Success fees Structuring mediation fees

1. SuccessfeesStructuringmediationfees Prague 2013 Patrick Van Leynseele – Brussels Roberta Regazzoni – Milan ZbysekKordac – Prague Robert Cholenský - Brno 1

2. Introduction of the topic Basic principles: • Independence • Neutrality (as to outcome and nature of solution) • If any, it is the parties’ solution and decision : influenced by multiple factors inherent to interests and needs of the parties. • Not be governed exclusively by legal rules

3. Consequence: no personal financial interest in the outcome, e.g. no higher fee in case of success /contingency fee. • Many codes of ethics contain that rule. • Many legislations: mediator’s fees + calculation to be spelled out in the mediation agreement • Many existing rules of ethics allow only hourly fees or flat fees by half-day or by the day; Prohibit higher fees in case of success • E.g.: Czech Mediation Act 202/2012, sections 3(4) and 5(2)(d); Belgian code of civil procedure, art. 1731§2,6°

4. Issue: • Shouldwe lobby to change the ban?

5. Fundamental rule: mediator not to be influenced by fact that he would get that higher pay in case of success • On its face: could be the case if success fee provided: affects his neutrality • Practice shows parties do not necessarily object to contingency fees or success fees • Parties may find mediator’s fees too low in comparison to the value they attribute to the mediator’s intervention • Parties expect the mediator to truly go out of his way as mediator; use all his talents to try to reach settlement • If successful, willing to reward mediator more than if he tries - even hard - but to no avail • After all, this is what parties appointed him for!

6. Questions remain – issues to bekept in mind • Should contingency fees, or way to calculate them, always be determined beforehand, in mediation agreement? Can/should it be done later, e.g. when and if agreement has been reached? • What is "success"? Is existence of settlement enough? Should success be measured by a factor that constituted an element of the dispute (possibly viewed differently by each party)? • Should some types of “success fees”, or ways to calculate them, be prohibited altogether? • Who is to determine amount/level of success fees if not spelled out entirely in the mediation agreement? • Who pays/shares the success fees? Success fee paid by one party only? (risk to be considered as “greasing money” or sign of infringement on mediator’s neutrality?

7. GuidingPrinciples • Mediator may not be biased by the outcome of his intervention • Not for mediator but for the parties to determine the acceptability, the nature and the “level” of the solution • Conditions of the mediator’s intervention must be clear, transparent and agreed with from the start • Ban on “plaintiff’s lawyer-like” contingency fees

8. Existingrules - Evolution Traditional rule: - Ban on success fees (e.g. 1994 version of AAA-ABA- SPIDR Model Standards): success fees discouraged in commentaries: (fees must be reasonable and information provided at the outset) - Most Mediation rules and rules of ethics of mediation Institutes

9. CPR Model Rule of Professional Conduct for Mediators, 2002 Ban removed and double ethical duty : Rule 4.5.6 “Fairness and Integrity of the Process (i) Duty to assess possible conflicts arising out of use of fee arrangements, and whether appearance or actuality of partiality prohibits its use under the Rules’ principle of impartiality (ii) Mediator required to disclose to parties possible consequences of the fee arrangements proposed.

10. Amended AAA-ABA-SPIDR Model Standards 2005 • Standard VIII (A) and (B) "Fees and other charges“: Same principles of mediator’s duties integrated: (i) duty to provide complete information and (ii) duty not to provide for fees in a manner impairing the mediator’s impartiality. • Interesting: Reporter’s Notes to new Model Standard only states the following reasons for amending the former prohibition : antitrust concerns raised by flat prohibition on certain fee arrangements (includes ban on success fees) and concerns raised by the practice of unequal sharing of the mediator's fees among the parties.

11. EUROPEAN CODE OF CONDUCT FOR MEDIATORS • Limited to duty for the mediators to always provide complete information as to the mode of remuneration they intend to apply. Rules 1.3: “Where not already provided, mediators must always supply the parties with complete information as to the mode of remuneration which they intend to apply. They must not agree to act in a mediation before the principles of their remuneration have been accepted by all parties concerned.” • I.e.: no prohibition of fees linked to outcome of mediation process. Contract freedom prevails.

12. SomeMediation Institutions E.g.: International Maritime Conciliation and Mediation Panel: • “success fee” equal to 100% of the total fee sum • due in the event of a settlement of the dispute • whether or not such settlement is honored by the parties

13. Success Fees Structuring Mediation Fees UIA World Forum of Mediation Centres – Prague, June 7-8 2013

14. In Italy «free lance» mediationisalmostunknown. Itismostlyprovided by entitiesenrolled in a Ministry of Justice special list (mediation providers). Thisis the the way the Italian legislator decided the mediationshould be offered in order to benefit of a number of advantages(- Interruption of the period of limitation; - suspension of the status of repose; - immediate enforceability of agreement; - proceedings concerning the mediation are tax-free, the mediation fees give rise to tax credits). The parties whoreach an agreementpay the mediation provider an increase up to 25% of the mediation fee(set forth by the mediation law).

15. The recent regulation of mediation in Italy states a minimum and a maximum mediation fee the provider can charge depending on the economic value of the dispute. Law envisages an increase up to 25% of the mediation feein case of success of the mediation (=agreement). It does not specify how the increase should be allocated.

16. Mediation Fees (VAT included)– Milan Chamber of Arbitration

17. The Mediation Service of Milan adopted a mixed reward system: up to a certain amount of disputed economic value, the fee for a mediator consists of a lump-sum over that amount, there’s a fixed fee + an hourly fee up to a maximum. The success fee as stated forth by the law goes to the centre but the centre does not pay the mediator more in case an agreement is reached. – what we actually noticed is that quite often parties who reach an agreement do not formalize it during the meeting in order not to pay the success fee -

18. DIRECTIVE 2013/.../EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on alternative dispute resolution for consumer disputes and amending Regulation (EC) o 2006/2004 and Directive 2009/22/EC (Directive on consumer ADR) Art. 6, lett. d) (Expertise, independence and impartiality): «Member States shall ensure that the natural persons in charge of ADR possess the necessary expertise and are independent and impartial. This shall be guaranteed by ensuring that such persons: (…) are remunerated in a way that is not linked to the outcome of the procedure”

19. Sottotitolo Thank you Roberta Regazzoni Roberta.regazzoni@mi.camcom.it Mediation service Milan Chamber of Arbitration Milan Chamber of Commerce www.milanmediation.com

20. Success Fees for Mediators? NO, THANK YOU

21. Why not? • Succes fees will compromise mediator‘s neutrality • Succes fees have generally no tradition in Europe • Success fees may prevent mediator using some of the techniques • Succes fees will make it less likely that parties settle (mess with BATNA-WATNA)

22. Thank you for your attention. zbysek.kordac@weinholdlegal.com

23. Mediator SuccessFees Route to SatisfiedClientsand RewardingMediationPractice UIA World Forum of Mediation Centres from June 06 to 08, 2013, Prague, Czech Republic Robert Cholensky cholensky.cz

24. SuccessFee Pros • Success fee promotes mediation in good faith • Success fee has no effect on the mediator impartiality • Success fee promotes mediators key functions in assisting the parties • Success fee helps the parties to get a mediator that shares their goal to settle cholensky.cz

25. SuccessFee Pros continued • Success fee allows for fairand transparent compensation of the mediator • The longer it takes the better it pays vs. The better it helps the better it pays • Success fee promotes party autonomy • Success fees are under the control of lawyers cholensky.cz

26. Thankyoufor your attention! robert@cholensky.cz Robert Cholensky cholensky.cz

27. Whatdoes the audience think? - Debate Prague 2013 27

28. What do the members of the panel reallythink? Prague 2013 28

29. ProposedPrinciples • Parties must agree on success or contingency fees from the outset – Agreement and transparency • Mediators’ fees are due under the mediation agreement. Partiesshould determine whether they agree to a scheme of remuneration that depends upon a successful outcome (freedom of contract) • Any other rule would conflict with statutory provisions (fee arrangements must be established at the outset) • At very least: mediation agreement should contain the range and limits of the success fee and the way it ought to be calculated.

30. ProposedPrinciples 2. Mediator must ensure that parties are aware of and understand the possible implications of success fees : duty to assess and discuss with parties possible consequences of such fee arrangements, including the appearance or actual loss of independence or neutrality Parties must be guided by mediator in becoming aware of the issues raised by the fee structure proposed : full transparency on the issue. Parties must be put in a position in which they are able to give quality, explicit and informed consent to the fee structure. Mediator’s candid comments on the fee structure enhance his credibility as a neutral and independent third party. His credibility will be undermined if, during the mediation process, there is an appearance of bias that the parties may feel is influenced by the fee structure if they were not fully informed beforehand.

31. ProposedPrinciples 3. (i) PROHIBITED: “Percentage of settlement”: mediator’s fee determined by percentage of settlement amount. It creates an interest for the mediator to push for the highest amount possible. Only appropriate for plaintiff’s lawyer; not for a neutral mediator. (ii) ALLOWED: Pure “success fee”: Mediator’s fee = higher percentage, increased hourly fee or fixed amount, contingent only on parties reaching a settlement, whatever its nature or contours. (iii) ALLOWED: “Percentage of costs saved”: additional fee = percentage of the estimated cost savings as compared to judicial process. (iv) ALLOWED: “Percentage of value created”: mediator’s additional fee = percentage of “additional value” created through the mediation process, i.e. value of the “increased pie”.

32. ProposedPrinciples 3. Models (ii) – (iv) may create bias (or appearance of bias) • towards settlement (mediator no longer fully neutral as to whether the dispute reaches settlement or not) • or in the conduct of the process (mediator is no longer fully neutral as to the type of settlement reached). • However, does not undermine the mediator’s core function: remaining neutral and independent towards each party. • Mediator’s own interest is aligned with that of the parties, which is to join forces and work together in order to reach a settlement

33. ProposedPrinciples 3. • Models (iii) and (iv): it may be difficult to define “costs saved” or “value created” at the outset (details of the disputes and of parties’ situation not known to the mediator yet) • Sufficient to define principle in mediation agreement (statutory requirement) • Leave it to parties and mediator to define during or at the end of the mediation process, the amounts to which the agreed percentage must be applied • That leaves a margin of uncertainty but provides flexibility, which the parties and the mediator ought to be able to discuss when the mediation process has yielded a settlement • In other words: mediation agreement may be limited to providing a framework for the calculation of the success fee, and the parties and the mediator should be allowed to determine its precise amount together once the dispute among the parties has been settled • Mediation institutes to define limits of reasonableness (increased percentages or amounts)

34. Proposed Action for UIA Change UIA Code of Conduct: • Art. 4: Delete prohibition in principle • Make footnote 5 (with limues and four conditions) the rule by putting it in as new Art. 4

35. SuccessfeesStructuringmediationfees Prague 2013 Manythanks for your attention Patrick Van Leynseele – Brussels Roberta Regazzoni – Milan ZbysekKordac – Prague Robert Cholenský - Brno 35