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Show Me the Money: Explaining Why Contingency Fees Don’t Work in Mediation & How Mediators Can Get Paid in Full

“Cash rules everything around me, C.R.E.A.M. Get the money. Dollar, dollar bill, y’all”
– Wu-Tang Clan

While it gets skewed on tv, mediation involves the mediator having no interest in any particular outcome of a dispute. That scene in Friends where Ross “mediates” a quarrel between Monica and Chandler to keep them on track to move in together so that he can live with Rachel isn’t true mediation. A mediator would have nothing to gain whether Monica and Chandler live together or not.

In real life, sometimes someone with a specific outcome interest takes on what may present as a mediator-like role. Consider a realtor whose client encounters an issue before the closing of a real estate transaction. The realtor wants the deal to close, as that is how they will get paid. The realtor may step in to help address the issue – and their involvement may well smooth out matters. No one should have the impression that the realtor is disinterested in the outcome though. As with Ross Geller, it is the interest in the outcome that drives them to assist. That interest prevents them from being impartial. Impartiality requires no outcome preference. And it is in that impartial neutrality mediators exist. A mediator need not be devoid of personality or opinions in life, they just do not have a horse in the race of the dispute at hand.

This may seem simple enough, yet the concept gets complicated when we consider how and when mediators get paid…

Section 9.2 of the ADR Institute of Canada’s Mediator Code of Conduct forbids mediators from having their compensation based on whether or not there is settlement. This is logical. If a mediator’s pay is contingent on resolution, they cannot be disinterested in the outcome. If the mediator is only paid if a matter settles, they may be tempted to push for settlement. Not every mediation should settle. A common misconception about mediators is that they push for settlement at any cost. That is not so. Mediators push to uncover settlement possibilities – the parties decide if one can work. Mediators do not want mediation participants to settle for terms that leave them worse off.

Vancouver mediator David Claassen’s view surrounds upholding the integrity of the mediation process. The principal of Claassen Mediation feels that it would be impossible for a party to trust him in the course of considering a settlement offer on the table if acceptance meant he would get paid and rejection meant he would not. The value David offers when asked for an evaluation by disputing parties exists because he has no financial ties to the outcome of the mediation. Claassen often reminds mediation participants of this, as it allows for the focus to be entirely on the parties’ interests. “Taking that arrow out of the mediator’s quiver would seem counter-productive, and it would be so easy for any remotely skeptical party to start doubting your independence if you said anything remotely critical of their case as you went along.” A contingency arrangement could lead a party with an overinflated sense of their chances in court to doubt the integrity of news they don’t want to hear from the mediator in a reality check.

Let me take this a step further and suggest that a mediator getting paid after mediation risks either an unintended contingency arrangement or them being drawn into having an interest in the outcome. Providing mediators with a retainer upfront would alleviate these risks.

Over the years, I have facilitated many mediations where responsibility for my fee is negotiated during the mediation; settlement terms have included one party reimbursing another for their proportion of my retainer.

What if I had not already received money to be applied for my services?

It is not hard to dream up a circumstance where it becomes clear during mediation that one party is more willing – or more able – to pay the mediator than another. Without a retainer on hand, it could be a challenge for a mediator not to care about negotiations over payment of their fee. Consciously or otherwise, a mediator’s gotta eat.

Another reason mediators should be paid up front is the collection consideration. I have encountered several frustrated mediators following up with their clients for payment.

What’s a mediator to do? Sue?

The purpose of mediation is to collaboratively address a conflict – allowing for privacy and diverting matters away from the backlogged courts. The very thought of a mediator having to then go to court to collect payment for services rendered to help parties experiencing conflict avoid needing to go to court seems non-sensical. There may be no better example of this than in Ontario’s Mandatory Mediation Program, which, in relation to its roster mediators “is not responsible for the collection of fees or enforcement of fees”. The very program that exists to divert cases away from our backlogged courts has policies that encourage cases to be filed there by those assisting with the diversion.

Demonstrating what a natural mediator she is, highly regarded Toronto mediator, Christine Kilby, finds that “ultimately billing is tied to the relationship you have with the client, and the nature of the client and the work”. It is not about dollars but sense based on the underlying relationship and trust. This gives rise to varying payment terms based on the nature of the case, client and prior interactions with the legal representatives involved in the matter.

Kilby Mediation assesses comfort levels to determine if it bills entirely in advance, as we go through the mediation process or after the fact. The nature and timing of services are a factor as well, as it does not always make sense to bill in entirety after the fact. Christine wisely includes legal representatives in having responsibility for payment of her mediation fee. In practice, I have found more law firms disburse my mediation fee than don’t.

I know of some short-sighted lawyers who have hung mediators out to dry when they have followed up for payment. Those lawyers develop reputations in ADR circles which don’t exactly encourage practicing mediators to accommodate, trust or rely upon them with any degree of confidence. Basically, it is that old saying about getting fooled twice.

That said, it can be important to appreciate that not everyone engaging in mediation is clear on how payment for the process works. Ethan Jerry Mings is a facilitator mediator and President of The Desk Consulting Group Inc. Jerry finds it important for mediators to discuss providing a retainer and payment terms up front. This mitigates risk of a party failing to appreciate what Mings refers to as three stages of a mediator’s work – preparation, mediation and next steps. An informed approach helps to establish common expectations around the mediation process, the mediator’s role and payment terms.

Jerry Mings offers the following tips for practicing mediators:

  1. Explain the process and how the billing matches the three stages of work.
  2. Clarify who will be paying you and the payment method at the start of the process.
  3. Outline that invoices are due upon receipt.
  4. Be open to negotiating a payment schedule. e.g., pay a retainer to hold hours and balance closure of the file.
  5. People who pay for stages should pay at the beginning of each stage.
  6. Explain the fees are for the mediation process and services, not a settlement.
  7. Outline the cancellation policy in writing when signing up a client.
  8. Avoid holding all invoices until the mediation is over.
  9. Provide a clear policy for collections for unpaid fees.
  10. Use discretion when exploring unique payment frameworks for clients.

At the end of the day, to both live and fulfil their impartial role, it is best for mediators to structure mediation without having to worry about payment during or after it. This supports the mediator being a neutral and impartial third party, there to facilitate a process that is focused on the interest of the parties entirely. In practice, the last thing that I want to do during mediation is divert attention and get into a discussion about me. A mediator’s role is not to advocate for themselves, so it is an unfair position to put a mediator in. During mediation, it is better to negotiate the cost of mediation without having the mediator hang in the balance.

Comments

  1. This is really interesting. The prohibition on contingency fees for mediation makes a lot of sense to me for cases involving self-represented litigants.

    However I am a bit surprised to read that the ADRIC Code of Conduct forbids them completely, including for legally experienced parties represented by counsel.

    Is it not possible to rely on counsel to inform the client if a deal proposed by the mediator is a bad one?

    After all, contingency fees — for mediators just as for lawyers — offer very real access to justice benefits. For clients, they reduce the risk of having to pay a lot of money for something and getting nothing in return.

  2. As a practicing lawyer, I find contingency fees potentially problematic on many fronts. I can understand how this fee payment structure shifts much of the risk from the client to counsel, thus providing potential benefit to clients who may not be able to afford legal services. I can see how this potential benefit may, in turn, lead to an increase in access to justice. (I’m not sure if former SCC Chief Justice McLachlin has opined on this point. She has done extensive advocacy on access to justice.)

    My concern is related to how contingency fee billing may impact the work done by counsel. If counsel’s compensation is based on a successful result and/or receiving payment, that may have a negative impact on the file. For example, there seem to be many cases of real estate agents who make decisions on the purchase/ sale of property for their own self-interest.

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