This article will deal with subject matter of considerable topicality. I hope to explain how mediation may assist the easy resolution of disputes arising in connection with the funding of defined benefit pension schemes. The scheme specific funding regime requires trustees and employers either to agree or to consult on certain matters relating to future scheme funding linked with and following on from the (usually) triennial actuarial valuation. Where these parties cannot agree, then the Pensions Regulator has considerable powers to intervene, including powers to modify the rate of future accrual of scheme benefits, to set the level of scheme contributions and to determine the period of time over which those contributions must be provided.
It might at first sight appear that the sort of mediative activity which is normally intended to remove the need for long and costly litigation would not apply in a negotiation which does not in this instance have the threat of the courts lurking behind it. The parties can, in theory, throw up their hands if they cannot agree and turn the matter over to the Pensions Regulator. However, it seems that there must be considerable risk in arriving at that position, both as to the uncertainty of the outcome which may be applied by the Regulator, and the damage to the necessary ongoing day-to day relationship between the employer and the trustees. It must be the case that the preservation of that working relationship is worth a considerable amount to all concerned. Furthermore, the Pensions Regulator is reluctant to get involved and rarely uses its powers in this regard.
So how does it come to be that parties might consider mediation in these circumstances? First of all, in its Code of Practice on “Funding defined benefits”, the Pensions Regulator suggests that alternative dispute resolution, including mediation, may assist in situations where trustees and employers are unable to reach agreement. When reporting to the Regulator that there has been a failure to agree on certain funding matters, trustees are also expected to state whether they have made use of or considered a professional alternative dispute resolution service.
Secondly, there is a clear track record of successful mediation in regulatory contexts. The Financial Services Authority Mediation Scheme provides a process for a mediator to work with that regulator and the regulated party in attempting to come to an agreement as to whether any penalty should be applied and if so, how that should be dealt with in the context of public accountability. My own experience of that scheme has shown that there are considerable advantages to be gained for all concerned in not having a lengthy public dispute and an imposed solution.
Thirdly, there is of course no law against parties hiring a qualified neutral to assist them in their negotiations, even where those negotiations are not in the context of a commercial or contractual dispute in the normal way, with the High Court in the background. The addition of someone with a recognised competence in mediation to the list of people involved in negotiations can be of enormous assistance. I would like to set out briefly some of the reasons why - using my own experience of the use of mediation in negotiations concerning the renewal of a very significant commercial contract.
The mediator was able to meet privately with the lead negotiator for each interested party (in the pensions context this would be a representative of the employer and a representative of the trustees). These were separate meetings in which the main areas of potential difficulty could be explored. They included not only the commercial considerations, but also those relating to the individual personalities involved and how they did or did not interact with each other.
Following this, a fully briefed team from each side met with the mediator at a neutral agreed venue and set aside the whole day for the purpose of endeavouring to further their conversation and with the acknowledged and agreed intention of producing a heads of agreement by the end of the mediation day.
On the appointed day, the mediator selected various groupings of people for sub-meetings in which matters of strategy, technical content, costing, and so on could be discussed separately, between the people who had the most relevance to the specific topic. By isolating the various levels of conversation it was possible to create potential progress upon which those individuals could then report back to the full team in each case. Any identified areas of personal friction could be avoided.
The mediator, again, coached each team privately as to the sort of presentations it might like to make to the opposing party. In doing so the mediator emphasised the need for consideration of the other side’s position, reciprocity of approach, acknowledgement of concession, and various other key elements which are almost invariably part of a positive conversation, leading to an outcome which has a chance of actually working.
In the case to which I refer, failure to agree on the renewal of the contract would have had serious commercial implications for both sides. These were parties who were much better off together than apart, but who could not talk to each other effectively and needed help to do so. In the pensions arena it is possible to imagine situations in which there could be a mismatch between the perceptions of the trustees and the employer, in the sense that their own agendas and objectives could appear entirely different. Thus the inclusion of somebody who has a competence in facilitating communication and even, in private, challenging unreasonable positions, is bound to be of service in achieving the twin goals of avoiding an imposed solution by the Pensions Regulator and maintaining an ongoing relationship between the trustees and the employer.