Transforming Cultural Property Disputes

Art Resolve members to offer seminar as part of Mediation Awareness Week 2017
18 September 2017

Court proceedings can be very expensive, consume much valuable time, generate harmful publicity, destroy goodwill and relationships between the parties and, in the end, satisfy none of the parties. There is often a clear incentive and, in many cases, an obligation on the parties to a dispute to consider and actively engage in alternative dispute resolution (ADR), primarily by way of mediation. There are added advantages for the parties in using ADR in art and cultural heritage disputes, where publicity can “burn” a work’s marketability. Case law consistently points to the judiciary’s encouragement of ADR. This is reflected in court guidance and case management, which includes asking the parties whether they have considered ADR at various stages of the litigation process. The court has discretion to order a stay of proceedings to encourage the parties to explore settlement through mediation and other forms of ADR if the case is deemed suitable. Moreover, a failure by a party to properly consider ADR can have adverse costs consequences.

The court room can be an ill-fitting forum to decide disputes relating to art, objects of antiquity and historic sites. Such cases are often complex, can involve multiple parties in a cross-border context, and require specialist expertise and knowledge of case-specific factors, whether that be art market practice or particular cultural sensitivities and historical associations. The disputes that frequently arise in the art and cultural property context raise a diverse range of issues from title, authenticity and provenance to standards of valuation, due diligence and appraisal to problems of loss, misappropriation, fraud and theft. Legal principles can be applied to these issues but may not always satisfactorily deal with them.

Out-of-court options can provide the parties with unique specialist knowledge in addressing such issues and flexibility in how to resolve them. This article discusses the most common methods of ADR, their special characteristics and potential advantages to litigants as well as the potential costs consequences of refusing to engage in mediation.

 

Mediation

Mediation is a voluntary, flexible and confidential method of resolving disputes outside the court system with the help of a neutral third party. The role of the mediator is to assist the parties with negotiations and facilitate discussions enabling them to reach a settlement. The mediator does not impose a result and the parties maintain control of the outcome of the mediation and whether or not a settlement is reached. The mediation is ‘without prejudice’ to the parties’ legal position, but, if a settlement is reached, it can be converted into a binding agreement.

Mediation is highly effective in resolving cultural heritage and art disputes, as it allows the parties privacy, convenience and control and is also more time and cost effective than court proceedings. Moreover, a mediation agreement can incorporate solutions that a court could not provide, such as future trading agreements. The focus of a mediated solution is on the interests of the parties and can allow the parties to preserve their reputations in the marketplace. Mediation also easily accommodates cases of a cross-border nature. There is a high percentage of settlement in mediations.

 

Early Neutral Evaluation

Early neutral evaluation is a voluntary, non-binding process by which the parties agree to obtain an opinion about their dispute from a respected neutral third party with relevant expertise. The neutral hears each party’s submissions and then states his/her view on the likely outcome of the dispute or issue. The neutral can also give advice on how it could or should be resolved. The evaluation given by the neutral may well influence the parties to settle the dispute, either in accordance with the advice, or in some other way depending on subsequent negotiations. Early neutral evaluation is ‘without prejudice’ to the parties’ legal position.

 

Expert Determination

Expert determination leads to the chosen expert imposing a binding decision on the parties and can be an effective, quick and economic means of settling certain types of dispute. The expert will be appointed based on his or her professional background, and some cases may call for the appointment of two experts. The process by which the decision is reached is informal. Expert determination is best used where there is no conflict of factual evidence and where the issues are of expertise and/or of law. In international cases, expert determination should not be used unless there is agreement about the language of the decision and the legal system for its enforcement. A decision made by the expert is final and binding and can be challenged only on very limited grounds arising from its fundamental validity, and not from differences on issues of fact, law or professional opinion.

 

Arbitration

Arbitration is a formal system of dispute resolution leading to a binding result which is similar to a court judgment, and is known as an arbitration award. There are very limited grounds to challenge an arbitration award. Arbitration is suitable for disputes of all kinds, particularly where there are issues of fact, law and expertise, and where international enforcement is required. Arbitration awards are enforceable in over 100 countries, whereas judgments of the English courts are enforceable only in Europe and certain Commonwealth countries. Elsewhere (notably in the United States) fresh proceedings are required to enforce an English judgment. Depending on the case and the agreement between the parties, one or more arbitrators of appropriate expertise will be appointed. Arbitration remains entirely private, unlike court proceedings.

 

Costs consequences of refusal to mediate

The attitudes of litigants to mediation, in particular, has been addressed by the judiciary in numerous cases. There is a well-established principle that a party who refuses to consider whether a case is suitable for mediation will be at risk of an adverse finding on costs (Dunnett v Railtrack plc [2002] EWCA Civ 303). The Court of Appeal considered the situations in which a refusal to mediate could give rise to costs sanctions in Halsey v Milton Keynes General Trust [2004] EWCA Civ 576, and Lord Justice Dyson set out a non-exhaustive list of considerations when determining whether a party had acted unreasonably in refusing to mediate, including: the nature of the dispute, the merits of the case; other settlement options available to the parties; the cost of mediation; delay; and the prospect of success.

The court concluded that the general rule that costs follow the event (i.e. the losing party pays the winning party’s costs) could be displaced where the losing party can show that the winning party unreasonably refused to mediate. This finding should make any party to a dispute pause for thought, as prevailing in court will not guarantee a victory in costs if mediation should have been explored but was not. Where a suggestion to mediate is rejected without good reason for doing so, costs sanctions are likely to follow.

If the parties to a dispute are not sufficiently encouraged to explore mediation or other forms of ADR by virtue of their inherent benefits, such as the potential to save time and money, protect privacy and reach a more flexible, commercially minded settlement, then the risk of exposure to an adverse costs order may make them think again.