Mandatory mediation clauses are often included in commercial contracts. They require the parties, in the event of a dispute, to sit down with a neutral mediator in an effort to find their own resolution before initiating a lawsuit.
Mediation works great when both parties participate in good faith with an honest intent to resolve the dispute. In situations where only one party is sincere, however, the mediation process can become a ruse de guerre (French for ‘trick of war’).
A party unwilling to compromise, yet required to participate in mediation, may pretend to be interested in settlement for an ulterior purpose. The insincere party can drag out the mediation process as long as possible. These clauses often have a time limitation reading something like “If the parties are unable to reach a resolution within 90 days of notice requiring mediation either party may initiate judicial proceedings.”
During the mediation process the sincere party may believe they’re inching closer to settlement, but the other party is secretly preparing for a trial. The sincere party is being led down the garden path. The insincere party, while appearing cooperative, is actually fortifying their position. They have 3 months before the legal battle to do research, investigate facts, interview and prepare witnesses, and stockpile motions and discovery requests. They’re preparing to overwhelm the defense when the mediation timer runs out and they can file their lawsuit.
Not only does the deceptive party get more time to prepare, but they also use the mediation process for intelligence gathering. The sincere party candidly discusses the strengths and weaknesses of their case believing they will all soon be sitting around the campfire singing Kumbaya. Although settlement negotiations are inadmissible in court, the opposition will use every insight gained during the process in developing their litigation strategy.
Then, when the mediation time limitation is up, the disingenuous party launches a massive assault. Now the duped party is starting the lawsuit on their backfoot. The mediation process has been used as a Trojan Horse.
When all parties are sincere about resolving the conflict, and can benefit from some structure in exploring options, there is no better way out of a dispute. Mediation is fast, and it takes away the uncertainty of a judicial decision. It’s also confidential and may preserve the working relationship between the parties. So, should it be included in a commercial contract?
Mediation, like arbitration (refer to Contract Tip 001), is a form of alternative dispute resolution (A.D.R.). Regardless of whether a contract contains a mediation clause the parties can always agree to give mediation, or another form of A.D.R., a chance to work before jumping headfirst into litigation. Also, courts are increasingly steering parties into settlement conferences regardless of a contractual clause. Mediation is always available to willing parties.
The way I see it, if you must force a party to sit down and negotiate through a mandatory mediation clause, the process is doomed to fail. A party unwilling to settle, and forced to attend mediation, may try to exploit the process to gain advantage in the inevitable legal proceedings that are sure to follow.
I only consider the inclusion of mandatory mediation clauses in commercial contracts in circumstances wherein, based on the nature, relationship, and history of the parties, mediation would appear to have a strong chance of success, and low probability of being used as a ruse de guerre.
Lead Attorney & Owner