Mediation: Better Than Arm Wrestling

Provided there is a common motivation to settle the dispute on a reasonable and timely basis, there is very little to lose and everything to gain by trying to mediate a resolution.

Mediation: Better Than Arm Wrestling

(Article by Doug Sanders and Patricia Morrison of Borden Ladner Gervais)

You are the CEO of a small software company engaged in a dispute with a competitor over $100,000. Your lawyer has advised that you can litigate, arbitrate, mediate, negotiate, conciliate or use an “expert process”.

Having been through a lengthy and costly litigation before, you choose to avoid the mess and go straight to an arm wrestling match with the opposing CEO. Win or lose, as long as you don’t have to pay lawyers. While perhaps appropriate for a dispute between fit Australian CEO’s (and it actually did happen!), this is not likely your best choice.

There are four well-recognized methods of dispute resolution: litigation, arbitration, mediation and negotiation. The appropriate method in each case will depend on the nature of the dispute, the amount of money involved, the remedies sought, the willingness of the parties to resolve the dispute and the nature of the relationship between them.

Negotiation is a purely voluntary method. If a party does not wish to negotiate, it would be futile to force negotiation, even if it were possible. Litigation is at the other end of the spectrum. It is involuntary for the defendant. Failure to participate by the defendant will result in judgment being awarded against them.

Failure to pursue a claim by the plaintiff will result in no recovery. Arbitration is voluntary at the contract negotiation phase, in that a party can refuse to agree to the inclusion of an arbitration clause in a contract. However, once an arbitration clause is agreed to (assuming it is a mandatory arbitration clause), then a demand to arbitrate by one party forces the other party to arbitrate.

Arbitration can also be agreed to at any time, irrespective of whether a contract contains an arbitration clause or even whether the parties have a contract. Mediation, like arbitration, may be agreed to either in advance of a dispute or after one has arisen. But unlike arbitration, mediation is non-binding. In other words, even though a party may take part in the mediation process, it can refuse to settle the dispute.

However, if a settlement is reached, the settlement is binding. Recognizing the cost and time commitment involved in litigation, and often in arbitration, parties now frequently turns to mediation to resolve disputes.

MEDIATION VS. ARBITRATION: Although they are both commonly considered “alternate dispute resolution” processes, there are a number of significant differences between mediation and arbitration that are often misunderstood.

Mediation is appropriate when the parties are prepared to compromise and are motivated to reach a timely and mutually satisfactory agreement with the help of a neutral person, or where they plan to continue their relationship after their dispute has been resolved. Arbitration is more commonly used when the parties have no likelihood of being able to negotiate a settlement or retain a business relationship, and is appropriate if the parties need to reach a final decision.

MEDIATOR VS . ARBITRATOR In a mediation, the parties allow an outside mediator to assist them in negotiating a resolution. The mediator is a facilitator, not a decision maker. A good mediator possesses persuasive skills, as well as a basic knowledge of the subject matter of the dispute.

By contrast, in arbitration parties ask an outsider to listen to their facts and arguments and then to decide how their dispute must be resolved. An arbitrator should also have a good working knowledge of the industry involved in the dispute.

Time Commitment Mediation sessions are usually concluded within a few days. For more complex cases, mediation briefs are exchanged and given to the mediator in advance of the mediation session. By comparison, arbitration will often involve considerable time for exchange of documents and limited examinations for discovery. An arbitration hearing usually lasts much longer than mediation.

Cost Mediation is much more cost effective than either litigation or arbitration (if it results in a resolution). The three main cost components of mediation are internal business costs for preparation and attendance, the cost of lawyers or other advisors and the shared cost of the mediator and the session room. The arbitration process is often similar to litigation and often involves a longer process, presentation of evidence, possible examinations, legal submissions and expert reports. This inevitably leads to significantly higher costs than mediation.

Control In mediation; the parties maintain control over how the dispute will be resolved. A mediator has no authority to impose a settlement. The parties must agree on the final outcome. In arbitration, the final outcome is based upon the decision of the arbitrator. The parties are bound by it even if they don’t agree with it. The biggest advantage of mediation over arbitration is that it avoids the adversarial process and, therefore, preserves the business relationship.

Mediation allows discussions to take place in a neutral environment, with an objective mediator, and often accomplishes more in a single session than months of meetings and exchanging correspondence. Mediation focuses more on the business interests of the parties than on their legal positions. By not dwelling on the different views of how the dispute arose, the parties are able to concentrate on creating a solution to it. The mediator will assist the parties in identifying the strengths and weaknesses of their case, and discovering the underlying interests that are at the heart of the dispute.

WHAT IS THE PROCESS? In order to succeed, the parties must have a genuine desire to reach a settlement. The mediation should be attended by a representative of each party with authority to conclude a settlement.

The mediator should have the trust of all parties. One of the ground rules for mediation is that, if no settlement is reached, everything said by the parties and the mediator is “privileged”, which means that it cannot be used as evidence in later legal proceedings. This allows the parties to be more open with each other and improves the likelihood of settlement.

One of the functions of the mediator is to provide a reality check for the parties. For example, one of the parties may have received advice from its lawyer that a particular argument is very likely to succeed at trial. That party may be reluctant to compromise its position, based on that advice. Even if the lawyer honestly believes that advice, objectivity can be lost after long periods of involvement in the case. In addition, the mediator may be made aware of facts of which that lawyer is unaware. The first phase of mediation is usually an exchange of opening statements by each of the parties.

The mediator then may meet separately with each party, discussing the strengths and weaknesses of each position, in an attempt to bring the parties closer together. Unlike a judge or arbitrator, the mediator is allowed to meet with one party in the absence of the others to discuss the case. During such separate meetings, a party can request that certain information be kept confidential. In that case, the mediator is not allowed to disclose it to any other party.

The mediator will receive confidential information from each party, including in many cases a bottom line settlement amount, and must ensure that such information is not disclosed without consent. If a settlement is reached, the mediator or one of the parties will record its terms in a settlement agreement, which is then signed by the parties.

HOW TO ACHIEVE A SUCCESSFUL MEDIATION: Not every mediation is successful. However, there are a number of factors that increase the probability of achieving success.

  • Ensure that each party is represented by someone having settlement authority, to allow a final settlement to be reached during the session.
  • Plan to spend a concentrated period of time in the mediation. Do not plan on conducting other business during or between the mediation sessions.
  • Come to the table with an open mind.
  • Have an understanding of the issues reasonably similar to that of the other party.
  • Make sure there is sufficient information available – exchange mediation submissions, documents and relevant information in advance.
  • Be prepared to address technical issues in the mediation – have an expert available to discuss any reports with the mediator and other party.
  • Discuss internally the concept of settlement and possible settlement options before coming to the mediation – think in advance about benefits that might be negotiated in addition to payment of money.
  • Resist setting a “bottom line” or “top dollar” settlement number until the mediator has had a chance to discuss the case with you.
  • Maintain a flexible attitude about the settlement options you bring with you. Reaching an agreement often means altering initial settlement proposals.
  • Determine objective and rational bases for your settlement proposals.
  • Take into account the avoidance of future litigation or arbitration costs.
  • Leave extra time, in case the mediation sessions are constructive but more time is needed to reach a settlement.

SUMMARY Provided there is a common motivation to settle the dispute on a reasonable and timely basis, there is very little to lose and everything to gain by trying to mediate a resolution.

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