Chapter 14
Getting help to fix the problem — but the warring parties decide
Everyone needs a little help sometimes
In the past 15 years or so mediation, which is otherwise known as ADR or ‘alternative dispute resolution’, has become an important part of resolution of disputes in the Australian business community.
A mediation is a mechanism for resolving disputes. It involves the parties seeking a negotiated resolution of their disagreements. It does not involve a decision being imposed on either party by any person. If the dispute is resolved, it is done so by mutual agreement and the parties themselves setting out the terms and conditions upon which the dispute is settled. There is no ‘evidence’ taken. There are no factual findings. There is nothing in the mediation process that is intended to affect, limit or minimise a party’s legal rights if the matter cannot be resolved during the course of the mediation.
A mediator facilitates negotiations and the mood of reasonableness parties may have in an attempt to resolve the matters in dispute.
Depending on the extent of preparation the parties undertake, their respective strengths and weaknesses, their legal positions and their willingness to resolve the dispute at an early stage, mediation can be an extremely useful time- and cost-effective means of resolving disputes, be they large disputes or matters of a lesser magnitude.
It is becoming more and more common for commercial contracts to require parties to undertake mediation as an essential first step before they seek to enforce their rights in courts, tribunals or by way of arbitration.
Generally speaking, a clause in these terms will set out a timetable by which a party must notify of the dispute and what the consequences of failed mediation are. Clauses generally require the parties to, as far as possible, agree on who the mediator is to be. If they cannot, various professional bodies can be nominated to appoint a mediator.
On the other hand, even if a contract does not make reference to a mediation, courts are now compelling parties to undertake mediation very early in the process of the court proceedings. Judges appear to be placing a lot more faith in the ability of the mediation process to resolve disputes.
Further, parties who have had positive mediation experiences in the past may seek a mediation prior to any court proceedings or a dispute being formalised even without any agreement in their written contract.
It does not matter how the mediation arises. The same procedures and strategic considerations apply in relation to a mediation that is compelled by way of a contractual term, by court order or by the simple agreement of the parties.
There are no rules as to who pays for the mediator. However, it is regular for the parties to share the costs of the mediator equally. This is notwithstanding that one party may be making a claim that the other party denies and therefore, in this sense, the dispute is driven solely by one party’s view of the contract and the performance of it. It is possible to negotiate any payment regime, although the 50:50 split of liability for the mediator’s fees is the ordinary way the mediator is funded.
Further, many mediators require that payment be made up-front or on the day of the mediation.
What are the formal rules of the game?
Generally the mediators require the parties enter into a mediation agreement that sets out in very general terms:
- the terms of the dispute
- the way in which the mediation will be conducted
- that the mediation is confidential and any information given by one party to the other during the course of it is ‘without prejudice’ (that of course means that the information cannot be used for any purpose other than the mediation itself)
- the exclusion of any liability for the mediator for his or her conduct.
The most important aspect of the mediation is the clause setting out that any information disclosed is on a without-prejudice and confidential basis. This facilitates discussion. It means neither party has to have one eye on its future position as far as court proceedings are concerned while on the other hand seeking to, in the spirit of reasonableness, settle the matters in dispute. Although there are practical considerations as to the nature and the extent of concessions you will give (as set out below), there is no formal legal reason why a party should not be anything other than entirely candid and frank about its true commercial and legal position to the other side of the mediation. None of the information passed on in a mediation will come out in court proceedings and therefore formally prejudice a party before a judge, arbitrator or tribunal member.
There are two levels to preparation for a mediation. The first is the formal level. The second is the strategic level.
On the formal level, often a mediator will require a pre-mediation conference where all the parties come to a short meeting to discuss the date, the likely duration and the issues in the mediation. This gives the mediator a feel for the dispute and a sense of the respective parties’ positions. Also it is generally agreed that position papers will be exchanged at that meeting. A position paper is not a court pleading. It is a document that sets out the position of the respective parties so that the starting points for the negotiation and the other side are clear. It is effectively a summary of the sort of material you would assert in a court claim.
On a strategic level, a successful mediation is generally determined by the extent of preparation by the parties. A successful mediation generally means a result that you are commercially content or satisfied with. In this context it is important to know what your legal position is; that is, whether the claim you are asserting is strong. On the other hand, if a claim is made against you, you need to know whether it is strong or weak and why this is so. This often requires a detailed legal analysis of the issues in the case.
It is important for everyone who will be attending the mediation on behalf of your party to fully and completely know the facts in relation to the dispute. There should be nothing that comes up by surprise in the mediation as an allegation about which you could reasonably have obtained information. In a mediation it is always best to be in a position to respond to every allegation and fact made on the other side during the course of it with either an admission or a denial or a qualified admission or denial.
Attending a mediation where you have not ascertained the prospects of your claim or any legal liability will tend to inhibit your ability to successfully resolve the dispute. This is because a party’s willingness to settle in a mediation is often regulated by what they think the claim or liability is worth. Without a detailed analysis of the legal position it is very difficult to form a view in broad terms as to this figure.
While it is possible to attend the mediation on limited preparation, the consequence is more likely to be that you are at a disadvantage in the negotiation because you do not have an analysis of the true factual and legal position. As a result you do either an unsatisfactory deal or no deal at all when one might have been available, simply because of a concern that you are not in a position to make an informed decision.
The sometimes regrettable consequence of this is that the settlement may only be available for a short amount of time at the mediation or immediately after. If you come to a view at some later time that the deal on offer at the mediation was a good one, it may not be open. You may have lost the opportunity to settle the dispute in advantageous terms at an early stage by not being as prepared as you might have been.
There are six broad stages to a mediation. They are as follows:
Stage 1: introduction
The mediator introduces themselves and their role then sets out the general rules of the game. These are that parties must listen when someone else is talking and not speak over them. Mutual respect is a key aspect of a successful mediation. It cannot turn into a slanging match.
The mediator also stipulates that it is not their job to make a judgement or make findings of right and wrong. The mediator is there only to help the parties in dispute.
The parties then generally introduce themselves to each other and identify who they are and their role in the organisation that they represent.
Stage 2: the claimant sets out their case
Generally the position papers should be sufficient so that everyone at the dispute understands the claim being made by the claimant. However, there are occasions when that claim is reasserted by the claimant by oral statement. This can be extremely useful for a respondent because of the emphasis that is placed on certain aspects of the claim. While all aspects of the claim look equally important on paper, the matters that are stressed by the person speaking about the claim provide an excellent insight. It is the first step where the respondent gets a sense of where the pressure points and areas of greater sensitivity are with the claimant.
Stage 3: the respondent’s reply
Here the respondent sets out their view of the claim. This can be done in very general terms (that is, a general denial of any liability) or can descend into specifics.
In my experience it is of limited use to question and debate the facts asserted by the other side. It is useful to indicate that you deny that your view of the facts is the same as theirs. Generally there is no utility in undertaking an exercise where the respondent challenges all the facts set out by the claimant. This is because it is generally unhelpful. No resolution is likely if the parties become embroiled in a factual dispute. They will inevitably, and endlessly, have two views about the facts giving rise to the claim. To become too focussed on this aspect of it will cause delay and the general spirit of reasonableness that may prevail at the outset of the mediation is poisoned. On this basis, it is best for the respondent to acknowledge there is a difference of view on the facts and look towards more generally seeing if there is a way in which the dispute can be resolved.
Stage 4: summary of dispute by mediator
At this stage the mediator generally likes to undertake a summary of the dispute. By this, the mediator may:
- seek agreement as to the issues in dispute with some precision
- seek to identify areas of common agreement, if any
- identify areas of dispute
- look at, in very broad terms, the legal consequences for one party or the other as a result of 1 to 3 above.
Stage 5: ‘shuttle diplomacy’
Once issues have been summarised, generally one party leaves the mediation room and the mediator commences a direct dialogue with the remaining party. It is generally the respondent who is asked to leave and the mediator commences discussion with the claimant. The matters mediators often raise are:
- that litigation is necessarily uncertain and even the best of cases can lose
- the cost of proceedings ahead
- whether as a commercial result the claimant needs to obtain its full claim in order to make good its loss
- whether there are ways other than the payment of money by which the dispute could be resolved or settled
- generally cajoling and encouraging the claimant to make an offer of settlement that is somewhat less than the claim they originally asserted in their position paper.
In this process the mediator expressly undertakes to keep confidential information that he or she is told by the claimant that thay want to keep secret.
After speaking to the claimant the mediator speaks to the respondent in similar terms. If an offer has been proposed by the claimant and conveyed by the mediator, the benefits of that offer are often recommended by the mediator. If there is no offer by the claimant the mediator seeks a counter offer by the respondent to the offer set out in the position paper.
Generally speaking one of the parties makes a concession on what they will pay or do. This starts a process of negotiation where the mediator shuttles between the two rooms advocating the reasonableness of each offer and seeking to have the parties strike agreement.
This period can take a relatively long time. It is in this stage that the majority of time in the mediation may be taken up.
The amount of time taken in the ‘shuttle diplomacy’ phase will depend substantially on:
- the reasonableness of the parties
- whether a settlement deal is genuinely in the offer or whether the parties are sizing each other up for the next round of the fight in court
- the ability of the mediator to be persuasive
- the level of frustration one party has with the passing of time in the mediation and therefore whether they may be willing to make an offer moving from their original position on the basis they want to get it ‘over with’
- whether one-to-one conversations between the representatives are useful
- whether having the complaining party express themselves directly and in passionate terms to the other party about their issues under the contract will be useful as a ‘clearing the air’ exercise and therefore make the financial aspect of the settlement easier to broker.
Stage 6: boom or bust
It becomes clear to the parties after a period of time whether they are going to settle all of the dispute, part of it or none of it. In large commercial matters with substantial amounts of money at stake, mediations can take days. This is complicated by there often being multiple parties with different agendas, perspectives and views about the dispute. If the matter can be resolved, generally speaking, the parties execute a document at the mediation. This agreement, which may be conditional and informal in that it is handwritten, sets out the broad terms of what they have resolved.
Generally the parties agree that the settlement either is legally enforceable as at that time or possibly subject to final documentation.
There are good reasons for either approach depending on your position in the mediation and issues in relation to it. If there is no settlement generally the mediator will indicate to the parties that no resolution will be reached on that day and arrangements may be made for a further mediation, further contact with the mediator informally or for further dialogue between the parties. Alternatively, the parties may go their separate ways and be left to their devices to further the dispute, be it litigation, a tribunal hearing, arbitration or some other step.
Can we settle after the mediation?
Quite regularly mediations do not settle the dispute on the day. The submissions made, positions advanced and views expressed can substantially progress settlement negotiations and settlement may occur a short time after the mediation.
It is important if you are the party wanting settlement more than your counterparty that after the mediation you do not let too much time pass. The impressions created in the mind of your counterparties as a result of the mediation are important. Time will necessarily dim those impressions. If you remain optimistic that the matter will settle even though it didn’t settle on the mediation day, it is important to maintain your energy in trying to bring the matter to a resolution if you can as soon as reasonably possible after the mediation takes place.
Tactics and strategy in mediation are critical. In some ways, these aspects are more important in a mediation than in litigation. This is because in a mediation the parties have much more control over the way in which the mediation takes place, what is done or said and the ultimate result. In litigation, a judge, arbitrator or tribunal member has a high degree of control over the manner in which the dispute is determined. Also, they sit in sole judgement of who is right and who is wrong and what the consequences are. A mediation is fundamentally unlike this.
Depending on the manner and style of the two parties and their commercial positions, they have much greater ability in a mediation to direct the way in which the dispute is progressed. On one view this increases the range of approaches one can take and therefore the tactics and strategy behind those approaches.
The tactics and strategy to be used by a party in a mediation depend on:
- the personal style of the representative of each mediating party
- your knowledge of the personal style of the mediating party on the other side
- who holds the most leverage — how well resourced are they to press the claim ahead even if the mediation does not resolve?
- how you can best use the mediator — this depends on knowing the mediator, their style and saying the right things at the right time to prompt them to put pressure on your counterparty while avoiding them doing the same to you
- whether you use the ‘good cop–bad cop scenario’ — how you structure your team and who plays these roles
- whether you choose to start as unreasonably single-minded and then become accommodating at the last minute? This is a style that can be very successful or disastrous depending on the circumstances of the mediation. Close consideration should be given as to how to approach it.
This is a merely a sample of the matters a party must think about when going into a mediation. Again, preparation is critical and the more preparation a party has undertaken going into a mediation the better the chance they are of making informed and advantageous decisions on these tactical and strategic levels.