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CONTRACTUAL MEDIATION CLAUSES

I have been mediating disputes for over 20 years helping the parties find a solution to their problems.


In about 70% of these cases mediation has led to a successful conclusion, enabling the parties to find an acceptable agreement, avoiding the time and cost and uncertainty of a legal battle.


Where parties come to mediation because they are contractually bound to do so, however, I have found that the “success” rate drops.


There are various reasons for this.


A not untypical such clause in a recent mediation obligated the parties:

In the event of any dispute, claim, question or disagreement, arising from or relating to the agreement, to use their best efforts to settle the dispute by consultation and negotiation with each other in good faith in an attempt to reach a just and equitable solution satisfactory to both, failing which the dispute should be referred to mediation.


In the event that mediation was unsuccessful the parties agreed that the matter should then be referred to arbitration.

 

One of the first questions I ask parties in such cases is to confirm that they are seeking to mediate not only because they are contractually bound to do so, but because they genuinely want to find a solution to the matters in dispute.


Of course, they always say that they do, but, in truth, sometimes they come to mediation reluctantly because it is too early in the dispute for a solution to be found. Sometimes the emotions and relations between the parties are still too raw, the issues between them have not yet been fully established, and key evidence concerning issues has not been shared.


There is no reason in such cases why the parties could not agree to defer any mediation until some, or all, of these issues have been resolved. It may be more productive to wait until the nature of the claims, counter claims, and the defences to them have been set out and any relevant evidence (documentary or witness) has been produced. Sometimes it is necessary for more time to elapse before the parties are able to get together.


On the other hand, I am often told, when a mediation takes place and is successful late in the court process (when considerable time and costs have already been spent), that the parties wish they had engaged with mediation sooner.

 

So when is the best time to mediate?


Each case will be different, but despite the risk of holding the mediation too early, I still favour an early approach to settlement, and contractual mediation clauses can help to bring this about. The only way to solve problems is to communicate and generally the sooner this is done the better. I cannot recall any mediation I have been involved in where, even though the parties may not have reached a final solution, some real benefit has not been obtained through the process e.g. a better appreciation of their own case or their opponent’s, or both.


I have also been involved in many mediations where the parties do not reach a settlement at the first attempt but come back later to a second successful mediation. 


In the recent case the parties failed to reach a resolution. Each side relied upon different “facts”. The lawyers for each side had, of course, been given their client's version of events and no doubt tested this against the other party’s position which had been set out in pre-mediation correspondence. But this was not enough.


Would it have been better for them to have waited until the claims had been formalised, or more evidence and information exchanged, or would this just have added unnecessarily to the costs and time, ultimately leading to no different conclusion?


I suspect that although no solution was reached, both sides will have left the mediation having learned a lot more about both their own case and the other party's position which may be of assistance in determining what next steps they take. In addition, they will, of course, have complied with their obligations under the contract.


Even though, therefore, there is a risk that mediations which take place following a contractual mediation clause may fail because they are premature, I believe that such clauses are helpful. They direct the parties straight away to the benefits of talking, communicating, and of trying to find a consensual solution themselves using an independent third-party mediator to assist, rather than leaving their dispute to be determined in court. Even if they don’t bring about a settlement, they are likely to be an invaluable step along the way to a solution.

 

Nick Pearson


For a useful review of mediation clauses and their benefits you may find the material within the following link helpful.


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