Helping clients in dispute: How accountants can provide real value

Back in 2009, the then federal attorney-general Robert McClelland said that the “critical test” for our justice system is whether it is “fair, simple, affordable and accessible”. With the cost of taking the matter to the Federal Court at just over $111,000 in 2007-08, it must be said that it has been failing the test.

A recent survey of 1,600 small and medium enterprises (SME) (those employing less than 20 full-time equivalent employees) by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has found that 22 per cent have been involved in a dispute in the previous five years. Two-thirds of the disputes followed formal pathways (litigation), of which:

• 50 per cent considered the amount of time and effort was unreasonable;
• The average cost of the process was $130,000; and
• Two out of every three business relationships ended.

A further factor to consider, and a potentially significant additional cost, is the possibility that, in an unsuccessful application to the court, your client may be ordered to pay the other side’s legal costs. This could be in addition to the award of compensation or damages.

According to the Australian Bureau of Statistics (ABS), small businesses account for over 97 per cent of all Australian businesses – almost 2.2 million entities and contribute 35 per cent of GDP. As a result of its importance to the Australian economy and the costs of dispute resolution being so time-consuming and costly, Kate Carnell, the Ombudsman, states that “small businesses need dispute resolution that is accessible, timely, affordable and where possible, capable of maintaining business relationships”. As an effective form of dispute resolution mediation meets all those criteria.

What is mediation?

Mediation is a confidential process in which the disputing parties engage the services of a neutral third party, the mediator, to assist them in reaching their own, mutually satisfactory, resolution to the issue. The mediator helps the parties to communicate, discuss and solve problems and achieve a solution of their own making.

Effectiveness and cost of mediation

When compared with litigation, mediation is much more effective, much less time consuming and a whole lot cheaper. It is also the best way to resolve a dispute while maintaining, or even enhancing, a business relationship. And, there is no risk of having to pay the other party’s legal costs.

Mediation as an effective and reasonably quick option has been shown in a recent UK study, implemented by the Centre for Effective Dispute Resolution (CEDR), which found:

• Settlement rate for mediation is 74 per cent on the day and 15 per cent in the weeks following (i.e. 89 per cent success rate); and
• Average duration of mediation was 7 hours of preparation, 7.5 hours on the day and 2 hours follow up.

Similar results are found in Australia. Even family mediation is successful with whole or partial agreement being reached in 70 per cent of cases, according to the Family Mediation Council. Furthermore, in a report titled Quantifying the cost of not using mediation – a data analysis published in 2011 and presented to the European Parliament it was found that “…mediation is a cost and time effective dispute resolution mechanism at almost every level of success rate”.

Given the high success rate and the relatively limited amount of time needed to effectively resolve disputes, the cost of mediation is considerably lower than costs associated with litigation. Furthermore, as previously mentioned, the risk of an order to pay the other party’s legal costs is non-existent.

How accountants can help?

Accountants can help their clients by recommending mediation as a preferred method of resolving disputes. Another way of helping the client is by the accountant’s participation in mediation as a confidant and financial adviser. The mediator will manage the process and guide discussions but the accountant can provide the support that the client so often desperately needs.

The accountant’s value to the client can be evident from the initial commencement of the business or other relationship that is now the subject of conflict, to the provision of assistance in implementation and monitoring of the mediated solution, including:

• Advising clients about mediation, and the benefits of mediation, as an efficient and cost-effective means of resolving disputes;
• Recommending clients include mediation clauses in commercial and other contracts;
• In the event of a dispute, contacting the other party to the dispute, their accountant and/or lawyer to recommend mediation and obtain their agreement for mediation;
• Finding and contacting for the client a suitable mediator, one who is experienced in matters subject to the dispute;
• Helping the client prepare for mediation by assisting them to gather important documentation, perform necessary financial calculations and generate possible options for resolution of the conflict;
• Being with the client in mediation to provide financial advice, support the client in the negotiation of acceptable solutions, assist the client in understanding financial matters being discussed, help them to consider the value (or otherwise) of proposed solutions and helping them to formulate the terms of settlement;
• Assisting the client to implement the mediated solution and to meet their obligations under the terms of settlement; and
• Monitoring the implementation and the results of the terms of the agreement.   

By recommending mediation the accountant will save the client a significant amount of money. By participating in the process, the accountant advises the client in respect of financial matters and provides the support the client needs. I have found that the clients really do appreciate it.

Vlado Joseph Dancevic FIPA, accredited mediator NMAS, Jodan ADR Services