13 November 2023

A plea to parties: Timely and effective use of mediation in commercial disputes

Holding Redlich


Holding Redlich, a national commercial law firm with offices in Melbourne, Canberra, Sydney, Brisbane, and Cairns, delivers tailored solutions with expert legal thinking and industry knowledge, prioritizing client partnerships.
Mediate early and more than once if you're not successful the first time.
Australia Litigation, Mediation & Arbitration
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I've had the pleasure of being a mediator for over 20 years, beginning with my first mediation training in my final year of university. I then worked and trained at the Centre for Effective Dispute Resolution (CEDR) in London and continued mediating after returning to Australia.

Over the years, I've witnessed many parties successfully reach mediated settlement agreements. However, there are aspects of the use of mediation that deserve our attention. Before I jump into my analysis, here is my plea to parties involved in commercial disputes – mediate early and more than once if you're not successful the first time.

Over the years I observed a few recurring patterns which frustrate me:

  • parties often fail to correctly prepare for mediation. They tend to focus only on the legal and factual issues rather than spending time to consider the underlying interests, needs and commercial drivers of both parties
  • parties will "have a go" at mediation only once as a stepping stone to a trial and often too very late in the litigation process when further damage has already been done.

From my perspective, that is not the best approach for a number of reasons.

Many parties take the view that a mediation has a chance of success only if they know more about the legal issues and evidence before they mediate, and therefore the mediation is held well after the pleadings, discovery and evidence is completed. But by this stage the parties will have incurred significant litigation costs which often become an important and difficult issue to resolve. In some mediations, legal costs are more important than the underlying dispute which led to the litigation in the first place.

But in reality I see that parties often (or perhaps even usually) resolve their disputes irrespective of the status or their knowledge of the legal case and evidence. In a commercial mediation, the legal and evidential issues are only one component of the complex mix of factors that go into a settlement. The other (and usually more important) factors are the commercial, emotional or personal drivers for each party, including the value of the litigation, the parties' financial positions, whether there is a resolution that can repair and perhaps improve commercial relationships, or the mere fact of having the opportunity to understand why they came to be in dispute in the first place.

Most mediators will tell you that the legal issues tend to have primacy early in the mediation. However, the legal issues will quickly fall away once the lawyers have 'done the dance', the parties realise they won't convince each other and finally they begin to really negotiate. At this point the commercial and personal drivers come to the forefront.

An early mediation may not necessarily be easier or more likely to be successful than a mediation held later in the day. Often, early mediations can be difficult because the parties do not know as much about their legal positions at this stage, haven't felt the "pain" of litigation costs (both financial and emotional) and don't have the pressure of a trial bearing down upon them if they can't resolve the dispute themselves. However, there are considerable benefits for trying mediation early because they often prove to be successful and parties will save considerable time and costs if they settle.

My concern is the general attitude that mediation is tried only once before the parties leave their decision to the judge or arbitrator. My experience has been that many commercial disputes may not settle the first time, but the parties will settle at a later stage for various reasons such as having a deeper understanding of the facts, legal issues and prospects of success, "litigation fatigue", the costs are significant, and the realisation that there may be commercial outcomes which cannot be obtained from the court, among others.

When should parties mediate? Unfortunately, in my experience, there is no simple answer and so I must give the lawyer's answer – it depends. It depends on the parties, the case involved and the commercial considerations. You probably won't know if it's truly the right time to mediate until you try. Even then, an unsuccessful mediation does not mean it was not the right time to try.

Instead, I think the better way to think about things is what I call "jumping off points" in the litigation/costs continuum – as time goes on in a litigation and the costs increase, there are natural 'phases' in the litigation at which time a mediation might be held, such as:

  • before filing court proceeding
  • after pleadings have closed and the parties know the issues in dispute
  • following discovery of documents
  • following preparation of lay and expert evidence
  • before trial
  • between trial and an appeal.

In my experience, these are all natural "jumping off points" for parties to agree (or otherwise be ordered) to engage in a mediation to see if they can resolve the dispute. If the parties can't resolve it at one jumping off point, then they can consider having another go at mediation later.

What about the extra costs of the mediation? Of course, there are extra costs involved with having either an early mediation which does not settle and/or a further mediation session (or sessions) later. However, the mere fact of extra costs is a false economy in my view because you need to compare those extra costs to the potential costs and costs savings if you don't try:

  • if the mediation does resolve the dispute, the parties avoid incurring very significant further litigation costs. In most cases, the cost vs potential benefit equation easily weighs in favour of having several mediations along the way
  • the costs of mediation are relatively small compared with the costs of litigation. The costs of further mediation sessions should not be as great as the first mediation because the same mediator can be used (if the parties are comfortable with that) and a lot of the preparation that should have been done for the first mediation does not have to be repeated for the subsequent sessions
  • if the parties have an ongoing commercial relationship then the opportunity to resolve the dispute themselves, often with improved relationships, better communication and commercial terms, rather than leaving the decision to the judge or arbitrator, gives them a much greater chance of resolving their differences and getting back to business.

Naturally this won't work for all cases. For example, some cases are so intractable and the parties are at such loggerheads that only a judgment or award will resolve things for them (at least on the surface). In other cases, litigation has to be commenced or defended to preserve legal rights and force the issue with the other side. Further, some parties find it more difficult to resolve the dispute themselves and prefer to be told the answer by the judge or arbitrator, often to save face within their own organisation. However, I gave up a long time ago trying to guess which matters will settle and which won't (because I was usually wrong) and I don't think the parties or their lawyers are best placed to judge if a matter is truly intractable. I am often told by parties that "we are wasting our time" and "this won't settle", and then they find themselves signing a settlement agreement later the same day.

Ultimately, my plea to parties is this – if or when you find yourself in a dispute, think carefully about what and when are the potential "jumping off points" in that matter. Think about whether an early mediation should be proposed and, if it's not successful, when might be the next most logical time or step in the process to have another mediation session. The parties should also think about what further information or investigations should be undertaken before having another mediation session – what does each party need to make an informed decision about settlement?

Better still – the parties could appoint a "project mediator" at a very early stage (either before or just after the court filing or close of pleading) and with the assistance of the project mediator, they could negotiate things such as:

  • when the first mediation session will be held
  • whether and what information and documents might be exchanged before that mediation. Perhaps on a without prejudice basis, to help each other make informed decisions about settlement – and to that point, don't forget it's just as important that the other side has the information they need, because ultimately you will only settle if they do too
  • who will attend the mediation. What is the team of people, for each party, most likely needed to have the authority and make informed decisions
  • if the first mediation is not successful, when will the next mediation be held? What factors will increase the prospects of success at the next occasion – for example, do the parties need to exchange important documents, or does the whole of discovery and/or evidence need to be delivered before they try again?

It also pays to think about these things when drafting contracts and forming commercial relationships in the first place. The parties have the opportunity, when they are not in dispute, to discuss and agree upon how they will try and resolve matters if (or when) they fall into dispute. Most contracts now include a dispute resolution clause, but too often they are standard form and may not be fit for purpose.

The better approach is to engage in dialogue about how things should be done if a dispute arises and make sure the contract clause reflects the common understanding. Maybe think about getting an independent expert to step in to help design and draft the dispute resolution process to be included in the contract.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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