Parties should always be alert to the possibility of mediation as an alternative form of dispute resolution. This is particularly so in the current economic climate as mediation can resolve a dispute in a short time frame with the potential for an immediate return in money, money's worth or on terms which are not within the power of the court to order. A successful mediation can avoid the risk of an unfavourable outcome, reduce the overall costs of a claim, reduce wasted management time and help to preserve business relationships which would be destroyed by a full-blown litigated claim.
So, what is mediation?
Mediation is a voluntary, non-binding, private and confidential method of dispute resolution using the services of an independent third party neutral. Parties to a dispute, or potential dispute, appoint the neutral third party to facilitate discussions and negotiations with the aim of achieving a consensual binding settlement. It is a flexible process conducted confidentially with the parties remaining in full control of the decision to settle and the terms of settlement.
The mediator does not make a decision or determine any of the issues. If the parties reach agreement on settlement at the mediation that agreement becomes binding on the parties and can in turn be sued upon if its terms are not complied with.
Do I have to mediate?
Most cases are capable of being mediated. Although a voluntary process, an unreasonable refusal to mediate is a high risk strategy. The court can, and will, impose (potentially severe) costs sanctions against a party unreasonably refusing to mediate, even if that party is ultimately successful in the litigation. Parties can therefore expect, and should be prepared for, robust directions from judges to encourage mediation at an early stage in litigation. Under the Civil Procedure Rules, the court must be kept informed of the steps the parties take to settle their case by discussion, negotiation or mediation. It is a brave (and possibly poorly advised) party that refuses an offer to mediate, or to participate in any other form of alternative dispute resolution, without well founded reasons for doing so.
- Success rates in mediation are relatively high with a significant number of disputes settling on the day of mediation or shortly thereafter.
- Successful mediation saves costs and management time by focussing on the issues earlier than is often the case in litigation (which is often not until, or immediately before, the actual trial of the action).
- Even if no settlement is reached, mediation may help to narrow the issues between the parties and provide a focus for the future litigation, again reducing the costs that will be incurred.
- Mediation can take place more quickly and cheaply than going to trial. Most commercial mediations last a day and can be arranged in a matter of weeks.
- It is an informal and flexible process that gives the parties control over the dispute resolution process and the outcome.
- Mediation can produce much more flexible solutions than litigation. Parties can agree to look at money's worth as a way of achieving a potential settlement.
- Active participation in an early mediation will avoid costs sanctions being imposed by the court against a party for failing to consider alternative dispute resolution procedures.
- Parties have nothing to lose. Mediation is confidential and 'without prejudice' to the legal proceedings, so nothing said in the mediation is admissible as evidence in the legal proceedings if settlement is not achieved. This is subject to certain limited exceptions, as to which see part 10 of our survival guide on the 'without prejudice' rule.
- As outcome at trial is never certain, a successful mediation takes away the risk of being unsuccessful in the proceedings.
- It encourages participation and engagement of decision makers at an early stage – too often senior management start to focus on litigated cases at too late a stage when the claim has almost become costs driven.
- There is nothing more guaranteed to destroy business relationships than a claim going to trial after two years of heavily contested litigation. Mediation can promote an early settlement and preserve the possibility of future business – indeed that can be written into any settlement deal.
Are there any disadvantages?
- You will probably have to take a decision on a compromise without full knowledge of the facts.
- There is therefore a trade-off between knowledge and cost.
- You don't get your day in court.
- No issue of legal or factual principle will be decided.
- There is a danger that if the dispute does not settle, weaknesses may be revealed during the course of the mediation. This operates both ways of course. Each side usually has a better understanding of its opponent's case after a mediation.
- If the mediation is unsuccessful the parties have incurred potentially irrecoverable costs.