When should you mediate? | Singapore International Mediation Centre

In the third in a series of briefings coinciding with the launch of the Singapore International Mediation Centre in November 2014, Ben Giaretta and Katherine McMenamin consider what the best timing may be for the mediation of a commercial dispute.

Timing of a mediation

Parties can choose to mediate at any time. This can be before arbitration or court litigation has begun, or during those proceedings. If arbitration or litigation has begun, the mediation may run at the same time, or else the formal proceedings may be stayed until the mediation is completed.

Whether mediation occurs before or during the proceedings, the timing of the mediation can be an important factor in determining if it is successful.

When is too early?

There are a number of reasons why parties might mediate at an early stage. The earlier a mediation takes place, the greater the cost savings will be if it is successful. There may also be a contractual requirement to mediate before legal proceedings are started; and, sometimes, settlement prospects are better before the hostile step of commencing legal action has been taken.

However, there is a risk that an early mediation may take place before the parties can assess properly the strengths and weaknesses of their positions. They may also be too focused on establishing their cases, and may not be ready to negotiate.

When is too late?

On the other hand, if parties wait too long to attempt mediation, they may miss the opportunity. With time, parties can become entrenched in their positions, making settlement more difficult to achieve. A mediation will only be effective if both parties remain open to compromise.

Also, the longer a case runs before mediation, the higher the costs incurred by the parties will be. This may become an obstacle to settlement if the extra expense is seen as adding insult to the original injury.

The mediation “window”

The best time to hold a mediation is likely to be when the parties are able to assess realistically:

the relevant facts and legal principles which support (or do not support) their claim or defence;
the likely outcome of the arbitration or litigation, and what a reasonable compromise might be; and
the likely expense involved in carrying on to the end of arbitration or court litigation, both in terms of legal costs, and damage to reputation and commercial relationships.

What the best time is will vary depending on the dispute. In cases where all the facts and issues are known, or can be easily identified, it may occur early on. In complex cases which require extensive investigation, via disclosure, witness testimony and expert analysis, the parties may need more time before they are comfortable holding a mediation.

The relationship between the parties may also impact on timing. If the relationship has become strained as a result of the dispute, the mediation window is likely to be narrower and later in time. On the other hand, there may be more flexibility on timing if the parties see continuing value in their commercial relationship, perhaps as a result of opportunities elsewhere.

Relationships between individuals on each side may be important too, either facilitating or obstructing a mediation. The right decision-makers need to be available for the mediation, bearing in mind the personalities on the other side; and they must have the time to be fully involved in the process.

Saving face

Another important factor in the timing of a mediation is the inherent contradiction between, on the one hand, presenting a robust position in the arbitration or court litigation; and, on the other hand, signalling to the other party that you may be willing to compromise.

This contradiction may lead to a fear of “loss of face”, and a concern that your negotiating position will be weakened if you propose mediation. It may also be difficult to persuade stakeholders within an organisation of the benefits of attempting mediation, if they have already been convinced of the strength of the arguments advanced in the formal proceedings. The effect may be to discourage mediation, until such time as it is too late for a mediation to be successful.

There are a number of ways to address this issue:

ideally, both sides should be conscious of the risks of arbitration or litigation, and the benefits of mediation: we described these in the first briefing in this series. Such an awareness should enable parties to focus on the mediation itself, rather than on the mediation proposal;
a mediation clause could be included in the contract between the parties, specifying that mediation should be attempted as part of the dispute resolution process. However, it may be difficult to predict whether mediation will be suitable for a particular dispute that may arise in the future, or whether the time specified in the clause will be the best time to hold the mediation;
the arbitrator or judge can instruct parties to try mediation, either directly (for example, via an order) or indirectly (for example, by warning that costs may be awarded against a party which has unreasonably refused an offer to mediate);1
a mediation proposal could be linked to a stage in the proceedings, such as completion of the pleadings. A proposal might be made before that stage is concluded, so that the party making the proposal can avoid giving the impression that it is a reaction to whatever the other side has filed; or
external factors, such as a commercial opportunity arising for the parties elsewhere, may be a prompt for the use of mediation to resolve the dispute.

Whatever form a mediation proposal takes, parties should recognise that, if a dispute is suitable for mediation, a genuine offer to resolve it by mediation can have significant advantages for both sides. The party receiving the proposal should appreciate that it may be counter-productive to infer a weakening of the other side’s position from a proposal to mediate.

Practical tips

As a dispute progresses, you should continually assess the cost-benefit analysis of progressing the arbitration or litigation, so that you can take an opportunity to refer a case to mediation if it arises.
Educating key stakeholders in your organisation of the benefits of mediation will make it easier to obtain approval of a proposal to mediate.
A forward-looking review of the stages of the disputes process, and the likely development of the dispute, may help you to anticipate when a successful mediation might take place.

In our fourth briefing, we examine how the new Singapore International Mediation Centre can help commercial parties to resolve their disputes.

Notes

1 There are a series of judgments from the English courts about refusals of offers to mediate. The latest is Northrop Grumman Mission Systems -v- BAE Systems [2014] EWHC 3148.

By Ben Giaretta (Partner, Singapore, Asia Head of International Arbitration, Ashurst) and Katherine McMenamin (Associate, Singapore, Ashurst)