Mediation is a form of alternative dispute resolution ("ADR") and is now one of the most common forms of ADR used to resolve shipping disputes governed by English law. The popularity of mediation has resulted from a series of key advantages, including speed, cost, commerciality, confidentiality and effectiveness. However, there remain concerns that a party can weaken its own position by suggesting mediation and that mediation may be used by the opposing party to gain a tactical benefit. This article explores the advantages and potential disadvantages of mediation, together with points to consider before deciding whether to mediate.
Background
In arbitration and litigation the parties put their evidence and submissions before the tribunal or court, which then makes an award or judgment that binds the parties. By contrast, mediation is a voluntary dispute resolution process where the mediator acts as a neutral third-party settlement broker. The mediator's role is to facilitate the settlement negotiations between the parties, but the mediator has no authority either to decide the dispute or to bind the parties.
Advantages of Mediation
Where mediation is successful there will usually be a substantial cost-saving over taking the case to a hearing or trial, because the significant costs of preparing for and attending the hearing or trial will be avoided. The extent of the costs saved will of course depend on the stage at which mediation is initiated, but resolving a dispute in mediation is generally reasonably fast compared with completing the full arbitration or litigation procedural timetable. Even if mediation is attempted relatively close to a hearing or trial date, resolving the dispute by mediation is likely to be quicker than waiting for a suitable hearing or trial date and then either for an award to be published or for a judgment to be given. This is because a mediation is usually a one-day process which can be held after a relatively short preparation, often involving limited disclosure of key documents and the preparation of position papers by each party.
Mediation is likely to be better for maintaining ongoing business relationships than prolonged arbitration or litigation. The parties to the dispute usually participate fully in the mediation discussions together with their lawyers, often enabling the principals develop a much clearer understanding of each side's position and the possible scope for settlement. The settlement finally reached can be much more flexible and commercially orientated than either a court order or arbitration award. Settlement agreements can be specifically tailored to the parties' requirements, including non-money elements, such as collateral agreements to undertake further business at certain rates or an agreed public statement. This can make resolving the dispute both easier and cheaper for both parties.
The mediation will usually be confidential to the parties, because a confidentiality provision will be included in the mediation agreement that both parties sign before the mediation. This will generally prevent either party from disclosing matters referred to in the mediation to a tribunal or court, or to any other third party.
Most importantly, mediation now has a proven track record of success. While not every mediation will result in the parties reaching agreement, it appears that somewhere between 65-85% of mediations succeed in producing an agreed settlement. Even where a dispute does not settle at the mediation itself the parties may well agree to settle within a few weeks of the mediation, because of the progress towards settlement made during the mediation process. It is therefore now generally recognised that mediation may resolve many disputes both more quickly and cheaply than arbitration or litigation.
Perceived Disadvantages
Parties often fear that raising the idea of mediation suggests some weakness in their position, in turn making a favourable settlement less (rather than more) likely. However, it is usually possible for the mediation proposal to be put forward in a way that makes it clear to the other party that mediation is being proposed to save time and costs, while the proposing party remains confident in the merits of its case. As so many cases are now settled by mediation, the potential for a proposing party to appear weaker is probably more of a perceived than a real disadvantage in most circumstances.
It is also frequently suggested that concessions made or evidence put forward at the mediation may be used by the opposing party to strengthen its hand in subsequent litigation if mediation fails. As discussed above, however, one major advantage of mediation is that mediations are almost always confidential and that nothing stated in a mediation may be repeated to a tribunal or court unless the parties both agree otherwise. For the same reason, a mediator cannot usually be required to give evidence on what was said to him at the mediation either to a tribunal or court.
It is sometimes suggested that mediation can be used by the opposing party to gain early access to information. Mediation may well lead to the disclosure of key documentation earlier than would otherwise have been the case, although this is always in the control of the parties. Equally, it is important to remember that the later procedural steps of the litigation would usually have led to the same documents being disclosed and most of the same issues being set out in witness statements or expert evidence in due course. In addition, the disadvantage of early disclosure of weak points must always be weighed against the risk of losing at the arbitration hearing or trial and the costs consequences of taking a case to this stage.
A further potential disadvantage of mediation is that it is unlikely that a mediation will achieve a result equivalent to a total victory on liability and quantum plus an award for recoverable legal costs. However, the costs and time advantages of mediation and the possibility of failing at a hearing or trial must be taken into account in order to determine whether this is a real disadvantage in the circumstances of a particular case.
When not to Mediate
There are some dispute situations where mediation may not be the best option for achieving an appropriate outcome. Mediation cannot be used where an urgent remedy is required, such as an injunction, because injunctions cannot be ordered by a mediator. Mediation will also not be suitable where a party needs to establish a legal precedent through a victory in court. Where both parties see that settling the dispute is in their best interests and have a good commercial relationship, straightforward negotiations (without a mediation) may achieve a better result more quickly and cheaply.
However, an unreasonable refusal to mediate can result in adverse costs consequences for the refusing party in any subsequent arbitration or litigation. It is therefore very important that any mediation proposal is always considered seriously and the potential advantages and disadvantages carefully analysed.
Conclusion
In conclusion, there are a wide variety of circumstances where mediation can provide a relatively fast and cost-effective means of resolving a dispute. Mediation will not be appropriate in all circumstances, but many of the disadvantages which are often raised are more perceived than real. An appropriate settlement reached in mediation is often likely to be preferable to lengthy arbitration or litigation.
With thanks to Rebecca King of Holman Fenwick & Willan for preparing this article
