Making offers is a key part of most mediations. For all the legal argument, usually what really matters is where you end up financially. ‘Doing the dance’ may appear straightforward but in reality it can often be quite nuanced and any naivety in the negotiating process can often damage your financial outcome.
When should you make an opening offer?
There are no rules about timing. Often offers are not made until the middle of the day, and sometimes they may not emerge until well into the afternoon. However, if the process starts too late it can harm the prospects of reaching a settlement simply due to the limited time available on the day. Parties should therefore be encouraged to start making offers as early as possible because any discussions about the legal issues can always continue alongside.
How quickly should you respond?
Ideally, neither too quickly nor too slowly. Responding too quickly may encourage a belief that you are overly keen to settle which could harm your negotiating position. Equally, taking too long to respond is likely to be counter-productive due to the limited time available. The mediator cannot hurry the parties but should nonetheless encourage them to keep things moving.
Should you provide any detail?
It may lend credibility to an offer to break it down into various heads of loss, interest, and costs because it shows you have thought about how you get to the overall offer figure. It may also direct any further offers towards a particular structure which suits you tactically.
However, for tactical reasons equally it may be preferable to offer only a global figure, ie. a total amount for damages, interest and costs.
When making interim offers the offeror obviously also needs to consider the reaction their offer will provoke from the offeree even if they are still some distance apart in order to ensure that the process remains constructive and does not break down.
Example
The Claimant (C) is claiming £9m in its Position Statement. C will however accept a minimum of £4m to settle (which is not known to the Defendant, obviously).
D has set a maximum figure of £3m (also not known to C). D’s settlement limit is therefore £1m below C’s lowest acceptable figure.
C wishes to negotiate via a series of offers (as does D), and C is prepared to make the first offer.
C may be tempted to start close to the figure claimed in their Position Statement. However, this of course risks D responding in similar vein.
So for example, an opening offer of £8.8m from C may elicit only a very low response from D, perhaps £50k. If C opened with £7.2m though, has C moved too far down from £9m too quickly?
Unlikely. Generally, a healthy initial move in the opening offer is to be encouraged. Not only does it set the tone for the day (ie. conciliatory) but it should also produce a better counteroffer provided of course that both parties are genuinely seeking to settle. And if D does not reciprocate, C can always make a smaller move next time around when they make their second offer.
Let’s say D does reciprocate though and responds with £650k to C’s £7.2m. That is still nowhere near where C needs to be (£4m) but it is nonetheless still an indication that D is prepared to engage constructively. Both parties will also be aware that further offers are to come.
If in response to D’s £650k, C then makes a second offer of £6.5m, a reduction of £700k from their first offer of £7.2m. Should D move up to £1.3m, or should they move by less in order to allow more room for manoeuvre later on?
In reality, it probably doesn’t matter. The parties are still a long way from their final positions and the more important consideration during this period is that the process continues to move forward constructively. If D were to make the larger move to £1.3m, they can always make a smaller move via their next offer if C does not reciprocate.
What if negotiations stall?
Let’s assume several further offers are made but it’s now late in the day and C is ‘stuck’ at £4.2m, even though they can go down to £4m. D is also ‘stuck’ at £2.8m, even though they can go up to £3m.
There’s still a £1m gap to bridge if settlement is to be reached although ‘publicly’ the gap is still at £1.4m as things stand. However, neither party wishes to move further because both believe they are too far apart.
Some of the options which could be deployed at this point are:
- the mediator suggests a compromise figure to both parties [this is not the ‘right’ figure, simply a figure which from their experience they consider may resolve the dispute];
- each party makes a final ‘sealed offer’ for the mediator’s eyes only and the mediator then decides whether there is any merit in continuing; or
- each party makes a final ‘sealed offer’ but will also have agreed beforehand that if the two offers are close enough then the mediator will reveal them publicly.
An example of (iii)
C’s further sealed offer is £3.8m, now £200,000 below their £4m limit, and D’s is £3.3m, £300,000 above their £3m limit. So the difference between the parties is now only £0.5m.
However, before making their sealed offers the parties also agreed with the mediator that if the difference is £0.6m or less, the mediator will reveal them.
So in this scenario the figures of £3.8m and £3.3m can be revealed because the difference is £0.5m (less than £0.6m) Further negotiations may then follow because the parties now believe they are close enough to be able to reach a settlement.
Conversely, if the maximum difference agreed before the sealed offers was only £0.25m, the difference of £0.5m would be too large and the parties would maintain their prior ‘open’ positions of £4.2m and £2.8m without knowing each other’s sealed offers, and walk away.
Sometimes, even if the two sealed offers are outside the agreed maximum difference, the parties still then agree to reveal their sealed offers in any event (ie. they agree to abandon the range of difference ‘cap’), and again, further negotiations may then follow which lead to a settlement. This is a good example of the flexibility of mediation.
If not, then the parties walking away does not necessarily mean that further dialogue will not continue after the mediation, often with the mediator’s assistance.
Sometimes people need a few days to process the events and offers on the mediation day. This is another example of the flexibility and benefits of mediation. Provided the parties agree, anything is possible, and everything remains confidential.
Why the £1m gap?
Most likely because each lawyer has a different view about the case. That is to be expected. Two opposing lawyers will rarely produce an identical risk assessment. However, some of the disparity may also be because one or both have overlooked certain risk issues. That’s where Letstalk Mediators comes in.
Letstalk Mediators offers 2 mediators for the price of 1 AND free use of SettleIndex risk analysis software.
- Our rates are the same as other mediators charge for 1 mediator and no software.
- Our model = better risk assessment prior to the mediation = better use of the mediation day.