Commercial mediation differs from other types of alternative dispute resolution methods in several ways, but arguably its key characteristic is that the mediator is not expected to make a final decision about the dispute. Instead, the goal of the mediator is to encourage the parties in conflict to move toward settlement.
To help business owners interested in commercial mediation, we’ve put together this guide, along with a video explainer from dispute resolution expert, Ian Carson, to help you understand the following main points about the mediation process.
If you’re reading this because a commercial dispute is weighing on your business, our business dispute solicitors can help you explore mediation as a way to reach a resolution without the stress and cost of court proceedings.
Jump to:
- What is commercial mediation?
- What are the consequences of refusing commercial mediation?
- Can a judge order the parties to mediate?
- How do you choose the right mediator?
- When should mediation happen?
- How to prepare for commercial mediation
- What is the commercial mediation process?
- What if court proceedings have already begun?
- Challenges in commercial mediation
- Does the mediator have to be a lawyer?
- Is the mediation process private?
- Advantages and disadvantages of mediation
- How long does commercial mediation take?
- What is the cost of mediation services?
- What happens if one party breaches a mediation settlement?
- Summary
What is commercial mediation?
Mediation is now a well-established method of settling business disputes, not just in England and Wales but also across the globe. The overriding objective of the courts here is to deal with your commercial dispute as quickly as possible. Mediation is such a popular method of alternative dispute resolution (‘ADR’) because it’s a process that goes a long way toward satisfying these criteria.
The process, like other forms of alternative dispute resolution, is flexible and voluntary. An independent person is appointed to act as a mediator in your case. He or she then works closely with you and your opponent to see if an agreement can be found to bring the dispute to an end.
What are the consequences of refusing commercial mediation?
The consequences of refusing to engage in mediation can be costly for the party who has chosen not to participate. The court expects parties to think about alternative ways to resolve a dispute before beginning court action and mediation is often one of the processes it’s strongly encouraged that parties engage in, so it’s advisable to think very carefully about your reasons if you choose not to engage with it. If the matter goes to court, the judge will want to know what those reasons are and even if you’re ultimately successful in the court case, the judge might decide not to award you costs or could potentially even order you to pay part of the costs of the other party.
Can a judge order the parties to mediate?
Judges have been encouraging parties to consider mediation as a dispute resolution tool for years. But more recently they also have the power to order the parties to mediate, either on their own initiative or in response to an application from one party.
In a recent trade mark infringement case a judge made a compulsory mediation order, a couple of takeaways are worth noting:
- mediation may be ordered during proceedings or shortly before trial; and
- no dispute is too difficult or intractable.
How do you choose the right mediator?
Unlike court proceedings where a judge is assigned to your case, a mediator is appointed by agreement. There are many qualified mediators to choose from, and you should choose someone who is familiar with the subject matter of the dispute. Possibly even a technical expert.
But you also want to appoint someone who will be able to handle and get the best out of all the personalities involved. You want someone with good communication and negotiating skills. Someone who can quickly build rapport and trust. Someone who, regardless of the subject matter, can cut through the noise, get to the heart of the conflict, and help the parties reach a resolution. Someone who actively listens and can put forth the issues raised by both sides, whilst staying neutral and focused on the task at hand, namely, facilitating a settlement.
Each mediator is unique and will have their own way of approaching mediation, but you want someone who will be firm but fair with each party. Someone who has a certain authority and commands respect.
Some cases will benefit from a mediator who simply goes from room to room relaying various points. Others will benefit from a mediator who is prepared to take a more proactive approach - actively testing the parties’ strengths and weaknesses and playing devil’s advocate.
Some mediators are legally qualified. Others are accountants or other professionals, and it’s up to you and your legal team to decide if a legal or other professional qualification will be useful in addition to being a trained mediator.
Above all, you want someone who can identify all the obstacles to resolution and help the parties overcome them. Having experience in similar cases and the number of years they have worked as a mediator are important considerations too.
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. If you are party to a dispute where the issues are clear, you 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. You may also find that you are required to attempt mediation under the terms of your contract with the other side. Mediating at an early stage is consistent with the previously mentioned principle that the courts must deal with cases justly and proportionately.
How to prepare for commercial mediation
It’s important to ensure that you’re as ready as possible to engage in the commercial mediation process and good preparation is key. Some of the main things you can do to prepare well are as follows:
- Gather necessary documentation and evidence: It can be time consuming to do this but it’s a crucial part of the preparation process to have everything you need ready in order to showcase your position in the best possible light. Missing evidence can lead to postponements and delays which will ultimately end up costing your business more in terms of resources, both financially and in relation to management time.
- Set clear goals and objectives for the mediation: Being clear about what you’d ideally like to achieve from the mediation is also very important. That said, it’s recommended that you think in advance about the areas where you’re prepared to compromise and also whether there are any non-negotiables; bearing in mind that the aim of mediation is to hopefully reach a settlement with the other side that both parties are content with.
- Take steps to prepare mentally and emotionally for the process: Engaging in any form of dispute resolution process can be stressful and mediation is no exception, particularly if you’ve never been involved in a business dispute before or if it’s your first experience of the mediation process. It’s advisable to have professional support in place to help you through it; this could be in the form of appointing a legal representative to guide you and be with you throughout the mediation and additionally, talking to friends and family or a qualified counsellor to help manage your emotions could be beneficial.
What is the commercial mediation process?
We’ve emphasised that one of the key characteristics of commercial mediation is the voluntary, flexible nature of the process. You and your opponent will choose the mediator between yourselves and with the mediator’s help, you will 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.
Initial meeting
This is where the parties, your 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 to you, that it’s voluntary and confidential, and that their position in the process is neutral: it’s for you and the other side to find an acceptable compromise.
Each side will then usually 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 will hone in on potential areas of agreement.
Private sessions
The 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 you of the value of maintaining a workable professional relationship, post-dispute, with the other side.
Above all, these meetings enable each party to be full and frank with the mediator about their concerns and gives you the opportunity to raise what you perceive as the strengths of your case. The mediator should 'stress test' these strengths and help you to see the reality of your situation.
Formal negotiation
At some point in the process, the mediator needs to move on from exploring each side’s case and discussing theoretical settlements with you to a point of action. That is to say, you and the other side will be expected to begin making offers and considering what compromises each of you are prepared to make. The mediator’s role at this juncture is to move between the parties, relaying offers and counter-offers until an agreement is reached.
Settlement
It’s essential to draft the terms of any agreement without delay, ideally when you are all still together at the mediation venue. Leaving the formal recording of the deal until later can lead to misunderstandings and in the worst-case scenario, result in the agreement itself unravelling.
If no agreement is reached at the mediation, there is nothing to prevent the parties from continuing to negotiate between themselves. If the mediation was the result of a court order, the court must be informed of the breakdown of the process immediately.
What if court proceedings have already begun?
If your case has already entered court proceedings, there are still several opportunities for you to apply for a stay in proceedings whilst mediation is attempted. For example, once disclosure of documents has taken place, you may wish to mediate because you will have a better sense of your position and that of the other side. Even at this stage, there would be the incentive of substantial cost savings with a successful mediation.
Challenges in commercial mediation
There are some common themes that can arise when it comes to challenges in commercial mediation. Some examples of these include:
- Dealing with difficult parties or opposing counsel: Unfortunately, it can sometimes be the case that the other parties to the business dispute or their legal representative(s) (sometimes referred to as ‘opposing counsel’) are difficult to deal with and this can adversely influence the success of the mediation process. Asking the mediator to liaise with them is possible but remember that fundamentally, the mediator’s duty is to remain neutral and impartial so there are limits to how far they’re able to go.
- Addressing power imbalances: If you feel that there’s a power imbalance between you and the other party for any reason, this can give rise to mediation feeling even more challenging. Having the support of a legal representative who is skilled in dealing with these types of situations can go a long way towards addressing that imbalance and can help you feel more comfortable.
- Breaking through impasse situations: An impasse can arise for various reasons ranging from a party not wanting to make the first offer to either or both parties being unwilling to compromise. Again, the mediator will attempt to assist as far as possible to work with the parties to overcome this and may suggest time for the parties to reconsider their positions if it could be beneficial.
Does the mediator have to be a lawyer?
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 you and your opponent to agree upon the individual you wish to appoint as a mediator.
Is the mediation process private?
One of the main attractions of commercial mediation as a way to resolve your dispute 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 you and the other side, but also to the mediator – you should be aware here that 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 either side are made on an 'off the record' basis, and you can’t refer to them in any court proceedings that may follow on from an unsuccessful mediation. However, just because something comes up in mediation it doesn’t automatically exclude the possibility that you can use it 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, communications during mediation between you and your solicitor (and likewise for the other side) that’s concerned with legal advice is privileged, which means that neither party can disclose it. We’ve written in detail about legal professional privilege in a separate article – it’s a complex legal concept, and one where the rules have recently changed.
For the sake of clarity, matters such as defining confidentiality, the without prejudice nature of statements made in mediation and the extent of legal privilege should all be covered in your mediation agreement. Usually, the mediator will also stress the private nature of the process to you at the outset. This helps create a sense of security in the process and encourages disclosure of information that might otherwise be withheld – information that might ultimately lead to a resolution.
Advantages and disadvantages of mediation
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 that commercial disputes are resolved, mediation is preferred by a significant number of businesses.
| 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 it follows that 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 the 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. | |
| Mediation works. The proportion of disputes referred to mediation that result in agreement is consistently high. |
How long does commercial mediation take?
Every dispute is different but as an indication, most mediations usually take a fortnight to a month to set up and then the mediation itself takes place across a full day, with more complicated disputes requiring slightly longer than that.
What is the cost of mediation services?
One of the attractions of this method of ADR in commercial matters is that it potentially offers huge cost savings when compared to litigation and some other forms of ADR. Commercial mediation costs are comprised of the following:
- The mediator’s fees
- Mediation costs (including venue hire)
- The costs of each side’s legal advisors
In the majority of cases, you should be aware that it is common for the parties to agree to split the mediator’s costs and expenses (such as venue hire) evenly, and for each side to bear their own legal costs. On occasion and depending on the circumstances, you might consider making an offer to pay the other side’s costs as an inducement to encourage them 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.
What happens if one party breaches a mediation settlement?
Settlement agreements reached in mediation are enforceable as contracts if the requirements for a valid contract are satisfied (offer, acceptance, consideration, capacity, and an intention to create legal relations). In most mediation agreements there is a settlement clause that states that no settlement is legally binding until it is signed, and all the usual remedies for breach of contract will apply, including damages.
If the mediation was brought or ordered during an active litigation case, the proceedings are usually recorded in a Tomlin order, a consent order staying proceedings. Attached to this is a separate schedule that sets out the agreed settlement terms. The terms of the settlement are not a matter of public record, and both parties can ask the court to enforce the agreed terms without having to commence new proceedings.
If one party fails to comply with the agreed terms, the other party can ask the court to convert the contractual obligations set out in the settlement agreement into an enforceable order. For example, if one party agrees to pay a sum of money and hasn’t, the court will make an order that the sum be paid. If that sum isn’t paid, you are looking at enforcement, and there are several enforcement options to consider. These include a third-party debt order (against the other party’s bank), a charging order (against a property owned by the other party), and instructing bailiffs to seize and sell the other party’s assets.
Do be aware, though, that Tomlin orders are subject to the usual six-year limitation rule. This means you have six years to pursue any enforcement action, and the time runs from the date the right to enforce the order arises.
Summary
It’s clear that mediation can prove to be a very useful mechanism for resolving disputes in an efficient, cost-effective way and as mentioned above, it’s often the case that the courts will expect parties to engage in the mediation process unless there’s a very good reason why not. Working with a business dispute solicitor with an experienced track record in this area of alternative dispute resolution can prove invaluable in reaching a settlement and therefore prevent valuable time and resources being spent on court proceedings, so it’s worth exploring this as an option at the outset of a business dispute.
