Why mediate?

In the first of a series of briefings coinciding with the launch of the Singapore International Mediation Centre in November 2014, Ben Giaretta and Katherine McMenamin explain why mediation can be a useful method of dispute resolution for commercial parties.

What is mediation?

Mediation is a structured negotiation. The structure is provided by an independent third party (the mediator), who typically encourages parties to consider their dispute from all angles in order to work out the most appropriate solution. A mediation usually takes place in a neutral location, and can involve a mixture of direct meetings between the parties and one-to-one meetings with the mediator. Unlike a judge or an arbitrator, a mediator does not provide a decision. Instead, the outcome is in the parties’ hands.

Mediation has a high success rate: mediation providers report that around 75 to 90 per cent of mediations result in a settlement.1

Costs and time savings

A mediation can bring litigation or arbitration to an end early or even allow parties to avoid it entirely thus potentially saving considerable time and costs. The mediation process itself is quick and cheap: a mediation can be completed within a day,2 with a few weeks’ preparation before that.

A successful mediation can also help parties avoid indirect costs associated with legal proceedings, such as lost opportunity costs arising when the outcome of a dispute is uncertain, and when employees’ time is spent dealing with the conflict instead of focusing on their business.

In addition, resolving a dispute via mediation can minimise the impact on a company’s commercial reputation, and repair any damage to its relationships with business partners damage that can arise in arbitration and litigation even if the immediate outcome of a case is considered a success.

Finding the best solution

Mediation aims to achieve the best overall outcome for the parties. This is not necessarily the same as the possible result of any related arbitration or litigation. For example, legal proceedings may concern a claim for monetary damages, but a mediation settlement might take into account other commercial arrangements between the parties.

A good mediator has an important role to play here. They can reach out to the parties proactively in order to understand the people involved, their business concerns, their culture, drivers and values and even any prejudices that may block a resolution. By being informed about all the factors in a way that is not open to a court or a tribunal, a mediator can help the parties achieve a result which is acceptable to both sides, and which may be beyond the powers of any court or tribunal to order.

A solution that both parties can accept may also be more final than arbitration or litigation. Since the parties craft their own settlement and enter into it freely, they have an interest in complying with it. They are unlikely to take steps subsequently to try to set it aside.

Better communication

Arbitration or litigation can undermine valuable relationships in which parties have invested considerable time and expense. This is because formal legal proceedings may encourage parties to be confrontational. Parties can then become entrenched in their positions.

In contrast, mediation aims to help parties communicate and co-operate with each other effectively. By commencing mediation, parties may demonstrate that they are willing to engage, and are prepared to reach a commercial solution.

The mediator, again, can be important here. Rather than the parties seeking a determination solely based on right and wrong, the mediator aims to promote discussion between the parties, with a view to identifying an approach which creates value and prolongs the business relationship.

Confidentiality

Mediation is confidential, by agreement between the parties. It is also “without prejudice”, meaning that anything that is discussed and any documents that are disclosed cannot be used in later legal proceedings if the mediation does not result in a settlement.

Since the mediator is not a decision-maker, parties can be comfortable about being open with them during private discussions, without fear of any disclosure casting them in a negative light. The mediator will seek permission before passing on any confidential information to the other party.

Disadvantages

On the other hand, there are some disadvantages with mediation, compared to arbitration or litigation.

Firstly, the outcome of a mediation is a settlement agreement. Unlike an arbitration award or a court judgment, this cannot be enforced directly. Instead, if one of the parties does not comply, the other party has to enforce the settlement agreement through separate legal proceedings.

Secondly, there is no guarantee that a settlement will result, and if a mediation is unsuccessful, parties may be unhappy that they have added to the overall time and costs of the dispute, and have been diverted from the main legal proceedings, without having anything to show for it. In fact, a mediation that does not result in a settlement may still provide a benefit because the parties may have a better understanding of the other side’s position. This may lead to a settlement at a later stage.

Finally, there are some situations where a mediation would be inappropriate, such as when an important question of legal or commercial precedent needs to be set through court litigation. It may also be unclear when the optimal time in a dispute is to hold a mediation.

Practical tips

• Commercial parties should consider mediation as a matter of course, as part of their dispute resolution strategy. It can offer significant advantages over arbitration and litigation.
• A proper evaluation of your case, including what you aim to gain from the dispute, will help you to assess whether mediation is suitable in the particular circumstances.
• A thorough case analysis will help you establish at what stage a mediation is appropriate during a dispute. It will also assist you in achieving a successful outcome from the mediation.

In our next briefing, we will discuss the strategies that you should adopt for a successful mediation.

Notes

1     The Singapore Mediation Centre (SMC) reports that, out of the 2,300 disputes mediated there, about 75 per cent settled: see the SMC website here. Mediators who responded to the Centre for Effective Dispute Resolution’s (CEDR) Fifth Mediation Audit in May 2012 reported that just over 70 per cent of their cases settled on the day, with another 20 per cent settling shortly after, giving an aggregate settlement rate of around 90 per cent: see the CEDR report  here.

2     Of the cases mediated at the SMC which settled, more than 90 per cent were concluded within one working day. See the SMC website here.

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