31 Jan 2023
28 May 2021
Businesses will inevitably come to disagreements with other businesses and individuals. Going to court for every legal dispute, however, may not be the best option given the high costs involved. Parties might consider mediation instead – where they can resolve a dispute in a timely and cost-effective way.
Unlike litigation and arbitration, mediation encourages open communication between parties, where the mediation process is facilitated by a neutral third party, who is called a "mediator". It is a voluntary process by which a neutral mediator helps the parties in dispute reach an agreement they negotiated on their own terms. Its flexible nature also allows for quick resolution and confidentiality during the process, making it a popular option. Here is your guide to mediation and what it involves.
Mediation is a voluntary process where the parties engage a mediator to help them to reach a settlement that is acceptable to both parties and responsive to their needs. The mediator must be an impartial third party trained in conducting mediations. The parties have a choice of mediators, and if they choose the mediator by themselves, they can also negotiate a fee with the chosen mediator.
Mediation does not have to be commenced before any court proceedings are brought – parties can also engage a mediator after court proceedings have commenced. While the parties can choose the venue for conducting the mediation, they usually take place in a private office. Due to the COVID-19 pandemic, parties can even choose to have online mediation.
There are different types of mediation – the two broad types being general mediation and family mediation. We will focus on general mediation (or business mediation) as this is what is used for business disputes.
Aside from mediation, the two most common ways of resolving a dispute are litigation and arbitration. Litigation involves legal proceedings in court. Arbitration is a process in which, upon the parties’ agreement, a dispute is submitted to the arbitrator(s) to make a binding final decision.
Litigation and arbitration are similar in that they involve decision-making by a judge or an arbitrator. Mediation is different in that the outcome of a mediation is not determined by a mediator but by the parties themselves. This offers greater flexibility for the parties as they can reach agreements on their terms. The parties can also choose to terminate the mediation at any time. Mediators also do not issue orders or find fault. While an arbitrator provides legal advice, a mediator is engaged for the sole purpose of facilitating the mediation process.
Amongst the various alternative dispute resolution methods, mediation is one of the widely used modes due to its time-effective and cost-effective nature. While the arbitration process usually takes one year to complete and litigation can take years, the mediation process can be completed within a day. This, of course, depends on the complexity of the case and how cooperative the parties are. Nonetheless, even if the case is complex, it is unlikely that the mediation process would take more than an extra day or two longer for the parties to complete the process.
Since mediation is non-confrontational, it helps the parties maintain an amicable relationship and can sometimes even improve it. While court cases are public, the parties can have the terms of the mediation settlement kept confidentially. Mediation is also conducted in a more informal way than litigation, so parties may be more open during their discussion.
Typically, when parties attempt to resolve a business dispute, they will agree to mediate first. It is only if they cannot agree to a resolution under mediation that they will arbitrate or initiate a court proceeding.
As explained, mediation is less expensive and provides a quick and straightforward way to resolve disputes compared to litigation or going to court.
Additionally, mediation allows parties to be more in control of their disputes. Since it is flexible and informal, parties can come to outcomes that are satisfactory on their terms, improving their working relationship. This also increases the probability that parties will comply with the terms that they settle on and implement the final agreement.
There are several steps to the mediation process which should be followed if parties wish to mediate instead of going to court. Here is a brief run-down:
1. The parties engage a mediator.
2. The mediator conducts individual interviews with every party before mediation - this is usually done in the mediator’s office.
3. The mediator begins the mediation with a joint session with both parties. In this session, the mediator will explain the mediation process and the ground rules. Before any substantive negotiations between the parties, the mediator will ensure that the parties have signed an Agreement to Mediate. A sample can be found here.
4. The parties then make their opening statements. The statements will include the parties’ views on the dispute and the issues to be resolved.
5. If an agreement cannot be reached at the joint session, the mediator will advise the parties to go to separate rooms. The mediator will have individual sessions with the parties and help them determine how feasible their negotiation terms are. Anything discussed in these sessions is kept confidential and will not be disclosed to the other party by the mediator.
6. Throughout the process, the mediator will help the parties to evaluate the dispute, identify their interests, develop alternative solutions, and formulate proposals. As the mediator is skilled in unlocking deadlocked issues, they will keep the parties focused on seeking a solution. Parties can also terminate the mediation at any time.
7. The parties will then reach an agreement. Upon reaching an agreement, the parties will need to sign the Agreement to Settle, which is binding on them. A sample can be found here.
Although you are not obliged to hire a lawyer for mediation, lawyers certainly can help. You should at least seek legal advice before entering into any agreement. It is also beneficial for you to engage a lawyer throughout mediation as they can assist you in finalising your mediation agreement. Hiring a lawyer for mediation is usually cheaper than going to court or using arbitration.
Besides helping you finalise the mediation agreement, your lawyer can also assist you during the mediation as you can speak to the lawyer privately during the mediation process. Your lawyer can also attend the sessions you have with the mediator and discuss any legal issues or concerns about the process.
Before mediation commences, the parties must appoint a mediator. While mediators may come from different backgrounds, they are required to meet certain accreditation requirements and must have undergone training to acquire the necessary skills to conduct a mediation. Mediators must also abide by a Code of Practice.
If you wish to engage a mediator, many organisations around the world provide lists of mediators. Here is a list of organisations in different jurisdictions/areas:
The enforcement of a mediation settlement agreement between the parties is the same as enforcing contracts under contract law. Hence, one should be careful in selecting the governing law, jurisdiction, and exclusive or non-exclusive jurisdiction when drafting the settlement agreement to ensure that it can be properly enforced in another jurisdiction or country.
The lack of an effective method of enforcing a mediation settlement agreement is a major impediment to international mediation. The parties in international commercial disputes may choose not to make full use of mediation due to the risk of an outcome being unenforceable. They may then prefer to resort to other methods of alternative dispute resolution, such as arbitration, for a higher possibility of enforcement in cross-border disputes.
Mediation is an extremely effective method of resolving disputes. There are many advantages of choosing mediation over litigation or arbitration, such as it being more time and cost-effective. Although the parties must follow a set mediation process, the process remains very flexible as the parties can freely discuss issues and terminate the process if they want to. The parties can also decide whether to bring a lawyer to mediation with them, though it is recommended that they do so as lawyers can provide support and advice throughout the mediation process. There are also different websites where you can find a suitable mediator based on your needs.
Please note that this is just a general summary of the position under common law and does not constitute legal advice. As the laws of each jurisdiction may be different, you may want to speak to your lawyer.
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