UK Government has signed The Singapore Convention on Mediation – What does this mean for International Mediation?

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“Finally!” was the reaction in the UK mediation community on 3rd May 2023, the day the UK signed the Singapore Convention on Mediation. For UK dispute resolution lawyers and mediators, this announcement was long awaited as the Singapore Convention was first opened for signature back in 2019. It was an important step in the UK firming up its position as a major mediation and dispute resolution jurisdiction on the world stage. All the more important given the dearth of European legislation relating to dispute resolution, recognition and enforcement of judgments post Brexit.

The Convention gives enhanced rights of enforcement of a wide range of UK-related mediated settlement agreements. While fortunately this is rarely needed (as part of a mediator’s role is to reality test any proposed agreement with all parties), it is reassuring for those involved in international disputes to have the back-up of the international framework if a settlement agreement is not honoured. I set out some tips below to make sure parties in dispute will have the benefit of the Convention if need be.

What does the Convention provide?

It provides an international framework and process for the direct enforcement of cross-border settlement agreements between parties resulting from mediation. This allows the party seeking enforcement to apply directly to the courts of the State where the assets are located. The relevant authority may refuse to enforce the settlement agreement only in limited circumstances.

When does it apply?

The Convention will apply where the settlement agreement:

• is in writing;
• results from a mediation;
• is an agreement between two or more parties who have their place of business in different States; or
• the place of business of the parties to the agreement is different from either:
i. the State in which a substantial part of the obligations of the settlement agreement is performed; or
ii. the State with which the subject matter of the settlement agreement is most closely connected.

When does it not apply?

The Convention does not apply to settlement agreements:

• relating to consumer transactions nor to family, inheritance or employment law;
• that have been approved by a court or concluded in the course of proceedings before a court and that are enforceable as a judgment in the State of that court; or
• that have been recorded and are enforceable as an arbitral award.

UK implementation of the Convention regarding its applicability

There are also two permissible reservations under Article 8 of the Convention. The UK government has announced that it will not be taking up the one relating to itself and therefore mediated agreements involving government or state parties will be covered by the Convention.

Importantly however the UK government allowed parties in dispute to opt-out of the Convention by expressly excluding it in their settlement agreement in accordance with Article 5(1)(d) of the Convention. This is controversial. The idea that a party who comes to a mediation may decide in advance that they are not signing up to an enforcement regime may ring alarm bells and lead others to question their good faith. The last thing any litigant wants is for the other party subsequently to seek to “wriggle out” of any settlement agreement they may reach and not to have recourse if so. It will be interesting to see whether parties pre-empt this and include such a provision in their dispute resolution clauses in contracts from the get-go. Further whether any such provision would be held binding (or would it merely be “an agreement to agree”).

Which countries have signed/ ratified the Convention?

• The UN Convention on International Settlement Agreements Resulting from Mediation (known as the Singapore Convention on Mediation) opened for signature on 7 August 2019 and was signed by a record breaking 46 States, including importantly the US, China, India, Malaysia, the Philippines, Singapore and South Korea. It came into effect on 12 Sept 2020.

• As of 24 July 2023, it has 55 signatories and 10 countries where it is has been fully incorporated into the local law. (Singapore, Fiji, Qatar, Saudi Arabia, Ecuador, Georgia, Honduras, Kazakhstan, Turkiye and Belarus).

• Notably, the European Union and Australia have not yet signed the Convention. It seems that the reason why the EU has not yet signed is because a question of process as to whether individual countries or the European Union will sign remains to be resolved.

Any tips for a lawyer going with a client to a mediation to which the Convention may apply?

Consider whether the Singapore Convention may apply to any settlement agreement that may result. If so:

• The mediator should sign the settlement agreement or a separate document to confirm that the settlement was reached through mediation.
• If a settlement is reached shortly after the main mediation session, consider reciting in the agreement it was entered into following a mediation.
This is because under the Convention the enforcing court must be satisfied the settlement agreement arose from a mediation.

• Take particular care to draft the settlement agreement so it will be easily understood by any overseas court. Make sure statutory references are made in full, for example. Spell out in detail the meaning of any legal concepts particular to English law or the common law. For example, the concept of a trust is not easily understood by a civil law jurisdiction. Also bear in mind rules on legal costs recovery vary enormously from one jurisdiction to another.

• Consider whether any aspect of the settlement agreement may not be capable of being enforced in the relevant country due to conflict with local public policy or other overriding provision. For example, an agreement under English law that is not Shariah compliant (say where interest is payable) may not be able to be enforced in a Shariah based jurisdiction. The deal may be re-structured in such a way that a similar, Shariah compliant outcome is achieved.

How may UK Mediation Agreements otherwise be enforced internationally?

The use of Med Arb can according to some jurisdictions (notably Singapore and New South Wales, Australia) create a settlement in the form of an arbitral award enforceable under the New York Convention on the Recognition and Enforceability of Arbitral Awards. Med Arb is a process whereby it is agreed from the outset either:

• if a mediation does not settle, the dispute is immediately determined by arbitration or
• that the settlement reached at mediation will be handed down as an arbitral award.

This approach is not considered mainstream from a UK perspective and has several drawbacks that are beyond the scope of this article to consider. Interestingly, the Singapore Convention expressly does not apply to settlements recorded and enforceable as an arbitral award.

At the time of writing, some 172 States have signed the New York Convention.

Does the Convention have any effect in countries that have not signed it?

It may do. Those settling disputes in non-signatory States should still be mindful of it. This is because the Convention applies where two parties mediate and the place:

(i) where the settlement agreement is to be performed; or

(ii) where the subject matter of the settlement agreement is most closely connected

is in a State that has signed the Convention.

Therefore, the Singapore Convention, unlike for example the New York Convention on Enforcement of Arbitral Awards, is not based on reciprocity and can be availed by UK disputants in some circumstances even though the UK has not signed or ratified it.

Does the Convention serve any broader function?

Some say the success of the Convention will largely depend on the extent to which it is accepted and ratified by States. It is a bit like when the telephone was introduced – only useful if others signed up for it too. In the meantime, it does in any case serve to raise the profile of mediation as a credible method of dispute resolution for cross-border disputes (the Ministry of justice recently dropped the “alternative” from its name to a further sigh of relief, or perhaps even a “hurrah”!). It also has the limited application for those in non-contracting states mentioned above.

The Singapore Convention is in any case a welcome adjunct further to increase confidence in international mediations.

International Mediation – what is the way forward?

In recent years there has been an increase in online mediations, and peoples’ appetite to use them to settle disputes. These are particularly suited to international mediations given they can be set up quickly and easily at a relatively low cost. Parties and their advisers can attend from their offices or homes. All they need is a computer/ tablet or a phone and an internet connection. Statistics suggest outcomes from remote mediations are as successful as those taking place in person.

Rebecca Attree, Mediator, IPOS Mediation.
Dual qualified UK/ US Civil and Commercial Mediator
24 July 2023


Libralex Art Law Conference 2023

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I’m honoured to have convened the 3rd Libralex Art Law Conference on 18 May 2023 at Christie’s Education during London International Disputes Week. Many thanks to all our esteemed friends, colleagues, speakers, sponsors and guests from worldwide for such an engaging afternoon. The packed room positively buzzed and the conversations carried on long after! We learnt a great deal about Art Disputes – what’s new and what’s to come, covering a wide range of topics including NFTs, AI generated art, what is intrinsic value, intellectual property rights, protecting the cultural heritage of Ukraine, restitution of nazi-era looted art, authenticity and provenance. Art Conference 2023

 


ADR A Brief International Guide

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Wondering where to mediate or arbitrate an international dispute? Help is at hand with this International Guide on current practice in many jurisdictions of Europe and beyond. This newly updated version identifies and discusses the advantages and disadvantages of ADR processes in each jurisdiction. With contributions from current practitioners in Libralex, an international network of law firms, this Guide gives invaluable insight.

Libralex ADR Guide Final 2023


The Singapore Convention on Mediation: what next?

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The UK is to become a party to the Singapore Convention on Mediation — what does this mean?
Henrietta Jackson-Stops & Rebecca Attree set out next steps & implications in this article which was first published in the New Law Journal on 21 April 2023.

New Law Journal article


Shareholder and partnership disputes are on the rise

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..And, so is mediation of them. In this article, Rebecca Attree of IPOS Mediation explains why.

Shareholder and partnership disputes have always been prevalent, and now I am experiencing that they are increasing. A combination of the “post pandemic fall out” and the struggling economy mean shareholders and partners of ailing businesses are finding it hard to stay aligned. Mediation is a particularly good way to resolve these conflicts because it is flexible, leaves the parties in charge of the outcome, cost effective and importantly quick to set up. When the chips are down between owners it can be very hard to continue to run a business profitably and there is no time or money to waste by engaging in lengthy litigation. Time to seize the day and make resolving the issues a priority.

Why is mediation particularly suitable for these types of disputes?

The range of outcomes at a mediation are very wide – I outline some of them below. If these types of claims go to court a judge has a very wide discretion as to the judgment they may make. This means uncertainty and litigation risk. The solution parties often think they want – for one to buy out the other – is one a court will only grant in rare circumstances. So by taking the matter into their own hands by mediation parties remain in control of the outcome.


What types of issue cause the conflict?

Majority shareholder issues

The majority shareholder may say they are being blocked by a small minority from pursuing a course of action. I have had cases where following the pandemic stakeholders have reassessed their values/ goals/ drivers and found they are no longer aligned. For example, during the pandemic there was a poignant case of two practising doctors who also had a separate business together that they ran part time. One felt called to return to work for the NHS full time. The other, with underlying health issues, had no wish to return to the hospital wards and wanted to run the business full time from home.

Minority shareholder issues

Or the minority shareholders may complain they are not being kept informed or not receiving dividends. It’s surprising how many family businesses are run through a corporate structure with certain family members being considered “sleeping shareholders” and somehow, they are overlooked when dividends are distributed. I had a case where three siblings woke up to this and brought a massive claim for retrospective dividends, to the alarm of the one sibling who had been putting in all the hard graft and paying dividends just to themselves for years. Sometimes the legal rights do not align with people’s sense of entitlement.

Fraud/ breach of director’s duties

Then there are the cases where there are allegations of fraud or breach of duties by a shareholder – director. Trust has broken down, and usually the business has practically ground to a halt or at best is limping along. To take this to court would involve expensive investigation and reports and often the one making the allegations has only very limited ready access to records. Not an insurmountable burden, but is it worth embarking on this road?


So, what to do?

At a mediation of this type of dispute it is best to come with an open mind as often there are many possible solutions to the problem. I set out below some of the more common ones I have encountered.

Can you continue in business with some adjustments?

A mediator will usually explore early on whether there is any prospect of the business continuing and the shareholders/ partners remaining, perhaps in an altered state of relationship. Can the parties agree to operate albeit with changed responsibilities/ a fresh set of goals and objectives? Would bringing in a third party to the management make a difference? Can the parties “agree to disagree” on certain aspects that are not fundamental to the key objectives of the business? Sometimes this discussion takes seconds with each party saying a firm “no” to the proposition, in which case alternative options are explored. Other times a detailed exploration may reveal parties are more aligned than they thought, just they hadn’t taken the time or communicated effectively enough to find out.

One shareholder buys out the other

The classic solution is for one party to buy out the other. Frequently during this discussion, the party who begins by saying they will buy the other out later becomes the one contemplating a sale as the tables are turned when the price of shares is discussed. (“If you are willing to sell your shares for £X, why not buy my shares for £X?” is how the negotiation may go.) This can require mental gymnastics for parties who are already stretched about making a good decision on the day, but the possibility can be explored and analysed calmly in private with the mediator. A good tip for a solicitor accompanying a client to this type of mediation is to bring an excel spreadsheet so that sums allocated for certain aspects can be adjusted according to values attributed on the day.

Partition

Sometimes parties prefer to divide the business rather than it being “all or nothing”. A good idea in principle, but one that can be hard to achieve as a fully binding settlement agreement in one mediation session. This is because there may be complex issues of who will take which clients/ contracts/ connections. Often these depend upon the third party agreeing to go with one party or the other. Equally employees will need to be consulted and their agreement obtained before any change takes place. That is not to say it cannot be achieved. Mediations with this type of outcome typically reach a “heads of agreement” during the session with some work being done in the days soon after to wrap up the detail in a settlement agreement with various appendices.

Winding up/ voluntary liquidation

Where the purpose of the company is no longer being met it can be worth considering voluntarily winding it up. Sometimes this is threatened by one party as an outcome if alternatives are not agreed to. A divorcing couple who was also in business together I recently mediated decided this was the best way forward. Such was the extent of the deadlock and intensity of emotion that neither wanted to the other to have the business if they couldn’t keep it for themselves. If there are issues of potential insolvency there may be a threat from one party to put the company into voluntary liquidation. A mediator’s role is to take the heat out of these suggestions and to look with each party as to whether it could be in their interests to do this. Financial and emotional issues need to be addressed, as well as the likely consequences of this action.

Reputation

Usually in these types of cases employees and clients/ customers have already got some idea that there is “trouble afoot”. Managing how the outcome of the mediation will be communicated to these third parties is a key part of the solution and needs to be discussed and agreed upon. It pays to think about this beforehand and take communications advice if need be.

Preparation

Shareholder/ partnership mediations particularly benefit from excellent preparation. The more the parties can get their heads around the various possible outcomes and how they would feel about them, the better. I like to make good use of the preparation time in a pre-mediation Zoom with each party and their adviser to get their imaginations seized of the possibilities they may be presented with on the day. As I said earlier, an open mind is key, but awareness of how the negotiations may take their course is also important. “To fail to prepare is to prepare to fail”.

Is it too early to mediate?

Rarely. If parties wait and try to continue to run the business when there is a dispute rumbling, it is more likely the business will flounder and there will be even less, or possibly nothing of value to argue about. Yes, it may be that decisions will need to be made on imperfect information but then it’s worth considering: “do you want just a mediation or a just mediation?” In my experience, most people want the former and fi nd the morning after a conflict has been put to bed much brighter.


Can the law keep up with technology? Artificial Intelligence (AI): Proposed European Union (EU) product liability rules

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The rapid development of Artificial Intelligence (AI) technology leaves us to question whether the English Civil Liability rules of contractual, and extra-contractual liability for loss and damage caused by AI, are fit for purpose. The EU has taken the game of AI liability into its own territory with its proposed laws on both product liability and product safety fit for the AI age.

On 3 February 2023, the European Council published a draft compromise proposal of the revised Product Liability Directive (“Directive”). Its provisions will come into force in EU Member States 12 months after the Directive is finally approved in the EU legislative process. This draft Directive will revise the original Product Liability Directive (PLD).

The European Parliament has just adopted, at first reading, the consolidated text of a Regulation on Product Safety and it is expected that the Council, will formally adopt the Regulation at first reading without further amendments on 25 April 2023. The Regulation will then be published in the Official Journal of the European Union. Its provisions will apply 18 months after it enters into force. This regulation revises the General Product Safety Directive (GPSD).

The implementation of the PLD and the GPSD, both of which were implemented into UK Law as retained matters at the time of Brexit will leave a divergence of rules between the EU and the UK after the dates of their implementation, as the UK has not announced any intention to follow the EU legislative initiatives in respect of liabilities arising in the UK. Nevertheless, any UK based business looking to supply goods and related services in the EU (as it is the largest and closest export market) will need to comply with the new PLD and the GPSD in those markets, in practice, it may need in the UK domestic market to operate in a very similar manner to manage and mitigate its business risks as it would do in the EU. In all practical terms the UK has become a rule taker, rather than a rule maker.

 

Deficiencies of the PLD

The PLD when implemented 40 years ago, provided a system of strict liability whereas the national regimes provided for fault-based liability rules which require the claimant to establish fault, damage, and causation. The PLD did not address issues of emerging digital technologies(EDTs), online shopping, connected products and AI that did not exist at that time.

The EU Commission evaluation of the PLD specified developments in technology posed challenges for the application of existing liability rules:

• The PLD was not designed to address the intangibility of digital products, their dependence on data, their complexity and connectivity.
• Developments in technology have meant that definitions that had previously been clear-cut needed reassessment, including the terms “product”, “producer”, “defect” and “damage”.
• The development of connected products and related services required clearer attribution of damage between businesses and consumers.
• The PLD was unclear on who should be liable for defects resulting from changes in products after they are put into circulation (for example, remote updates).
• The burden of proof (that is, the need to prove the product was defective and caused the damage suffered) was challenging for victims in complex cases.

 

EU: proposal to revise and replace the PLD

While the new PLD retains the core concepts of the existing Directive, including the principle of strict liability for damage caused to a consumer by a defective product, including the core liability test of “Whether the Product provides for the safety which the public at large is entitled to expect”, the proposed new PLD includes the following provisions:-

• Establishing new rules of non-fault-based liability for damage caused by AI systems
• Adding to the scope of products: Software,3D printing, apps, operating systems and related digital services.
• Making software developers and providers of digital services liable for defects in their software and services that cause the product as a combination of goods and services to cause
damage . Manufactures will also become liable for post circulation modifications causing product defects, as will remanufacturers, who make substantial modifications to Products.
• Making interconnectedness of product/services/software etc. be relevant in assessing product defects.
• Products and connected services attribute damage by Businesses to Consumers.
• Reversing the burden of proof in complex cases involving AI, where liability would otherwise be hard to prove.
• Imposing an obligation on manufacturers to disclose evidence.
• Extending the limitation period for claims from 3 years after first distribution.
• Extending damages for: –
o Harm to psychological health including VR products.
o Data corruption.
o Death, personal injury and property.

The EU Commission has also published a proposal for a directive on adapting non-contractual civil liability rules for AI alongside its proposal for a revised PL D (AI Liability Directive). The objective is to make it easier for claimants to bring claims for damage caused by the fault of an AI system under the national laws of member states.

 

EU: proposal to revise and replace the GPSD

The new General Product Safety Regulation revises the GPSD which provides the preexisting EU legal framework for safety of non-food consumer products to the extent that there are no sector-specific provisions in other EU legislation, such as the EU harmonised legislation for medical devices, or where that sector-specific legislation does not apply to the specific safety aspect in question (in which case the GPSD fills the gap).

The GPSD obliges manufacturers, importers, and other producers to:

• Place only safe products on the market.
• Inform consumers of risks associated with the product.
• Ensure that products are traceable and to notify the relevant authorities if a recall is needed.

Member states may impose fines and other criminal or administrative penalties for breach.

The GPSD also established the EU Rapid Alert System, Safety Gate (formerly known as RAPEX), which allows member states to share information on potentially dangerous products and product recall exercises.

The GPSD is now over 20 years old. While it is still the most significant single piece of EU product safety legislation. However, its importance has been somewhat eroded by the increase in the number of sector-specific directives which set harmonised standards and conformity assessment requirements for product types. This has led to a fragmented regulatory landscape for product safety.

 

Deficiencies of the GPSD

The proposal for regulation was accompanied by a Working Document providing an executive summary of the impact assessment the Commission undertook as part of its evaluation of the GPSD in June 2020 . 2020.aluation concluded that the role of the GPSD as a safety net remained essential for consumer protection and Safety Gate had proven to be a success. However, the evaluation exposed several factors that called into question the effectiveness of some GPSD provisions, including:

• The GPSD did not address how new technology, such as AI or connected consumer products, can impact product safety. For example, a product may become dangerous by having insufficient cybersecurity protection, or a consumer’s personal security could be endangered if a third-party accesses information.
• The GPSD was ill-equipped to deal with the challenges posed by developments in e-commerce, including sales via online platforms. The product safety obligations of operators of online platforms were unclear, which affected consumer protection and created an uneven playing field between online and offline sellers. While some online marketplaces had signed up to voluntary commitments, others had not. There was a particular problem where consumers bought products from operators located outside the EU particularly if the trader was not represented on the EU market.
• The effectiveness of product recalls from consumers was low. This left too many dangerous products in consumers’ hands.
• The GPSD’s market surveillance provisions were not consistent with the updated market surveillance rules for harmonised products (typically identifiable through the CE marking), introduced by the 2019 Market Surveillance Regulation. The adoption of that Regulation, which applies to those sectors subject to harmonised measures, meant there was an uneven framework between products under harmonised EU rules and products that were not subject to such rules (which were covered by the GPSD). This meant that products subject to the GPSD were subject to less rigorous regulation than products subject to harmonised legislation. Market surveillance authorities lacked the appropriate tools under the GPSD to impose effective sanctions and products were difficult to trace throughout the supply chain. There was also considerable divergence in the approach to product safety risk assessment between member states.

The proposed new regulation seeks to address the above problems. The regulation will work in tandem with the Commission’s legislative proposals governing AI systems, machinery products and connected consumer products.

 

Summary of principal changes to the GPSD

The proposed regulation will, if implemented, introduce sweeping changes to the EU general product safety regime, with a significant increase in the obligations on actors throughout the supply chain and backed up by high fines for breach.

The principal changes proposed are:

• Online marketplaces. A discrete chapter of the proposed regulation is dedicated to online marketplaces. Online marketplaces will have to assume more responsibility in tackling the sale of dangerous products online.
• Online advertising. It will be necessary to publish safety warnings at the time of online advertising. Also, offering products for sale on an online marketplace using an official EU language will be a relevant consideration when considering whether an advertisement is targeted at EU consumers. This means the offer would need to contain information to identify the product and details of the manufacturer or responsible economic operator established in the EU.
• Emerging technologies. The proposed regulation expands the definitions of “product” and “safety” to encompass EDTs. The definition of “product” takes account of interconnectivity of products and the definition of “safety” takes account of the product’s cybersecurity features and its evolving, learning and predictive functionalities.
• Economic operators. The proposed regulation introduces a new definition of “economic operator”. This is the manufacturer, authorised representative, importer, distributor, fulfilment service provider or any other person who is subject to obligations in relation to the manufacturer or products, making them available on the market in accordance with the proposed regulation.
• Technical documents. Manufacturers will have to draw up technical documents in relation to all consumer products. This is already the case with harmonised products but less so under the GPSD.
• Testing. The responsible person will be required to conduct periodic sample testing of products placed on the EU market.
• Market surveillance. The proposed regulation will establish a consumer safety network to exchange information and co-operate with tracing and the recall of dangerous products. Online marketplaces will be obliged to register with a Safety Gate Portal and co-operate with market surveillance authorities.
• Notifications. Economic operators must issue a notification of an accident within two working days after becoming aware of the accident.
• Traceability. The Commission may request an economic operator to establish a system of traceability for certain products presenting a serious risk to health and safety of consumers.
• Product recalls. The proposed regulation contains several provisions designed to improve the effectiveness of product recalls within the EU, including:
• the recall notice must meet specific requirements (a description of the product including a photograph, the name and brand of the product, a clear description of its hazards, and so on). Terms like “precautionary”, “rare” and “voluntary” will be prohibited;
• the recall notice must include an instruction to stop use immediately; and
• the economic operator responsible for the recall must offer the consumer an effective, cost-free and timely remedy to either repair or replace the product or to provide a refund.
• Penalties. Market surveillance authorities will be able to impose fines for non-compliance of up to 4% of the annual turnover of the economic operator or online marketplace in the concerned member state(s).

Also, as a regulation rather than a directive, there should be greater consistency across member states.

 

Additional EU proposals for regulation of AI products include:-

• Machinery Products Regulation.
• Revision and replacement of General Product Safety Regulation.
• Connected consumer products.
• Cyber security of internet enabled products.
• Cyber resilience Act
• EU digital services Act
• Regulation of sustainable Products

 

Key takeaways of legislative developments in the EU regarding defective products and their safety: –

• More complex products with integrated AI services have developed faster than the law.
• The EU has a legislative plan for liability and regulation of AI products and services.
• Legislation to be implemented in the course of 2023-2026
• Other jurisdictions, including the UK, lag behind the EU legal developments.
• Barriers to entry to EU market will be caused by the legislative developments.
• Scope of products and services is evolving for which liabilities arise.
• Coping methods and strategies for risk management and resilience are evolving. Some AI systems being adopted as risk analysis tools, and management guides.

This article is based on European Product Liabilities (Butterworths) edited by Patrick Kelly and Rebecca Attree.

Rebecca Attree, Mediator, IPOS Mediation

Patrick Kelly, Partner, Layton ETL


Complicated dynamics and disputes in Family Business and how to resolve them

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In the autumn of 2022, Mishcon de Reya welcomed a panel of experts to discuss the effective management of family centred disputes.

The Panel of experts

The panel was moderated by Rebecca Attree. Rebecca put her considerable skills to good use, skilfully guiding an interesting (and often entertaining) discussion on a variety of topics: from the early rumbles of discontent through to what happens once formal litigation proceedings have been issued. The panel comprised Mishcon de Reya’s Shona Coffer, a Partner in Private Commercial Litigation, Victoria Palmer-Moore, Managing Partner at Powerscourt and Sarah Middleton, a Partner in PwC’s Valuations practice.

The panel’s broad range of expertise enabled the discussion to address everything from what public communication strategy families should take to considerations around the valuation of family businesses.

The Inspiration for the discussion

The event was inspired by last summer’s hit film, House of Gucci. Unfortunately, the family dynamics portrayed in House of Gucci are not dissimilar to those occasionally encountered by the expert panel on a day-to-day basis. The panellists agreed that family disputes require a different approach to purely commercial disputes: more often than not, family disputes are played out in pre-action correspondence. Advisors recognise that, once you push the button on litigation, positions become increasingly entrenched making it harder to build bridges. From Rebecca’s perspective as a mediator, this can present a challenge for mediation as it is harder for a potential defendant to assess the merits of a claim before it is particularised in pleadings. However, the benefits of a pre-action mediation usually outweigh this issue.

Phases of a family business dispute

The panel discussed the various phases of a dispute and when it might be appropriate to obtain valuations. It was clear that it is important to consider the timing of a valuation (for example if there are allegations of the other party intentionally dissipating the asset during the course of the dispute). Similarly, important discussions are to be had around the actual value of a family business, both in terms of its reliance on a key person (and how much goodwill resides with that individual); and also in terms of its market value to a third party versus its “real value” to a family shareholder.

Victoria helpfully explained the importance of getting a proper communication strategy in place and – if possible – ensuring that everyone is on the same page. The potential influence of social media means that any strategy should, if possible, take into account all members of the family as well as members of its staff. Family members should be advised to resist the temptation to retaliate to comments made online and should, if possible, identify a single spokesperson to ensure a consistent message.

Speaking about dispute resolution, Shona was clear that litigators are always looking ahead to identify potential opportunities to settle proceedings before they reach court. This is particularly true in family disputes where confidentiality, around both the details and the outcome of a dispute, is often a primary consideration. Rebecca said that according to statistics, only 7% of mediations fail and they are obviously, therefore, an incredibly effective tool for dispute resolution allowing families a safe place to air a grievance whilst searching for a resolution that is both personally – and commercially – equitable. Often the agreement reached in an out of court settlement with terms that would not have been within the court’s power to order.

Session conclusion

The session ended with each of the panellists imparting a key piece of advice to an individual on the brink of a family dispute:
– Get an early grasp on the value of asset, the value at stake – and how volatile that value is likely to be over a lengthy dispute;
– Agree a comprehensive communications plan and game plan scenarios;
– Consider whether your client wants to see every letter exchanged between the lawyers – often the tone of this correspondence can unnecessarily exacerbate a dispute
– Take a deep breath and count to ten – do you really want to set the ball in motion with litigation or arbitration or is there hope of a resolution at mediation?


When is the right time to mediate?

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Is it too early to mediate? Many cases I mediate don’t have any proceedings pending therefore little time and money has so far been invested in pursuing the claim. The result of that is people are less invested in the litigation process and they’ve got a more open mind about how a settlement will look.

There’s also a psychological factor to consider – the more times people say something, the more they believe they’re right. So there’s as an opportunity to nip the dispute in the bud before people have rehearsed their case too many times.

Is it too late to mediate? It’s never too late. I’ve had cases settle where the trial is only 7-10 days away. Why might that be? Both parties want to save the cost of going to trial or perhaps one client suddenly realises the reality of being a witness and being cross-examined.

I recall for example a large Inheritance Act dispute that settled on the first day of the trial. The judge had decided to spend the day reading the papers. On that day one of the key witnesses appreciates they just couldn’t face a day in the High Court.

This, coupled with a last-minute change of counsel for the other party who took a different view on the strengths and weaknesses of the case, meant there were new factors at play that made the matter ripe for settlement.

Read more about the discussion with Andrew Miller KC at IPOS Mediation here


IPOS Mediation turn the spotlight on Rebecca Attree

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IPOS turn the spotlight on…. Rebecca Attree

This Spring, IPOS Mediation turned the spotlight on Rebecca Attree “An exceptional mediator”– (Legal 500 2023)

Rebecca is a highly effective and experienced mediator of commercial disputes both domestically and internationally. She has over 35 years’ experience in assisting global businesses and individuals to resolve disputes and reach agreements and has been regularly mediating for over 14 years.

Rebecca is described in the legal directories as;
“Excellent on all fronts: commercially astute as well as sensitive to each party’s issues”

“Intelligent, well prepared, with excellent inter-personal skills”

“Goes about her mediation using her calm authority, good manners, skilful communication and excellent grasp of the issues to focus the minds of the parties to reach a settlement”

Rebecca has “all angles experience” of mediation. Whilst she is now a full time mediator, as a City solicitor she attended mediations with clients, and attended mediations as a party when she was a director of a property development company. This gives her a deep understanding of what it takes to facilitate a deal satisfactory to all.

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Artificial Intelligence (AI) and legal liability

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Introduction 

The rapid development of Artificial Intelligence (AI) technology leaves us to question whether the English Civil Liability rules of contractual, and extra-contractual liability for loss and damage caused by AI are fit for purpose.

 

Failure or disruption of AI systems can lead to catastrophic risks and liabilities. The UK government’s policy paper on AI states that legal liability for AI outcomes must always rest with “an identified or identifiable legal person – whether corporate or natural”. This position resonates with the Law Commission’s recommendation that liability for self-driving vehicles shifts from driver to manufacturer and software developer. Hence, risk and liability allocation within the AI chain is important to establish liability in the event of a dispute.

 

Contractual liability

The central provisions of contract law are flexible enough to provide a workable framework of liability. However, those contractual rules that predate the development of artificial intelligence technology do not interact with the framework to provide sufficient protection for users of artificial intelligence. This is particularly because they do not provide consumers with sufficient mandatory protection rules, implied terms, and minimum service standards.

 

Contractual liability limitations and AI

The principle of freedom of contract in English law allows parties to a contract to agree or to exclude liabilities for breach as they see fit. That principle is partly limited in B2B contracts, and most particularly in B2C contracts, by the imposition of minimum implied terms for fitness for purpose and satisfactory quality, which in B2C contracts are mandatory and cannot be excluded.  Agreed contractual terms if broken, give the party suffering the breach a remedy in an action in damages for the foreseeable loss suffered, or for specific performance of obligations breached. Contract law can give specific warranties relating to performance and liability for defects in AI products and services, to the contract parties or other classes of users, operators, or persons adversely affected by defective AI.

 

Generally, a claim in contract is limited to claims brought by the named parties. However, the persons entitled to bring claims can be extended to named persons or classes of persons under the Contracts Rights against Third Parties’ legislation; the principals of vicarious liability; the common law extension of voluntary assumption of liability, such as Volvo cars in announcing that it would accept liability for harm caused by their cars when operated autonomously.

 

From a consumer perspective it is comforting that in B2C contracts, there are terms protecting consumers and mandatory rules imposing minimum terms of fitness for purpose and that the product will be of satisfactory quality, or the service will be delivered with reasonable care and skill. However, as AI opens new frontiers to automated services being provided in matters such as financial services, robotic process outsourcing, and AI as a service, the  terms that the law will imply in these sectors have not caught up with the development in the technology that moves at a much faster pace than the law. Unfortunately, the UK does not yet have any detailed plans to implement such legislation, to fill the liability gap.

 

Extra-contractual liability

This liability exists in three parts: liability in the law of negligence; product liability and liability for breach of statutory duty. Negligence is the liability that stems from conduct that fails to conform to a required standard. Product liability provides for liabilities of manufacturers of defective products and those in the supply chain. Civil claims for breach of product safety law give rights to consumers and others suffering special losses to claim for losses arising from breach of regulations to protect consumers or to promote safe products.

 

Negligence limitations and AI

Extra contractual liability in negligence in the UK, and most  civil law jurisdictions, including those of France and Germany, have liability regimes for conduct that fails to conform to a required standard.  English law of negligence provides that where a claimant can show (a)the existence of a duty of care, (b) a breach of that duty, (c) that causes foreseeable consequential damage that is not too remote, the claim is likely to be successful.

 

While in some ways, the law of  negligence can be adapted to issues of developing artificial intelligence technology liabilities, it also has some limitations. First, the standard of care is the human standard of care that would apply to the average reasonable person in the same situation. With artificial intelligence, this is not possible as artificial intelligence has no human comparator. Second, the foreseeability of damage in human terms has no direct comparator in artificial intelligence terms. Third,  claims for pure, economic loss are not possible in the law of negligence.

 

Product liability law limitations and AI

The European Union implemented the 1985 Products Liability Directive, (PLD) which was transposed into UK law by the Consumer Products Act 1987. Under the PLD, producers of products and other intermediaries are strictly liable to persons, who are injured or whose personal property is damaged by a product, if it can be proved that the product is defective. A product is considered defective when it does not provide the safety that a person is entitled to expect, taking into account:- (a) the presentation of the product and; (b) the use to which it could reasonably be put at the time at which the product was brought into circulation. “Products” are defined as” any goods or electricity and includes products integrated into other products, whether as a component part, raw materials or otherwise”.

 

There are several significant limitations with regard to the  PLD remedies that can be given to persons or property damaged by AI:-

 

  1. It is doubtful that the definition of “product” extends to software and artificial intelligence unless that software or artificial intelligence is embedded in some hardware being part of the product. It is far more likely that artificial intelligence will be excluded from the product liability regime in most cases because it has more characteristics of a service rather than a product as artificial intelligence generates custom-made output, based on individual input from a user.
  2. PLD claims are built on an assumption that a product does not continue to change in unpredictable ways once it has been manufactured. Liability is specifically excluded if the defect did not exist when the product was put into circulation, or where the state of scientific and technical knowledge, at the time that the product was put into circulation, was not such as to enable the defects to be discovered.

 

  1. The PLD regime is not universal as it does not apply to defective services, and it is not in the UK linked as closely as it should be to a rapidly evolving product safety regime that takes account the developments in AI technology.

 

  1. In PLD claims the claimant must prove that the product was defective when it was put on the market which in the case of liability arising from artificial intelligence issues, can be very complicated. This is because with the two main types of artificial intelligence systems being artificial neural networks and probabilistic Bayesian networks, it is very hard to determine how or why a machine learning system made a particular decision. This can set up an impossibly high barrier to a claim being brought without a claimant having disclosure of all the detailed workings of the AI system and without there being any rebuttable presumption of liability where there is a clear link between the AI and the loss and damage.

 

Those limitations just described do not make the PLD fit for purpose in providing adequate legal protections to those affected by AI outcomes.

 

Civil claims for breach of product safety law and AI

Civil claims for breach of product safety law give rights to consumers and others suffering special losses to claim for losses arising from breach of regulations that protect consumers or promote safe products. The EU has substantial regulations in place to ensure consumer protection and safety of products to prevent the occurrence of harm to businesses and individuals. English law provides a limited and restricted right for civil claims in damages to be brought for breaches of those regulatory laws. Claims can only be brought where the regulatory law does not provide penalties for breach or other means of enforcement and then is limited to a small class of potential claimants.

 

Summary

The civil law entitlement to claim damages for loss suffered resulting from the breach of the product safety regulations are very limited, as are the remedies available to persons or property damaged by AI.

 

  1. Not all product safety laws permit civil enforcement.

 

  1. They generally do not apply to the provision of defective services.

 

  1. The UK product safety regime is falling behind the development of technology particularly in relation to A Following Brexit, the UK has no plans to adopt any of the immediate changes in product and services safety law in relation to AI, or other digital products or services. This is a contrasting approach to EU where it is progressing with its Artificial Intelligence Act, the proposed EU Machinery Regulations, the proposed EU General Product Safety Regulations, the EU Digital Markets Act and the EU Digital Services Act.

 

Takeaways

The takeaways from these descriptions of civil liability law and artificial intelligence are: –

  1. The UK regime is not fit for purpose for AI liability claims in contract, negligence, product liability or product safety.
  2. Post-Brexit the UK has become a rule-taker, not a rule giver in its biggest export market. The lack of development of UK law to deal with AI liabilities means UK businesses will have to comply with one set of looser standards in their relatively small home market and stricter standards in their relatively larger EU export market. The reverse will be the case for EU exporters to the UK putting EU exporters at a comparative advantage.
  3. Contracts should address the risk and cost allocation for defective AI products or services to minimise AI providers’ or users’ exposure to liability.

 

This article is based on European Product Liabilities (Butterworths) edited by Patrick Kelly and Rebecca Attree. It provides an overview of the law. Specific cases need specific advice.

The position is stated as at 1.11.2022.

 

REBECCA ATTREE, Mediator, IPOS Mediation

 PATRICK KELLY, Partner, Laytons ETL