In part 2 of our Essential Toolkit for Resolving Disputes, we consider three common mistakes that parties make in preparing for and attending mediations. Each of these mistakes can easily be avoided with a little foresight and groundwork.
1. Not knowing your case
Prior to meeting with the mediator, parties usually provide the mediator with a position paper, the underlying contract and other documents (such as pleadings and key correspondence) in advance in order to provide some background and context to the mediator.
Preparing the position paper requires some knowledge of the background and circumstances of the case. If the parties have already commenced court or arbitration proceedings, then the legal team's knowledge of the case will be reasonably advanced.
Nonetheless, it is surprising how often parties have not sufficiently considered the underlying evidence or fully analysed the strengths and weaknesses of their case prior to mediation. For example, what may appear to be a simple claim for unpaid invoices may not be so straightforward when there are multiple invoices and credit notes and payment has been on account over a period of time. Reconciliation of the invoices may require taking into account credit notes that have been issued, adjustments in rates pursuant to the parties' agreement and removing duplicated invoices.
However, this preparatory work is not always carried out in advance of a mediation. The party claiming payment may then be surprised to hear the mediator's assessment of their case (e.g. that the case is weaker than the party thought). Or it may be that the claiming party cannot demonstrate why they should be entitled to a higher amount even in the context of a settlement (e.g. because they do not have an explanation or the evidence to support why they are entitled to payment for certain invoices).
It is essential for both parties to analyse their factual and legal position and the supporting evidence to determine the strengths and weaknesses of their case. Indeed, if this analysis was carried out at an early stage it may assist the parties to negotiate a resolution without the need for a mediator. Such an approach will save the parties both time and costs.
2. Not knowing the limits of acceptable settlement outcomes
Another common mistake is failing to consider the higher and lower limits of settlement outcomes that would be acceptable. Common advice given to buyers preparing to attend an auction for a house is to know the lower and upper limits of the price the buyer is willing to pay. It is the same for commercial negotiations and in particular, mediations.
Moreover, the persons participating in the mediation should have authorisation to settle for the highest acceptable amount. If not, a representative with authorisation should be available and contactable by phone throughout the day (or night if the mediation continues).
A settlement that may otherwise have been achieved may fall over because authorisation cannot be obtained or agreement to the proposed offer simply takes too long.
3. Not drafting a settlement agreement in advance
The final common mistake to highlight is attending the mediation without preparing a draft settlement agreement or deed in advance. If a commercial resolution is reached, then documenting that resolution in a settlement agreement and arranging for execution of the settlement agreement is the preferred outcome.
There are a number of key benefits of leaving the mediation with a signed settlement agreement. Not only is it more efficient (and thus, likely to save time and costs), but it means that neither party can change their mind on the agreed resolution nor attempt to argue that their understanding of the agreed resolution was different to that reflected in the draft agreement. It also means that the parties leave the mediation with clear steps set out in the settlement agreement to implement the resolution.
If one or both parties have a draft settlement agreement prepared in advance, then the specific details agreed between the parties can be quickly incorporated into the draft agreement. Often the details only involve adding the specific amount to be paid as the settlement amount, providing for the termination of court or arbitration proceedings (if commenced) and ensuring the releases of claims are appropriate for the specific circumstances. It usually does not take long to reflect these details in the draft settlement agreement so that the agreement can be finalised and signed.
There are disputes where the commercial resolution is more complex. More time may be required to carefully draft and document a complex commercial resolution. Hence, the settlement agreement may not be finalised at the mediation. Even in these cases, preparing an agreed outline of the commercial resolution may prevent further disputes from arising during the negotiation process.
Avoiding these three common mistakes may assist in ensuring a commercial resolution is achieved: know the strengths and weaknesses of your case; know the lower and upper limits of acceptable settlement outcomes and prepare a draft settlement agreement in advance. The next in this series will consider tips and traps for conducting expert determinations.