Singapore Mediation Lecture 2015
Distinguished Guests, Ladies and Gentlemen, Good afternoon !
I am honored and proud to deliver the 2015 Singapore Mediation Lecture today and to relate to you my experience in conflict prevention and resolution in an international environment.
It is a real privilege to be with the Singapore Mediation Centre, the pioneer for the use of mediation which has established itself as the leading institution in the area. One can see that from the impressive panels of professional mediators.
I am more familiar with the International Mediators of SMC and recognize with pleasure my friends Jane Andrewartha, Karl Mackie, Bill Marsh, Jeremy Lack and, not least, Lord Woolf of Barnes being referred to.
Thanks also for the support of Harry Elias Partnership and the Singapore Management University which, as I understand, launched the SMU Dispute Resolution Initiative in its School of Law.
I am also very pleased to be in Singapore, the State that shares with Switzerland, my home country, the first two spots on the rankings in the Global Competitiveness Index.
As you know, the Global Competitiveness Report (GCR) assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources. Therefore, the Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity”.
You might wonder what this has to do with Mediation and Alternative Dispute Resolution. It is quite simple: Mediation is an institution that contributes strongly to economic prosperity. You might see this confirmed in some comments I will make.
Today, I will share with you how Mediation benefitted me and eventually my company and why I was personally involved in this subject. I will try to illustrate this with a few cases and also mention the mistakes made and lessons learned.
Then, I will mention how we at Nestlé Legal made Conflict Prevention and Resolution an integral part of the business process and which powerful arguments we used to influence and get the buy-in from top management, in-house colleagues and outside counsel.
Finally, I will make a few comments on how to work with outside counsel in the area of dispute resolution and how to manage that relationship and the cases.
It will not be an academic lecture in law, as given at Law School. Life and experience is guiding my talk and I hope you will enjoy sharing my contribution as a corporate lawyer and manager of a major legal department.
I do hope that you have some questions at the end. It would be interesting to share experiences in the audience.
First, let me put this in context.
SETTING THE CONTEXT
I have been educated as a Swiss lawyer with a large exposure to common law.
Switzerland is a country with a culture of compromise. Already, you have to deal in my country with four distinctive regions, and in each Region a different language is spoken. French in the West, German in the North, Italian in the South and Rumantsch in the East.
Alignment is very much the guiding principle in politics, because the country is ruled not by a president but by a Federal Council composed of seven individuals from different political, regional and linguistic backgrounds. There is no party in power and no opposition party that fights any proposal put forward by the first one in Parliament. Decisions by the Federal Council are usually unanimous decisions.
Compromises have the disadvantage that it might take more time to reach a solution. Also, they do not allow for important breakthrough decisions. However, you will have a solution where everybody will be able to adhere to.
This principle of solution seeking governance, that includes a lot of compromising to avoid open confrontation, has also its roots in the civil procedures of the various cantons (or states) of Switzerland.
The first stage of a civil procedure in the areas of monetary claims, labor issues, family matters, inheritance and neighborhood problems is usually the office of a lay magistrate (justice of peace) who tries to ‘mediate’ the case.
It is an important instance where parties may let the steam out which helps that many cases are indeed settled at that level.
I mention this because I grew up in this culture of conciliation and conflict prevention and that has left its marks on me.
It is a principle I strongly believe in.
In my 45 years of legal practice, I have been mostly in-house, for a short period only with a regulator of debt instruments in the International Capital Markets, trying to organize the primary issuing activity as well as the secondary market where the market making and trading takes place.
My main experience is as a corporate lawyer in commercial businesses. Both companies I was with are not very litigious companies and did not have large legal functions. The founders and majority owners of Hewlett Packard, Bill Hewlett and Dave Packard had set the tone in their company. I have spent 12 years with HP.
Nestlé has more than 140 years of corporate culture and tradition, focusing on technical processes and marketing and was always solution oriented. This was the case during my 21 years with them. I do not think that this has changed.
It was with Nestlé, in the early 90’s, that I have become acquainted with Mediation, first with CEDR, the Centre for Effective Dispute Resolution in London and then with CPR, the International Institute for Conflict Prevention and Resolution in New York. Later on, many other organizations were created in Europe and I have had some contacts with some of them based in Spain, Holland, Italy, France and Switzerland.
Most of what I will say today is based on my own experience as an in-house lawyer and manager of a legal department who enjoyed the trust and confidence of his Chairman and his CEO. Some ideas of course I have heard from others and you will forgive me, if I cannot attribute all of them exactly to a person and a place.
I do hope I can contribute some insight to your own activity as lawyers, mediators or business people dealing with Mediation.
In this context, I will use the Terms Mediation, Alternative Dispute Resolution and Conflict Prevention and Resolution loosely as one general approach.
An approach to find business solutions to business issues.
HOW MEDIATION BENEFITTED ME AND EVENTUALLY MY COMPANY
Nestlé is the world’s leading Nutrition, Health and Wellness Company. It is committed to enhancing people's lives by offering tastier and healthier food and beverage choices at all stages of life and at all times of the day.
I have joined Nestlé in 1990 to become, after an introduction period, Group General Counsel in 1992.
At that time, Nestlé had operations in about 200 countries; it employed some 280’000 employees and had annual sales of over 100 bio CHF, the equivalent to 140 bio SGD. We had some 550 factories worldwide and 30 R&D Centers, one of them here in Singapore which developed in the 90’s the MAGGI 2minute noodles.
Nestlé serves about 1 billion customers a day.
The organization was strongly decentralized and a lot of decision power was delegated to the local operations, which makes a lot of sense, because local consumers were the customers of the company. One has to be able to take decisions rapidly, where the action takes place.
During the larger part of my tenure as Group General Counsel, we employed some 400 in-house lawyers worldwide. Nestlé lawyers were Commercial lawyers, Tax lawyers, Trademark lawyers and Patent lawyers.
At the Head Office, we were about 20 corporate lawyers, specialized in M&A, antitrust and other commercial issues. There were also 10 international Tax specialists, 20 Trademark lawyers and some 15 Patent lawyers. The remaining 340 lawyers were spread around the world in local legal departments 60 jurisdictions, supporting the local operations from manufacturing to selling the products in the market.
All in all, compared to the size of the Company, this was quite a small legal department and you might have realized that there was no specific “litigation lawyer” at the Head Office. Only the US legal department and the department in Brazil had litigation lawyers.
Nestlé was and is not a litigious company. It is not part of its culture and litigation was never high on the agenda of the Chairman and the CEO. Litigation was considered as a cost of doing business. Should problems arise, business solutions must be found to keep the business going.
This was our mandate in Nestlé Legal.
My first contact with Mediation was with CEDR and its head, Karl Mackie. Karl was at that time also Professor at Nottingham University and he was to give a course about ‘Lawyers in Business’ at my Global Legal Conference. This was the first time I was confronted with Mediation and its principles.
Of course, I have experienced arbitration when I was a trainee in private practice. I remember it was a very slow moving process. I had to change arbitrators regularly because they passed away.
Karl was an eye-opener for me and those who participated at that conference and we decided on the spot to send two of my staff to the CEDR In-house mediator training course.
At the same time, I got closer to my US legal department and became aware that Nestlé USA had signed the CPR Corporate ADR Pledge for Food Companies, which committed Nestlé to solve disputes through Mediation.
I was asked to join the CPR board and acted also as their European Chair. I am now an Emeritus Director. In my function, I also helped to develop their international activities in China and Brazil.
I was convinced that Mediation is the solution of the future for all the reasons we know (cost saving, privacy, staying in control, business solutions, all the reasons you all are aware of) and that Mediation perfectly fitted the culture of Nestlé. I had a few lawyers trained by CEDR and appointed one of them, Patrick Deane, an Australian lawyer in my team at the Head Office, as the Mediation Practice Head.
We in Nestlé Legal felt comfortable to have lined up the resources needed to deal with the issues when they will come up.
Well, they did not come up.
There were from time to time some lawsuits, of course. They concerned small claims, advertising issues, trademark and patent infringements and of course also labor issues in the factories. In the decentralized management structure, they were dealt with locally and did not appear on the radar screen at the Head Office.
Many of them were settled in some sort of an unstructured Mediation approach and others went to court. All in all, these matters were small fry in the global picture of the Nestlé business and had no impact on the balance sheet.
Then, a great opportunity for change came up!
In the year 2000, Management was challenged by the CEO about the number of employees and the cost of the operations. We in Legal proposed our own initiative called “Running Shoes” under which I was to get control over the total legal spend in the Group.
I also committed that total legal spend (TOLES) for the Group, which then was some 150mio CHF or some 212mio SGD per year, would not increase more, percentage wise, and year by year, than global sales would increase.
Market Legal Departments started to report the number of full time equivalent employees and other cost to the Head Office, among that also cost of litigation.
That is when it all started and there was sudden transparency. We have learned about litigation and litigation trends around the world.
At the same time, some cases were initiated against Nestlé where top management at the Head Office showed real interest in, either because they were personally involved as defendants, major competitors were in the game or a dangerous precedent could have been created.
The world around us has changed and times have changed. There were fewer competitors and the competitive intensity has drastically increased. Regulators and lawmakers offered “new tools” for litigators, such as class actions for consumers and challenges against product claims. Some companies regarded litigation as an additional source of revenue which sometimes also helped to pay for their own mistakes they made.
At the same time, we needed to reduce legal cost, which we did by 35% and litigation cost was obviously a prime target.
It was the perfect occasion to start building up a mediation culture in Nestlé Legal and the company.
To illustrate my comments, I would like to share with you two examples where Mediation played the key role to solve the issues. One example is about Nestlé Waters being sued by a consultant and the other one is about a huge case between Nestlé and one of its major competitors.
THE CONSULTANT AND NESTLÉ WATERS
Nestlé Waters is the global water business of the Group, based at the former Source Perrier Offices in Paris. It was created after a successful hostile takeover battle I lead against the Agnelli family, also known as the major shareholder in FIAT and Ferrari cars and at that time a controlling shareholder in Perrier.
Nestlé Waters was interested in buying a German Spring located in southern Germany. It was quite a complicated transaction because of the target’s shareholding structure. There were ordinary and privileged shares with a large distribution and, in particular, the employee representative unions and pension funds had quite an important part of the shares.
Also, the idea of selling the local jewel of the town to a large “foreign” group was not appreciated by the regional politicians.
The CEO of the water business at that time was a German national and he was very keen of getting this water brand into his group, convinced that it was quite outstanding water. He has known it since he was a child.
The key to a successful transaction was to get the employee representatives to transfer their shares and exchange it for Nestlé stock. Without success, local pride wanted to keep the brand local and public affairs would have a hell of a job to work with the local opinion leaders.
Nestlé Waters did not have any skills in-house in that sense. A consultant was hired, a German consultant of course, because of the inside knowledge of the local environment. The fee – a success fee – was defined at 1mio DEM plus expenses.
The deal did not materialize. The Pension Funds could not be convinced to sell off their stake. With hindsight, probably because the whole transaction was mismanaged at the Paris Head Office and the support at Corporate Management level in Switzerland was missing.
Six month later, the consultant sued in Hamburg, Germany for the success fee and expenses.
A German plaintiff, a French Company as defendant, a service that should have been performed successfully partly in Germany, but also partly in France, an ultimate Swiss shareholder….. A real international mess.
The consultant claimed that it was not his mistake that the deal did not materialize. He performed all that was required of him as per agreement.
However, in his submission to the court, the consultant was unable to demonstrate that he was successful in doing everything needed to secure the transaction. Nestlé Waters thought that he did provide some services, but, as a matter of fact, the transaction did not materialize. After all, this was the condition to get the success fee.
On the morning of the argument in Court in Hamburg, I went to Frankfurt first to discuss the strategy with Rolf Trittmann, my outside counsel, a partner of the Bruckhaus firm at the time, which became then Freshfields. I have selected him to advise Nestlé Waters because he was a member CPR New York and a European Advisory Committee colleague. This was a guarantee for me that we could mediate the case.
I told him that I do not want this case to proceed in court and that we need to mediate. He was more than in favor with this approach, as he clearly saw the benefits for all involved with regard to concluding a case rapidly, control on the money spent on the case and safeguarding good relationships.
He gave a call to the judge in Hamburg and when we arrived in court, the judge took the consultant and me aside and he mediated the case. It was a question of 30 minutes. The consultant wanted only to have the presence and attention of somebody from Nestlé’s Head Office and not from Paris. This was important to him. I knew him because I was at some time involved in the transaction and I had the impression that he felt comfortable dealing with me.
Nestlé Waters agreed to paid the Consultant 250’000 DEM for his expenses.
I think this was a quite a fair outcome for both parties, it covered generously the consultant’s expenses and the Waters CEO was more than happy to tick this one off his list of pending matters.
The second example concerns the real nature and character of two corporations and is very typical of the relationship between Nestlé and this competitor.
THE PACKAGING WAR
This is to some extent a public case, and you can find the complaints and cross complaints, many times amended by both sides, on public records of the Superior Court of the State of California for the County of Los Angeles.
What you cannot find, of course, and which is not widely known are the particulars of the Mediation. I will mention some of those to give you the full understanding of how we all benefitted from Mediation, but you will understand that I have to respect the confidentiality and privacy of the detailed outcome. One of the powerful arguments in favor of Mediation.
It is also an excellent example to illustrate that Mediation is possible at any stage of a legal proceeding. If the parties want it, it can be done.
Nestlé and its competitor have been in conflict many times and in many jurisdictions.
There were the odd trade dress and trademark disputes, interferences at the European Commission's Merger Control Office when Nestlé made an acquisition, interventions against Nestlé with the UK authorities and many more in many countries and continents.
On the other hand, we were both fighting together regulators and lawmakers, which – in our eyes – wanted to exercise too much control over industry and kill our business. We felt that self-regulation was working well and we both knew that selling products under world brands was a guarantee that products were conform to standards where they were sold.
The culture and the ways and means how business was conducted by the two companies were quite different.
This case is about “Theft of Trade Secrets”.
A Packaging Development Manager who was employed by our competitor accepted a position with Nestlé.
It is not unusual as such, that people move from one company to another. Some activities are quite specialized and there are only a handful of companies which could employ such specialists. Companies usually have special procedures to manage such moves.
Our competitor claimed to be a leader in the development and use of new packaging and manufacturing techniques and having invested more than the equivalent of 350 mio USD in developing know-how and building manufacturing lines for a special packaging process.
The Manager, before giving notice to the competitor that he is leaving, took 16 boxes of confidential and proprietary research material with him and stored the boxes in the garage of his home.
The competitor sued the Manager, and various Nestlé companies, including Nestec SA, the Swiss R&D, Management and Technical assistance Company of the Nestlé Group in February 2001 for
• Misappropriation of Trade Secrets, Interference with Contract, Interference with Prospective Economic Advantage
• Claim and Delivery
• Unfair Business Practice, Breach of Contract and Specific Performance
and asked for damages, a reasonable royalty and exemplary and punitive damages.
Nestlé, sometimes later and in line with its litigation strategy, filed a cross complaint against the competitor for
• Trade Secret Misappropriation and Unfair Competition
• Interference with Contract and Interference with prospective Economic Advantage.
The discovery of documentary evidence started in spring of 2001 and, as one might imagine, in a case where companies are active all over the world, with many offices in many jurisdictions, with suppliers including equipment manufacturers in various continents, this takes a lot of time and will build up an enormous amount of legal fees.
In January 2004, three years later, I was deposed as the person most knowledgeable of the defendant Nestec SA, the R&D and Technical Assistance Company of the Group as I was, in addition to my role as General Counsel, the Executive Vice-President of Nestec SA.
At that moment I discuss the possibility of mediating the case – quite a complex case as we have seen by now– with my counsel, Carmine Zarlenga, then with Howery and now with Mayer Brown, and we agreed to push for Mediation.
I was convinced that – because of the complexity - if the case would proceed in the courts, it would take years until we could see the light at the end of the tunnel. Cost has already run up to important levels because of discovery, and –as mentioned before- we will have to live with our competitor in the future, because despite the conflicts we have from time to time, we also have issues of common interests to fight for. We are competitors, but also comrades in fighting against the increasing of over-regulation.
Eventually, early October 2004 we met for Mediation. A JAMS mediator has been nominated to guide us to a solution. I had arranged my travel plans so that I could stay a full week.
Well, the Mediation ended after 3 hours. The demands for monetary compensation by our competitor was so outrageous and, because their outside counsel took the lead on their side, their position totally non-accommodating, that Nestlé walked away from the session and I took the evening plane back home.
Their claim was for a high end three digit million USD equivalent amount, which we thought was to recuperate the investment they made plus damages.
The procedural machine continues to grind and in the spring of 2005, whilest in the 4th year of discovery, we had good arguments to oblige the plaintiff to produce documents which they had withheld and which compromised their top management personally.
The document referred to correspondence between the competitor’s top management and a foreign packaging machine manufacturer who was building bespoke equipment for Nestlé. It was extremely compromising and embarrassing for the Plaintiff and led our competitor eventually to offer that we restart Mediation.
All the advantages of Mediation came into play to bring a positive result. The willingness to close a matter, confidentiality, face saving and, last but not least, important cost saving for both sides.
Nestlé agreed to pay for the competitor’s lawyer's fees, which amounted to a double digit million dollar equivalent- at the very low end. An amount which was far away from the initial amount demanded.
The lesson learned here is that Mediation can be engaged at any stage of a proceeding, right at the beginning, when the parties have assessed their chances or when an event takes place that opens the door to agree for a solution.
PATENTS AND TRADEMARK ISSUES
Patents and Trademarks are an area where Mediation should play a much more important role.
I remember a case where a group of Nestlé R&D employees in Switzerland developed a second generation Nespresso coffee capsule and a patent was deposited. According to Swiss law, an invention made by employees belongs to the employer, which means that these Patents were Nestlé patents. In other jurisdictions, such IP rights need to be assigned by the inventor to the employer.
If one wants to register a patent in the US, one needs to register it in the name of the inventor, even if it belongs to the company. Hence the patent was registered in the name of one of the co-inventor in the US.
This is what happened.
The co-inventor, whose name was registered in the USA as the inventor, then left Nestlé and created his own start-up company active in the development of capsules for coffee and for tea. He had recourse to outside investors and some well-known Swiss entrepreneurs put money into that start-up company.
When on his own, he partially improved that Patent which was registered in the US in his name and he deposited a new Patent.
Nestlé sued him and the question was: what is Nestlé property in that new Patent and what is the former co-inventors property in that device.
The court commissioned outside expert opinions and 7 experts gave their opinion, attributing the lion share of the IP rights favor of Nestlé. However, the judge always postponed his decision. We were in the 10th year of the case.
Nestlé R&D Management wanted to have a court decision to have a precedent. Well, they did not get their precedent.
One of the entrepreneur investors in that start-up company, Daniel Borel, the founder of Logitech, the mouse company, was to become a board member of Nestlé SA.
When I mentioned to the Chairman, that his candidate might have a conflict of interest, he ordered me to settle the case. Which I did.
We mediated with the daughter of the co-inventor and found an acceptable solution, not a monetary solution but a business solution.
As Nespresso did not want to exploit that particular model of capsules anymore and was already - because of the time elapsed since the beginning of the legal proceedings - into the third generation of capsules. But the R&D Management wanted to have the IP rights established.
A license to use was offered to the co-inventor in relation to that old second generation patent. Nestlé’s ownership rights were recognized and the co-inventor could continue his start-up business with ‘old’ and obsolete technology.
IP right disputes are an ideal area, where Mediation should be applied. Coexistence agreements and cross-licensing are perfect business solutions to solve such disputes.
HOW TO MAKE MEDIATION AN INTEGRAL PART OF THE BUSINESS PROCESS
Here is a provocative thought: there is no need to do anything, Mediation is already an integral part of any business process.
I think it is true, but it is only half the truth. When I visited the markets and spent days with our sales people and their clients, whether experienced purchasing managers at supermarket chains or owners of small Mom and Pop stores, I can tell you, there is a lot of solutions finding going on. Many business issues were solved on the spot, but I have to admit the process was quite unstructured. Maybe that is how it should be.
At least, it gave me the impression that we have a Mediation culture at Nestlé – the only question was how could I exploit that capital, structure the processes and extend this into the Nestlé Legal.
Mediation has to fit with your company’s culture. If this should not be the case, you are losing your time.
What I have learned in my company is that ‘pushing’ usually does not lead to anything. If one wants a new concept or process to be accepted, one needs to create ‘pull’. Nobody wants to have something imposed; the General Counsel has to lead, make the colleagues in business part of the idea, show that there is some benefit for them and influence acceptance that way.
I had the privilege to have a lot of freedom for my function. At the beginning of my time with Nestlé, I did a few things right and could establish real trust with my CEO. This does not come over night as you may imagine, it takes a bit of time to build it up and then you have to nurture it constantly.
I was a General Counsel who rarely said “NO”, I influenced that things went the way I thought was the right way. This was also the case with Mediation; it was left to me to decide whether it is the right thing to do and how to do it.
First, I was and still am a firm and strong believer in the tremendous benefits of Mediation. The powerful arguments, you know them all. The General Counsel must to take the lead and convince.
Above of all the compelling arguments in favor of Mediation are
• Privacy of the case and the solution,
• It’s saving the face – so important in many parts of the world,
• Being part of those who created the outcome.
• It’s a solution designed by those who know the business.
• It is not imposed
• It is speedy. You do not spend time on depositions; witness questioning etc. you can go on with your business.
• And of course, it is cost saving.
And most important, it is designed to maintain a business relationship.
Imagine Nestlé France made about 80% of its 5 billion EURO turnover with 4 major supermarket chains. Imagine also that one of these distributors puts you on his blacklist and boycotts your products because you sue him in court. They usually tell their customers that Nestlé cannot deliver…… It is a disaster! Lost sales cannot be recuperated.
As the Swiss say, it is like a winter without snow!
Second, you need to be ready to offer that service. You need to create a “Mediation attitude” within the legal function and have lawyers trained to perform. We had some attorneys trained by CEDR and then they involved their colleagues in the markets. For some time, all our annual lawyers meetings had time set aside to sharpen the skills in Mediation. Of course, I could not dictate that Mediation must be the first resource in dispute resolution. Remember, Nestlé is a strongly decentralized company!
However, the powerful arguments will convince even the most reluctant member of Nestlé Legal. And the lawyers in the markets knew also, that whenever I or one of my Regional General Counsels came for a visit, Mediation was on the agenda. And they were better on top of it!
Third, you have to catch the opportunity to kick Mediation in when it presents itself. Hardly can you create this opportunity yourself. But if it is there, you cannot let it go.
It is always helpful to go for Mediation, if there is a case where a top manager is involved, maybe even a bit more on a personal level than he/she likes.
A top manager as a defendant or even as a witness is always something the plaintiff lawyers like. Top management, however, does not like that at all.
Mediation is the perfect process to keep the lid of things that could harm the manager or his/her future career.
As you will be successful, the word is spread from high places, which is most helpful in large organizations.
Fourth, and most important: involve the business people. They usually have seen it before, they know about alternatives, work arounds and substitutes. They can bring inventive solutions to the table, other than monetary solutions.
Maybe you want to leave them even alone in sessions with the other party called ‘business people only’. However, make sure though that you keep the lead and do not let them drift away from the objective.
This helps not to ‘over lawyer’ the issue which might prevent you from reaching quickly an acceptable solution. I used to tell the lawyers at Nestlé: You are not there to practice law; they were there to find solutions.
At the end of the day, if we look at Mediation as a team process, where everybody is valued and asked to bring a particular knowhow to the table with a view to a solution, the business people, management and the lawyers are all part of the outcome and will work towards a successful solution. All being part of the success, Mediation becomes an integral part of the business process.
There are outside counsels who are Ambassadors for Mediation and there are those who are not and are rather born litigators and fighters. I do not think that the one is incompatible with the other but Mediation commands a completely different approach.
The relationship with outside counsel in a large company is a relation that has been built and maintained over many years on the basis of quality of work, value for money, service attitude, knowledge of us as clients and, of course, moments of good time spent together and complicity.
In building a relationship with outside counsel, I look at law firms as being an integral part of my in-house legal support system. The outside lawyers have access to all our internal information; they get regularly briefed from us on the Company’s strategy and have direct access to business clients. It is important that the law firm is not only providing legal advice, but investing also time in maintaining the relationship, understanding the company, its people, its management – understanding what makes them tick – and building up and maintaining a comfort level so that management can concentrate on its own business.
This calls for a lot of investment in time from both sides, but it is worthwhile.
This close relationship concept is used not only for lawyers who assist in mediation, but quite generally for all outside lawyer appointments.
In Nestlé, the lawyers were in charge of choosing outside counsel.
Our Legal Policy provided that, when appointing outside counsel, a firm must adopt Mediation. A firm that would not actively subscribe to Mediation as a first choice in dispute resolution would simply not become a firm working with us.
The outside lawyer who was with me on that Nestlé Waters dispute is a renowned litigator in one of the major firms in Europe but also a member of CPR.
The litigator involved in the packaging case, was with a major firm in Washington that has been dissolved since and he is now with an important Chicago firm. He litigated many other matters for Nestlé SA and its subsidiaries, such as antitrust cases and class actions but he was a strong supporter of Mediation and there was no hesitation to embrace Mediation efforts in that particular case.
And both litigators were essential in the mediation process, however, in a different role. The outside counsel moves from being an advocate and controller to become an advisor and supporter.
It is important when managing a case that the question of Mediation is on the table right at the beginning. The preparation work and the strategy are different, whether you aim for Mediation or for court proceedings. In Mediation preparation you will look for facts that will help to support solutions and are of common value for both parties. Mediation is not adversarial like a court proceeding and it brings a positive spirit into the preparation activity.
A LESSON LEARNED
There might be occasions, where it is important that your rights are established and that a precedent is created. In particular, where there is absolutely no doubt that you will prevail and where it will help you to avoid similar, copycat cases.
Let me explain this with a real case.
As you know, Nestlé is in the Water Business. In 1992, Nestlé bought Source Perrier and acquired an important foothold in the bottled water market in the US.
“Calistoga” was one of the brands that were acquired and it was quite successful in Northern California. It was so successful that the spring in the town of Calistoga was not sufficient to satisfy the demand. Management found a substitute spring in another place and started to truck water from there to the bottling plant. This is common practice in the US and not as such prohibited by law.
What management omitted though, was a mention on the product indicating that the water comes from different springs and not only from Calistoga.
In a class-action, consumers who saw the trucks coming and going claimed that Nestlé Waters North America falsely advertises its Calistoga Water as water from Calistoga, while it contains water from other sources.
The case was settled in Mediation, the description of the product was changed and the consumers were compensated with coupons to buy Calistoga bottled water at a discount. It was a commercial decision to make this arrangement to get over with it and bind the plaintiffs to the product with coupons.
The result of this settlement was that soon later, another class-action lawsuit was filed by consumers in Connecticut, claiming that Poland Springs falsely advertises its ‘pristine spring water found deep in the woods of Maine’. The same pattern as in Calistoga, maybe even by the same class action law firm in the background.
Another settlement was made with an offer to the plaintiff class for free water or discounts with a value of $8mio, an amount of $2.75 mio was paid to charities and $1.35 mio to the plaintiffs for their lawyer fees. Nestlé Waters paid these amounts although no admission of any of the allegations was made.
Would the outcome have been different with a court decision in the Calistoga case? Which water would be the next one sued by a new class? Ozarka, Ice Mountain, Zephyrhills, Deer Park are all Nestlé Waters brands in the United States and potential targets?
We can only guess.
This does not, by any means, diminish the value of Mediation as a process. One needs to keep it in mind when management says: I want a court decision!
What is important to consider when deciding to mediate or not to mediate, is the ‘long and large view’. One should not only consider the single conflict as a stand-alone case. It has to be put into the context of the company’s overall business in the sense of all activities and all geographies where the company is present.
Let’s sum up! I would like to recap in a few sentences what I have exposed to you:
- Mediation benefitted me and my company because
- Mediation is flexible
- Mediation is confidential and ‘without prejudice’
- Mediation gives you control of the decision to settle
- Mediation is voluntary, the parties can mediate at any stage before and during proceedings
- Mediation settlements are legally binding
- Mediation is quick, cost-effective and successful (e.g. 70% of cases referred to CEDR settle)
- Mediation can maintain business relationships
- Mediation is informal and creative – a wide variety of settlements can be achieved – monetary, business solutions such as licensing, cross licensing, distribution rights, a wide range of compromises and alignments
- Mediation can deal with commercial issues, employment issues, Patent and Trademark issues and many other issues in corporate life.
In short, it benefitted me and Nestlé because it is cost-effective, quick and it saves faces and relations.
- How to make Mediation an integral part of the business
- Take the driver’s seat and spell the message of the tremendous benefits
- If necessary, help and influence a change in the culture of your company in that respect
- Get ready to offer Mediation, train and sharpen your and your lawyers skills
- Carpe diem – catch an opportunity to apply Mediation and don’t let it go
- Involve business people, they will bring the solutions
- Take off your lawyer’s hat and become a solution provider – you are not here to practice law, but to find a solution
- Make sure the good stories are spread around in your company, if possible from the top!
- Translate your conviction into action – take the lead
- Outside Counsel
- Consider outside counsel as an extension of your legal support system
- Share the company’s life with outside counsel: the strategy, results, new products, gossip
- It’s evident: choose law firms with a Mediation practice
- You are in charge, you manage outside counsel, you control and you will not delegate
- Put Mediation on the table right at the beginning of a case
- The Mediation process is different to any legal process
- Outside counsel plays a different role in Mediation – from advocate and controller towards an advisor and supporter
- Outside counsel advises in Mediation like in a commercial negotiation, not like a litigator
- Outside counsel does not dominate Mediation with legal issues, but the legal position is of course assessed throughout the Mediation
- Create occasions where “business people only” meet, without outside and in-house counsel
- Your strategy and tactic is different when litigating or when mediating
- Do not forget: One can mediate at any stage before and during proceedings
Abraham Lincoln, who was a successful attorney before he became the 16th President of the United States, said Discourage litigation. Persuade your neighbors to compromise whenever you can. As a peacemaker the lawyer has superior opportunity of being a good man.
Thank you for your presence and for listening.