Prevent the War: Using Mediation Strategically
By Robert M. Tessier
Why Incorporate Pre-Litigation Mediation in Commercial Contract?
When parties to contract who are acting in good faith, the single biggest reason for an inability to resolve dispute involves a lack of communication. Communication has two components: effectively conveying your point of view, and actively listening to the point of view of another. Social scientists understand that active listening can only be done from a position of openness and non-reactivity. We are not all created equal in this regard. By the time lawyers and lawsuits become inevitable, one or both sides to the conflict have ceased being interested in the position of the other. This failure to communicate is part of the root cause of the escalation.
Therefore, by including in a contract a clause that requires the parties to attempt to settle any dispute arising out of the contract through mediation before resorting to litigation, the parties are putting into place a contingency plan. Like all good contractual agreements, the parties attempt to plan for things that may go wrong. By having the foresight to plan for impasse, the parties ensure that all reasonable measures are taken before the destruction that is litigation ensues.
It is generally agreed by business that the advantages of proposing and agreeing to a mediation clause in ADR clause include:
- It prompts the parties at the inception of the contract, to consider how to handle possible impasse;
- It introduces a specific process, which gives the parties a clear framework for exploring settlement;
- Mediation introduces a neutral third party into the conflict who is trained to both re-kindle effective communication and create a durable settlement;
- Mediation refocuses the parties away from the past and towards their needs and interests going forward. This perspective change can unlock creative solutions to preserve the business relationship;
- Mediation increases the chances that the business relationship is preserved;
- At a minimum, mediation will assist the parties in understanding the dynamic of the conflict, and focus attorneys on the key issues that must be determined in the future litigation of the case;
- Mediation is faster than any alternative, and completely confidential;
- Mediation offers the best chance of crafting a creative solution to the conflict;
- Mediation is far more cost effective than any alternative.
Types of Mediation Agreements in Commercial Contracts
Many commercial contracts and real estate contracts now incorporate mediation agreements. In order to ensure an effective clause, the contract drafter must consider these critical issues:
- A clear process;
- A trigger for the process that is unambiguous;
- A time parameter that is clear;
- An identification of decision makers who will participate in mediation should the need arise.
For example, in California, most purchase and sale agreements for residential property contain this mediation agreement in conjunction with an arbitration agreement:
In other commercial agreements, mediation agreements run the gamut from simple to complex and technical. The most basic provision may read as follows:
“If any dispute arises in connection with this agreement, the parties will attempt to settle it by mediation in accordance with the Mediation Procedures of the Centres for Excellence in Dispute Resolution. Unless otherwise agreed between the parties, the mediation shall be conducted by [Charles Parselle][Robert M. Tessier][ ] of the Centres for Excellence in Dispute Resolution. To initiate the mediation a party must give notice in writing (“Mediation Notice”) to the other party [ies] to the dispute requesting mediation. A copy of the request should be sent to the Centres for Excellence in Dispute Resolution. The mediation will start not later than [ ] days after the date of the Mediation Notice.”
The parties may also choose to incorporate an arbitration clause in the agreement. The best practice is to link the mediation and arbitration processes such that the mediation may be used as a pre-arbitration conference under circumstances where it becomes clear that the mediation process will not be successful.
International contracts present additional challenges related to venue and convening. The Centres for Excellence can assist in international agreements by providing appropriate language and state of the art conference capabilities to permit mediation to move forward.