Guide To Commercial Mediation

Last updated: 20 June 2019

Estimated reading time: 11 minutes

Commercial mediation differs from other types of dispute resolution methods in several ways. Perhaps its key characteristic is that the mediator is not expected to make a decision. Instead the goal is to encourage the parties in dispute to move toward settlement. In this guide we’ll cover the following:

What is mediation for commercial disputes?

Mediation is now a well-established method of settling commercial disputes, not just in England and Wales but also across the globe. The overriding objective of the courts here is to deal with commercial disputes as justly and as proportionately as possible. Mediation is so popular because it’s a process that goes a long way toward satisfying these criteria.

The process, like other forms of alternative dispute resolution (‘ADR’) is flexible and voluntary. Essentially an independent person is appointed as a mediator. He or she then works closely with the parties to see if an agreement can be found to bring the dispute to an end.

Traditionally the mediator didn’t make decisions or look at the strengths or otherwise of each side’s case. The role of the mediator was very much that of an enabler – facilitating the parties to find areas of agreement. That said, there is evidence that the role of the mediator in some cases is evolving into a more evaluative role where the parties request him or her to decide at least some of the merits of the case.

Mediation can arise in a number of ways:

  • By agreement between the parties
  • When the courts recommend it
  • If the contract provides for mediation
  • Where the parties have signed a mediation pledge. Regulators and industry bodies in many sectors encourage members to commit to mediation in the event of a dispute. A good example is the World Intellectual Property Organization Mediation Pledge for IP and Technology Disputes sectors.

Of course, the process doesn’t always work. It may lead to consensus in some areas and narrow the dispute but fail overall, effectively acting as a precursor to litigation or some other form of ADR. It’s important therefore to ensure that contractual provisions and mediation agreements make it clear that mediation proceedings are confidential and that details can’t be used in any future litigation (that is, they are held on a ‘without prejudice’ basis). We discuss mediation and privacy in more detail below.

What role does the mediator play in commercial dispute mediation?

Mediators don’t have to be lawyers but commercial mediators do tend to be drawn from the legal profession – experienced solicitors or barristers who have undergone specialist training in commercial dispute mediation. It’s up to the parties to agree the choice of an individual as mediator. Once selected the mediator must go about creating an environment conducive to negotiation – one where the parties understand that each is prepared to listen to the other’s case. The mediator must also ensure the process he or she manages is one that treats both sides as equals.

Because the mediator is not expected to reach a decision, the role is chiefly that of a neutral go-between, facilitating agreement where possible and ensuring that, once an agreement is reached, the parties fully understand the terms and a formal record of the terms agreed is drawn up.

Is the process private?

One of the main attractions of commercial mediation as a way to resolve disputes is the fact that it is a private process. Privacy in mediation is reflected in a number of ways:

  • Confidentiality is key – in terms of information disclosed by each side to each other and by each side to the mediator during the process. The obligation to keep information confidential extends not just to the parties but also to the mediator and courts will only depart from this principle in exceptional circumstances.
  • Mediation statements are ‘without prejudice’ – Communications will normally be made on a without prejudice basis. Effectively this means offers of settlement or admissions made by one side are made on an off the record basis. They can’t subsequently be used in court proceedings. Clearly just because something comes up in mediation doesn’t automatically exclude the possibility that it can be used in subsequent litigation. If information that would have to be disclosed anyway under court rules is disclosed in mediation, it may still be used in court.
  • Lawyer-client privilege – Generally communication during mediation between the parties and their solicitors that’s concerned with legal advice is privileged (neither party can disclose it). We’ve written in detail on legal professional privilege –it’s a complex legal concept, and one where the rules have recently changed.

For clarity, confidentiality, the without prejudice nature of statements made in mediation and the extent of legal privilege should all be covered in the mediation agreement.

Usually the mediator will stress the private nature of the process to the parties at the outset. This helps create a sense of security in the process and encourage disclosure of information that might otherwise be withheld – information that might ultimately lead to a resolution.

Advantages and disadvantages

The use of mediation to resolve general commercial and contract disputes is now a well-established method of ADR. Research carried out by the Centre for Effective Dispute Resolution (CEDR) shows that, while direct negotiation is by far the most common way for resolving commercial disputes, mediation is preferred by a significant number of businesses. According to the CEDR report 57% of businesses prefer to use negotiation to settle disputes. Significantly fewer companies prefer mediation – 12%. The report bears out the fact that commercial mediation has drawbacks as well as advantages. We list these in the table below:

Advantages Disadvantages 
It takes informal negotiations a step further by assembling all the parties and focusing minds. There’s no need to appoint a mediator and start the process if informal negotiations between the parties would result in an acceptable settlement.
The mediator comes to the table without any prior involvement in the dispute. The presence of a neutral third party can remove some of the heat from the dispute and lay the groundwork for successful settlement discussions. If one side is unreasonable and does not genuinely want to reach an agreement then mediation is unlikely to succeed.
Nothing is imposed. The mediator is not there to make a ruling like a judge. Instead the mediator’s function is to facilitate agreement. Mediation won’t be appropriate if the dispute has led to some type of emergency and an injunction or other form of relief is needed.
Commercial mediation is voluntarily entered into. One side can pull out at any time if they don’t want to settle. The mediator has more limited powers to direct proceedings than a judge. For example he or she can’t force the disclosure of certain documents unless the parties agree.
As we’ve discussed proceedings are confidential. This can prevent publication of commercially sensitive information. Parties sometimes fear revealing too much about their position during mediation. They may regret doing so if the matter ends up in court.
The parties can be creative about the solutions they reach. Offers of settlement can include matters that were not part of the original dispute. According to the CEDR report mentioned above, this is the most valuable characteristic of mediation as far as businesses are concerned. It’s sometimes hard to convince one party to a dispute to engage in mediation. The CEDR report mentioned already indicates that this is the main factor that puts businesses off mediation.
The private, voluntary nature of the process can sometimes foster goodwill and help maintain existing commercial relationships.
The mediator has a unique insight into each side’s position and what it will take for them to settle. This knowledge can be used to push mediation forward if a settlement is in sight.
It works. The proportion of disputes referred to mediation that result in agreement is consistently high.

 

An overview of the process

We’ve emphasised that one of the key characteristics of commercial mediation is the voluntary, flexible nature of the process. The parties will choose the mediator between themselves and with the mediator’s help decide how the mediation is to run. While there are no hard and fast rules about how mediation proceeds, it’s possible to describe the sort of framework within which most mediations will work. We describe this below.

  • Initial meeting
    Where the parties, their legal representatives (if lawyers are instructed) and the mediator sit down together for the first time in the process. The mediator should describe the characteristics of mediation – that it’s voluntary and confidential and that the mediator’s position is neutral. It’s for the parties to find an acceptable compromise. Each side will usually then give their own opening statements. For anyone embarking on mediation it’s important to give some thought to these opening remarks – they will set the tone for the whole mediation process and could have a big influence on whether the mediation ultimately succeeds or fails. Following these opening statements the mediator will usually try, through discussion, to clarify areas of uncertainty and hone in on potential areas of agreement.
  • Private sessions
    Mediation will then move on to a series of private meetings between the mediator and each party. A good mediator will deploy various techniques to focus the parties’ minds: for example highlighting the expense and risks of the alternative – litigation. It may also be useful at this point for the mediator to remind the parties of the value of maintaining a workable professional relationship, post-dispute – with the other side. Above all these meetings enable each side to be full and frank with the mediator about their concerns and what they perceive as the strengths of their case, The mediator should – in an impartial way – stress test these strengths and help the parties see the reality of their situation.
  • Formal negotiation
    At some point the mediator needs to move on from exploring each side’s case and discussing theoretical settlements to action. That is to say each side begins to make offers and compromises. The mediator’s role at this point is to move between the parties bringing offers and counter offers until an agreement is reached.
  • Settlement
    It’s essential to draft the terms of the agreement without delay – ideally when the parties are still together at the mediation venue. Leaving the formal recording of the deal until later can lead to misunderstanding and result in the agreement itself unraveling.

If no agreement is reached there is nothing to prevent the parties continuing to negotiate between themselves. If the mediation was the result of a court order the court must be informed of the failure immediately.

When should mediation happen?

The flexibility of the mediation process and its voluntary nature mean that, if the parties agree, it can take place at any time during a dispute. Parties to a dispute where the issues are clear may well find that the quickest, most cost effective way to find an agreement is to start mediation before issuing any kind of court proceedings. Parties may also be required to attempt mediation under the terms of the contract. Additionally mediating at an early stage is consistent with the principle (mentioned above) that the courts must deal with cases justly and proportionately.

After court proceedings begin there are also several opportunities for the parties to apply for a stay in proceedings while they attempt mediation. For example once disclosure of documents has taken place the parties may wish to mediate because they will have a better sense of their position and that of the other side. Even at this stage there would be the incentive of substantial cost savings with a successful mediation.

What type of business dispute is mediation suitable for?

When you are involved in a commercial dispute there are several ADR options open to you. Whether you choose mediation or some other kind of dispute resolution method depends on:

  • the nature of the dispute
  • the attitude of the other party to commercial mediation
  • your desired outcome

We know that only a small fraction of commercial disputes actually end up in court. That means most are settled by other means, including mediation. Mediation is particularly useful when:

  • informal face-to-face negotiations have failed but the parties are willing to engage in a more structured approach to resolving their differences
  • litigation costs outweigh any perceived advantage of commencing court proceedings when the value of the dispute is taken into account
  • an independent third party could remove some of the heat that exists between the parties in dispute
  • commercial imperatives dictate the need for a quick solution
  • there is an ongoing business relationship to protect

It may be less useful in cases where:

  • there is a technical legal point at issue that may require the input of a specialist court
  • the dispute has led to a situation of such urgency that some form of emergency relief like an injunction is needed
  • it’s obvious from the parties’ standpoints that mediation won’t succeed, and to engage in it would only add unnecessary legal costs and cause delay
  • there is a criminal element to the dispute

Watch one of our dispute resolution partners, Ian Carson, explain more in the video below:

Mediation costs

One of the attractions of this method in commercial matters is that it potentially offers huge cost savings when compared to litigation and some other forms of dispute resolution. Commercial mediation costs comprise the following:

  • the mediator’s fees
  • mediation costs, including room hire
  • costs of each side’s legal advisors

In the majority of cases the parties agree to split the mediator’s costs and expenses such as room hire evenly and to bear their own legal costs. On occasion an offer to pay the other side’s costs may be made as an inducement to encourage that party to enter mediation in the first place. In other cases parties will agree that if mediation fails and litigation follows, the court can award the costs of mediation to the successful side.

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To find out more about commercial mediation from the specialist dispute resolution team at Harper James call us on 0800 689 1700, email us at enquiries@hjsolicitors.co.uk, or fill out the short form below with your enquiry.

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