case and of course I don’t mean simply saying “you don’t have a good case”. As I said, it is not only about stating your case. It is often more powerful to look at the respondent’s case and not just express an opinion that it has little or no prospects. Mediation is more sophisticated. The approach most effective (I have found), is to focus not so much with what they are saying as their primary position, but rather to consider the implications of what they are saying. The approach is: ‘…if you are saying ‘X’ then you should have ‘A’, ‘B’ and ‘C’ to corroborate that’. Most often times they don’t and you have hit a nerve whether or not it is apparent.

For example, in one case my client, whilst working for a drafting company, sent plans to his father, who was tendering for the same jobs as his employer. They had obtained seizure orders or Anton Piller type orders and had the evidence of misuse of the copyright plans from the outset of the proceedings. The other side had little reason to listen to any negotiations, rather they were calculating damages. Upon inspection of documents I noticed that it was in their standard agreement that the copyright in the plans were the property of the party commissioning the drawings to be done.

The result was that, although the plaintiff was using the plans from past jobs as templates for future jobs, they did not have ownership of the copyright, which was held by their former clients. Therefore they had no entitlement to use the plans either except for a project connected with the original commission but certainly not as a plan library for future jobs. The risk factor for the plaintiff went from zero to the difficulty the plaintiff would now face of having to disclose to former clients use of their plans and get permission for it. The whole matter dissipated.

In one case I am involved in, someone has infringed the applicant’s IP rights. I am advising one of the three respondents. Although we are named as a respondent, the mischief appears to have been done by a former officer of our company. We have protested our innocence before the proceeding was commenced and after it was commenced but the applicant wants to let the litigation process proceed further at least until after discovery in order to assess whether our client was involved in the infringing conduct.

I have proposed that before the mediation we provide the applicant with:

1. sworn statements from the officers and customers swearing as to their non-involvement of our client;
2. documents supporting the claim that we have not participated in the infringement; and
3. an offer under the Rules or a Calderbank style offer expiring on the day of the mediation.

I have proposed to raise the other side’s risk by:

1. Arming them with documents before mediation which we will say put them on notice that we have not been involved in the infringement conduct;
2. Making a ‘walk away’ offer for us to be released from the proceeding.

The risk thereafter for the applicant is that if we establish our innocence ultimately and the claim against us is dismissed, then there is an issue to address for our costs to be paid on an indemnity basis under the FCR rule 25.14 (2) (b).

Providing an easier path

If you have found one or more ways to raise some doubt in the other side’s case, you then have to create a path which will be easier for the other side to travel.

A side point. You should not expect the other side to break down like witnesses in television cross examinations. If you have raised aspects of risk, remember you are doing them in front of their client and the important thing is to plant the seeds of doubt in their case. I don’t expect the other side to agree. Invariably, they shake their heads and say “we have taken that into account” and invariably they haven’t!

The second principle, I always think is analogous to keeping livestock. If you have had sheep or cattle you will find that if you want them to go in a particular direction, then the last thing to do is to approach them head on. You come in gradually from a direction other than the place where you want them to go and they slowly start to move in the direction you want.

Of course, like sheep and cattle there is always one which flies off, but the general rule will be that they will move responsively to your positive movements.

Applying that analogy, if you rush at them with your client’s case they will scatter or at least not go in the direction you would like. Allow me to give you another experience from practice. A former employee of my solicitor’s client, opened in competition with their client. There was a restraint against competition in the employment contract and the prospects were 50:50 on its validity (the contract claim). However, it was discovered that the respondent had been, whilst in his own competing business, representing that he was still employed by the plaintiff (the ACL claim), thereby attracting the applicant’s customers.

I have taken some factors into account:

1. The compensatory damages will not be easy to prove. There are lost customers for the applicant but whether the loss can be attributed to the misleading conduct is another issue.
2. Although damages will be hard to prove, there will be an exposure for the respondent to some compensatory loss and possibly exemplary damages for passing off.

So you have risk for the other side.

The better prospect to get the respondent to move to the gate you want them to go through is to identify the important things for your client and what you perceive is important to the respondent. In this case our client is more concerned to stop the respondent from trading than to get damages because the business involves ongoing servicing. I have made a number of observations from web searching and title searches by my solicitors, that the respondent might have some difficulty raising a lump sum.

If therefore we can substantiate or provide a plausible explanation to support damages, then the gate to allow the respondent to walk through might be to forego a lump sum damages amount for de-facto compliance with the restraint. In such a case, the respondent avoids a big cash amount from his business and the applicant gets the restraint. Costs can be a variable to suit the case and their treatment a sweetener.

People do not like to be openly embarrassed

Embarrassing the opponent or their legal representative is clearly counterproductive. In one matter in which I am involved for a respondent, it is very clear that two of the other respondents are responsible for the trade mark infringement. Photos have been taken of their factory with the offending goods marked with the applicant’s trade mark. Although one must have a flexible approach to mediations, preparation is critical as a strategy provides some direction.

I would want to express to the other respondent’s solicitor that I consider their client should pay any costs or damages negotiated. It would be unwise to:

1. Express the liability of the two respondents in open meeting at the beginning;
2. Express it in front of those respondents.

Subject to the day unfolding, I consider that I will request an opportunity for the respondent lawyers to meet together. At that meeting I will express views that would be an embarrassment if directed at the co-respondents in the meeting with all parties.

Saving face is very important to anyone, but in this mediation all the participants save the applicant are of cultural backgrounds where ‘saving face’ is a commonly attributed characteristic. Therefore it would in my view be a mistake to expose the co-respondents in open sessions.

Developing a negotiation strategy

Prepare of yourself

Before I start to prepare for the mediation, I like to get a ‘feel’ for the mediation, based on:

1. The other personalities in the mediation.
2. My knowledge of the facts of the matter – the best way to present.
3. Is there something which needs to be done in advance of the mediation?

Other personalities

The other personalities include:

1. The mediator:

a. Have I had a mediation with them before; what was their style? For example, a former judge will generally be attracted to short succinct opening statements as you present your oral position statement.

b. Is it a private mediator or a registrar of the Court? If it is a registrar, do they require a ‘Confidential Issues Statement’ to be provided, usually 3 business days before the mediation?

2. The lawyers involved:

a. Have I dealt with them before?

b. Do they practice in my area, the area the centre of the proceeding?

c. I practice exclusively in Intellectual Property (IP). It would be counterproductive for me to try to impress the other side (and their client) with my knowledge of my area of practice when the lawyers for the other side do not regularly practice in the area. Why?

i. Because I am expected to put my client’s case forward.

ii. Because it is best to help the other side understand the risks and if it is too complex the other side will switch off.

iii. It causes the lawyers on the other side embarrassment if they have no credible response with no immediate benefit for my client.

3. The parties. Is there something I can understand to advance the prospects of resolution by my understanding of the parties? Does the client have a language issue or trust issue where a trusted family member can explain what is going on? In one case there were very real obstacles to resolution caused by the other party’s choice to have their manager instruct. It became apparent that while we dealt with the applicant’s manager of the other side, that the manager’s own agenda was preventing resolution, even to the detriment of his employer. That could be because they are trying to cover something in their own conduct.

The best way to present

What ways may I utilise to best show and understand our position. Are there visual elements? I find visual presentations most helpful in IP cases. Accordingly, by earlier arrangement with the Federal Court, I have had a power point facility available for a mediation.

For example, I had a copyright case not long ago whereby my solicitor represented the applicant. The respondents had copied certain works of the applicant.  

To show that a comparison of the competing artistic and literal works, the solicitor and I had power point presentations whereby I could have both the original work and the allegedly infringing work side by side on one power point slide.

The result was that not only could the other side see the works had been copied, but the power point presentation was a powerful tool for the mediator and the respondent’s solicitors understating in a graphic way the issue in dispute.

Is an object at the centre of the dispute? Do I need to have a unit of the product in the mediation? For example, in cases where a patent is involved, if I am trying to demonstrate what is inventive about that product, I consider whether I should have one at the mediation, so that the mediator and the other side can understand my complaint. If the unit is too bulky, quality photos will have to suffice.

Is there something to be done in advance?

The following may include:

1. Notifying the Registrar of desire to use power point slides.
2. Making an offer under the Rules or a Calderbank type offer.
3. For example, in a case where your client has been dragged into the litigation, because the applicant had a blanket policy to catch everyone they can, if you are confident your client is innocent of the alleged conduct, then it may be a good move to file an offer under the Court Rules, before the mediation and due to expire on the close of business of the mediation day. Rule 25.05(3) of the Federal Court Rules requires a minimum of 14 days for acceptance. The impact is that if the offer is rejected, indemnity costs may be available if and when your client is vindicated and that creates a risk for the other side at mediation. The timing of the offer should be such that it falls due for acceptance on the day of mediation, thereby covering the costs associated with the mediation.
4. Preparing statements where evidence and discovery have not as yet been directed. You may wish to put draft statements to the other side. Although, the mediation will be conducted in a without prejudice environment, certain documents given informally may be of assistance at the mediation. Sales figure come under this category.
5. Inquiring whether one or more of the other parties in the mediation might agree to an informal discovery in cases where mediation brought on early e.g. in cases where there is a concern that damages might not be the main issue, but restraint is more important or where there is a fear that the costs of litigation might outweigh the fiscal benefit even if they win.
6. Consider in advance what you need to do to fall due on the day. For example:
   1. Notice to have some documents available which would assist the mediation such as sales information; or manufacture information as to the number of offending units made;
   2. Whether any non-parties might assist the mediation e.g IT forensic expert.
7. If the Registrar of the Federal Court is appointed to mediate the matter, you may be required to prepare a ‘Confidential Issues Statement’. Private mediators normally have their own briefing and position statement requirements.

The criticism might be made that this adds to the expense of the mediation. I agree. However, there are cases where the lack of information disclosed, even confidentially, might bring about a resolution. It is in my opinion, a greater waste of resources to undertake a mediation where a result will be hamstrung by a lack of information which will become available at a later time in the litigation.

Empowering the client

What does the client want to achieve?

1. What is most important to them?
2. What are they prepared to concede?

These matters of course are not left for you to find out on the day. I have found that I have a sense of this from the outset of instructions and I either have that affirmed or re-assessed during the early part of the litigation.

The importance of knowing these matters at an early stage is that you have the opportunity to adjust your client’s expectations.

This is not uncommon in IP matters as damages are often difficult to assess. Accordingly, IP matters have often been dealt with by directions under the Rules for ‘split trials’ where liability is determined first and then if successful on liability damages are determined at a damages hearing.

I have often had the situation where the main relief a stakeholder wants is injunctive and where I have explained the position with compensatory damages. Often the cost to prove the compensatory loss, through expert evidence, may outweigh the end result.

In some cases, the client is encouraged on compensatory loss. In one case, where the applicant ran an eBay online store for motorcycle parts, the respondent was alleged to have copied the photos and text descriptions of the parts. As the same images appeared in a closed market, there was a very good argument that every sale of the respondent equated to a lost sale of the applicant. But that is not always the case. I have had to explain to trade mark owners, that compensatory loss might not be great where a cheaper copy is made with the applicant’s branding. Would the purchaser have paid more for the original or was the sale only driven by the cheapness of the product?

That is not to say that the client is made aware of circumstances which might attract additional or punitive damages regardless of the amount of compensatory damages.

In one case involving patented agricultural machinery, it was more economically viable at mediation to pay the applicant a license fee rather than fight the patent litigation where the infringement claim was met with a cross claim challenging the very validity of the patent.

I am involved in one case for an employer against a former employee. The matter began around the enforceability of a restraint in the employment contract. It was later discovered that the former employee has made some online misleading statements regarding his continued employment with the applicant.

The client seeks to totally remove the respondent from the market. The client’s expectation must be adjusted from an extreme position to one which achieves what historically the applicant had agreed to. In such a case the practicality of having an mediated or settled agreement which in de facto terms, honours the original restraint and allows for some accounted compensation for lost customers during the infringing period and for a reasonable but not onerous continuing period, would be a reasonable resolution.

Other factors should be examined to see if there is something in addition to or in whole or part substitution for financial payment. I have a regular trade mark/copyright owner whose trade marks are often used by the clothing industry for their ‘cool’ factor. It is a regular approach when submitting settlement deeds to include an apology which records that the settlement is without admission. The apology is published and enhances the reputation of the client further as it:

1. Shows others in the clothes industry that it takes its IP enforcement seriously;
2. Records an acknowledgment of the reputation the trade marks have. The trade marks have been used in Australia since about 1966.

Commercial considerations:

1. What are the costs so far and the costs if the case doesn’t settle?
2. Are there any additional costs or out of pocket expenses which should be factored?

Of course, what a client is prepared to consider must be scrutinised. When ‘principle’ was involved nothing but the most throw away concessions would be conceded. After some realisation of the cost of the litigation, a clearer picture often emerges.

The cost of litigation to date and the projected cost is often a driver for many settlements I am involved in. If your relief concern is predominantly injunctive and something is paid as compensation, often between $20,000 and $50,000, then the costs factor sees a settlement occur, yes in part because of the risk, but largely because the unrecoverable costs even in a win outweigh the settlement sureness and quantum.

Out of pocket expenses will be relevant, moreso if you need experts to make your point. In a copyright case involving a former director leaving the applicant and establishing a competing company, the applicant had instructed that the software in issue took 7 years to develop. The former director was up and running in 6 months. Over objection, a court expert was appointed with the parties sharing the costs. The forensic report cost $65,000. However, it was obtained at an early stage of the proceeding and effectively brought the proceeding to a halt.

Once that outlay was made, the respondents considered that they would have to pay someone at least as much to contradict the findings.

So out of pockets must be considered and the timing and circumstances are equally as important.

Venue is often a consideration. In IP a party may initiate action for groundless or unjustified threats. One must be mindful that the conduct of litigation and the mediation may be brought in another State. So the consideration of the financial strain on the client if they were funding interstate litigation must be considered here, even before a cease and desist letter is sent.

Of course, a very relevant factor at mediation is the disruption to the conduct of the business it will cause if the litigation continues. Evidence from key personnel who will need to be proofed and away from their work is a factor. Allocating staff to make document searches is often a relevant matter for the client.

Will your client be able to recover if they are successful? In this regard, the first element is financial. Will the cost of litigation, create such a cash flow issue for the client, that a slight downturn in turnover would present a potentially fatal situation?

I generally have the view that I should try to get the client back to doing what they do best, their business. Secondly, will even a successful result create its own problem? For example, if there was a product improperly badged with a trade mark deceptively similar to the applicant’s mark, but the respondent’s product was good if not better than the applicant’s product. Where no interlocutory injunction was obtained restraining use, then the product will be in the market together for the course of the litigation. It may be the case, that the respondent is advised that the risk of infringement is low. The longer the matter goes on the greater the awareness of the competing product. A mediated result requiring rebadging at an early stage may be a better long term result for the applicant.

Mediation should produce a result your client can live with for far longer than the day of the mediation. Concluding comments

Mediation creates a number of opportunities, but only if there is:

1. an awareness of those opportunities by the legal advisers;
2. a thorough preparation for the mediation;
3. a tailor made approach to the process to suit the individual case;
4. a purposeful attempt to explore different and varied methods to achieve solutions beneficial to the parties.

It is now a cliché but also remains a truism that a successful mediation results in a resolution in which the parties do not get what they want but get an agreement that they can live with. However, a successful mediation is not necessarily unsuccessful because the matter did not conclude on the day of mediation. It is also one which may be the beginning of a process which ultimately results in resolution.

In my experience, mediation has a technical meaning in the sense of the pre-arranged appointment with someone who will act as a mediator attempting to bring the parties together in an agreement which would see the subject of the dispute resolved.

However, in my view and far more important, mediation or resolution is about developing an approach to a dispute, where you are consciously thinking from the first day of instructions, for the best way you can find to get your client the best result he, she or it might get, in a mediated or settled result without the expense and risk of a trial.

Mediations have evolved in sophistication, but particularly in the judge’s approach to mediation.  Courts may have had a fixed view on the timing of mediation in the past. This was usually after pleadings had closed, discovery or disclosure completed and evidence in affidavit form been filed and that might be the best approach in some cases. However, there is now a recognition that a more flexible approach might be considered more beneficial, particularly where the costs of some of the other steps might threaten the commerciality of proceeding.

A disadvantage of a belated mediation, is that a considerable amount has been committed to legal costs of the litigation. If a financial component might have been a requirement in the resolution of the matter, then recovery of legal costs or a proportion of them might prove to be a stumbling block.

The ultimate rule must be that experienced litigators will assess each case individually and arrive at a view of the best time for mediation and the best methods to be used. Of course this has to be something which can be presented with an appeal to the other side — there must be something in it for them.

Dimitrios Eliades