What is Contract Mediation?
Contract mediation is a form of alternative dispute resolution which is used to settle a conflict between two parties where a contract is in place and needs to be discussed or amended. Preceding an official litigation, mediation offers a practical and amicable way to deal with issues between businesses that are unable to find a resolution on their own. It may be used in the case of breached contracts, where a client or supplier fails to fulfil their contractual obligations resulting in some loss for the other party, or any number of problems that can affect two parties who have entered into an agreement.
Contract mediation is less formal than other forms of dispute resolution including arbitration or litigation , and it is a non-binding process that requires only the presence of a mediator and the two parties involved in the disagreement. The main purpose of a contract mediation is to open up paths of communication and encourage discussion between the parties without alluding to any form of fault on either side. By getting both individuals in the same room together, a contract mediator can help to air grievances before they turn into much larger legal battles.
Contract mediation also tends to be quite a fast process in comparison to other forms of alternative dispute resolution, as it enables parties to quickly come together to explore possible solutions and negotiate details for the future.
The Process of Contract Mediation
The mediator is usually chosen by the parties to the contract, and even if the parties cannot agree, the mediator may be appointed by the Court under the Civil Procedure Rules. It is always better if the parties can agree their mediator and the mediator’s fees or any charges that may be made.
If the mediator is a practitioner, they will have a lengthy career, a track record of cases gone well and of witnesses saying they were also impressed by the mediator’s performance. Lawyers and barristers regularly act as mediators or as solicitors looking for the best mediator for their clients.
The mediator is chosen and the parties then meet.
The mediator will have either met the parties separately beforehand, or they will be meeting on the day. Their first job is to explain to them the mediation process, and the process is one which encourages the parties to become involved in the discussion and attempts to achieve a settlement. He will explain to each party how mediation works, the resulting outcomes, confidentiality of matters discussed and the ability to narrow and focus issues.
In the majority of mediations there is a joint meeting with the parties and the mediator. This is an opportunity to discuss the issues, to listen to what the other person is saying, to clarify what are the sticking points, to see if there are areas for compromise or areas where there can be no agreement.
The parties will then go into separate rooms with the mediator who will walk between them. The mediator may suggest options to one side, or simply chastise one party for being unreasonable in particular areas. It is the parties’ mediation and they will always have control over who or what may be said to the other person.
Occasionally one party will insist on sitting in a room together with its opponent and the mediator will then walk between them and listen to what is said.
The mediator’s role is to encourage a solution. He may say that the deal offered by the other party is acceptable, and leave his client with brokerage terms. The offer is not just acceptable, it is needed, and without it the party may fail. The mediator’s role is not to take sides but to ensure that both parties can appreciate the other side in a neutral way and be encouraged to accept a settlement they probably did not think they would be doing. The closer the parties come to a settlement, the more likely it is that they will each make concessions and some movement will be made.
The process is one of give and take and pulling and pushing. The mediator has to be a skilled diplomat, and this is usually the area in which a practicing solicitor or barrister will show themselves.
Advantages of Contract Mediation
Contract mediation is the most effective way for which a dispute can be resolved. The costs can be relatively low compared to litigation, depending of the complexity of the dispute. Mediation is confidential, so a resolution doesn’t introduce risk to damages to the parties’ reputations from reputationally damaging disputes. The parties also retain full control over the outcome of the mediation process by being able to walk away from the case at any time. There are several advantages of contract mediation:
Cost Effective
Mediation is usually the most cost-effective way to resolve a dispute. In a dispute arising out of a breach of a contract, mediation could save the parties thousands of dollars.
Confidentiality
Unlike litigation, where the pleadings are part of the public record and accessible by the general public, matters in mediation are confidential. This also includes all offers that are made by the parties to resolve the dispute. It is also confidential in the sense that it is possible to narrow down the scope of the issues in dispute, to the extent that the matter can be resolved, without disclosing to the other side every detail of the dispute.
Control Over Outcome
With litigation, the parties will leave it in the hands of the court to resolve the issue. However, in mediation, the parties will have full-subject matter control over the resolution of the dispute. The parties can explore creative solutions to the problem that the court could not otherwise mandate and even have an informal exchange of information through facilitators instead of formal requests for document production. This can keep costs down and also reach an outcome that is acceptable to both parties.
Choosing the Right Contract Mediator
Selecting a mediator can be a tricky proposition. Many factors come into play when deciding on the right mediator for the case. One of the most important factors to consider is the mediator’s credentials. The old adage "you get what you pay for" is very true in contract cases. In order to be a good mediator, one must have experience as a negotiator and know how to diffuse situations among powerful personalities. Selecting someone who doesn’t know what to say or how to say it is a sure fire way to disaster. Look for an accredited mediator who has been practicing for many years, preferably a former judge or someone who has specialty in the area in dispute. Obstacles will invariably arise throughout the contract mediation process that need to be overcome in order to successfully settle the case. Mediators who don’t have the experience nor the imagination are very likely to limit the settlement possibilities and result in a not only unsuccessful, but also a costly, futile endeavor.
Common Obstacles in Contract Mediation
While contract mediation can be an effective way to resolve commercial disputes, it is not without its challenges. Both parties should be aware of some of the most common confrontations and how to overcome them. A lack of preparation is perhaps the biggest obstacle to the successful conclusion of a contract mediation process. To that end, the parties should be prepared to answer questions such as: Identifying the underlying problems with a contract, as well as a realistic solution, can make a world of difference when it comes time for the actual session. Being prepared and flexible are both crucial elements to a successful contract mediation, as there is no guarantee that the other party will agree with your assessment of the situation. In addition, there should be a pre-established understanding of the types of resolutions you are willing to accept, as well as those that are non-starters. Consensus building is an important role for the neutral during mediation, so know where you are able to bend, and where you won’t break. Another common hurdle is a failure to keep an open mind. Healthy skepticism is always warranted, but that doesn’t mean you should head into contract mediation with a closed-off attitude . The process is meant to facilitate honest conversation between the two parties, with the goal of reaching an amicable resolution, so be prepared to offer and listen to reasonable compromises. That does not mean giving up your rights, however, as mediators will tell you that those who have poor attitudes heading into session will tend to stay locked in their positions the entire time. One of the most important elements of contract mediation is the presence of a neutral party, who should be able to provide insight and perspective for both sides of a dispute. If you do not trust the neutral to provide objective input, or if you do not feel as though you have been heard during the process, you may view the mediator as part of the problem, and not the solution. Once again, preparation is invaluable here, as you will know whether or not your expectations have a reasonable basis—rational-minded neutrals do not "take sides," and should be able to point out when neither party is making sound arguments or moves, and offer constructive solutions to the problem that reflect the needs of both.
Successful Cases of Contract Mediation
Case studies offer a compelling way to illustrate the practical benefits of contract mediation. In this section, we look at a few real-world examples where contract mediation proved successful.
Company ABC had long-standing supplier relationships with its vendors. However, a pricing dispute arose with one supplier, which had taken a huge financial blow and was looking to cut costs. The two sides were unable to resolve the issue directly.
Once contract mediation began, the negotiations produced two key insights. First, the technologies involved in the program were expected to go into obsolescence within two years, meaning cuts could be made all around. Second, both parties were committed to continuing to work together after this program ended. By focusing on these goals and understanding these two parameters, the two sides were able to reach an agreement—a win-win for everyone.
Company DEF had two divisions that often bought parts from the same manufacturers, but contracts with those manufacturers were typically done separately. This led to problems when Company DEF developed components that required a precise number of parts from those two groups. One division might be over- or under-buying a part that another group needed.
With contract mediation, the two sides met to discuss the issue. The will of the company to solve this situation was apparent, and the two negotiations became very easy from that point. They were able to come up with one contract and figure out a way to get the right amount of parts from the manufacturer, along with a pricing structure that worked well for each department.
Company XYZ’s general counsel had worked with the company for many years and had developed the company’s standard form contracts. Yet, one of the suppliers introduced a new item that wasn’t covered by the standard agreement. Once they began contract mediation, the lawyer discovered that this new item would only be manufactured at specific intervals. As a result, the company and its supplier determined that they could have special terms for this new item and price accordingly.
In each of these cases, contract mediation helped the contracting parties to find a solution that worked for everyone. If you find yourself in a situation like this, knowing how contract mediation works can help you to achieve a good business result.
Upcoming Trends in Contract Mediation
As the world grows increasingly interconnected, the way we mediate is also changing. A few key trends can be seen in contract mediation that consider a combination of impending technology and how our legal systems are adapting to a more globalised and digital society. The most obvious shift is how technology will advance and play a hand in mediation. Digital spaces are becoming more important for all affairs. For example, in places such as Singapore, the government has announced that it will promote mediating through virtual reality, with this still being fully supported by human mediators. Vancouver is one of a growing number of sites in which mediators are promoting themselves through social media in order to market their services. A natural extension of mediating in these online spaces is transcription. Recording and digital transcribing is becoming more widely used for those choosing mediation, which will certainly become more popular as the services offered become more efficient than through outdated, manual means. As the internet has no borders, both border issues and purely internal ones will be significantly impacted by the digitalisation of international mediation, as evidenced by the increased popularity of online mediation platforms. For lawyers , this means new competitors who do not have the same high overheads and legal formalities. Accessibility through these platforms also ensures more people can get help when they wish, rather than waiting for an office appointment. The downside is that more issues are being resolved without the full benefit of legal advice. Because of this, access to and the availability of legal advice may also begin to shift, possibly leading to a larger expansion of remote advisory services and a more unequal opportunity to access them. For cases where a legally binding decision is required, a new trend is the emerging need for legally binding mediation. In 2016, the U.N. released a Convention on International Settlement Agreements which would make mediated agreements more stable and binding; in February of 2020, China adopted its own Mediation Law that would give more clear procedures to make settlements through mediation more binding. At the forefront of innovation, Singapore now has statutory power to enforce settlement agreements for cross-border disputes and is aiming to have the first binding mediation. Another area of growth for more secure and reliable contracts/agreements is the implementation of blockchain agreements. This type of programmers can be seen as a form of ADR, as there is a kind of "mediative" process implied under this type of agreement.