Could brokers also use mediation?


Mediation is becoming a more widely appreciated and applied alternative dispute resolution method. But there are categories of cases where it could be used more often. One of them is disputes between capital market participants, and in particular between brokerages and their clients.

Such disputes are more and more common. This is a natural consequence of the growth of the capital markets, the increasing diversity of financial instruments offered, and the steady increase in legal protections provided to individual investors.

Currently, in disputes of this type, parties resort to mediation very rarely. Once the parties are in litigation, it may be suggested to them by judge. But financial institutions could use it more effectively before matters reach the court. This requires a proactive approach.

Individual clients who have lost a significant portion of their assets may not have the emotional distance to participate fruitfully in objective negotiations. Mediation helps solve this problem. It provides the financial institution an opportunity to present the merits of its position in a direct manner, and provides clients a forum for expressing their disappointment. This creates a much better chance of reaching a settlement before a claim is filed, when the overall costs of the dispute are still low. Ending the conflict at this stage also reduces the reputational risk to the financial institution associated with the dispute.

From the client’s perspective, mediation is an opportunity to come to a quick understanding and end the conflict. Conducting a case against a financial institution usually requires complex evidence and time-consuming expert testimony. The conclusions the expert will present are hard to predict, and once pronounced can be practically impossible to undermine. This increases the uncertainty of the outcome for both parties.

In the United States, investment banks have been using mediation in disputes with clients since 1989. Polish brokerages might also consider whether this is a route they could follow more frequently.

Piotr Golędzinowski, Dispute Resolution and Arbitration Practice, Wardyński & Partners