How mediation can help in commercial disputes

Claire Scaramanga asks Jeremy Frost to explain how mediation can take the heat out of commercial disputes.

Why might businesses choose mediation over litigation?

Litigation brings distance between the parties. A legal dispute is almost always a win/lose situation, indeed some might consider it a lose/lose situation.

The claimant’s blood is up – they want justice and money; they may feel that the other party needs to be made to pay and that they are going to cause them (metaphorical) pain. The lawyer’ role is to protect their client’s position, which makes litigation is combative without necessarily allowing either side much breathing space.

Mediation, on the other hand, takes away the heat and creates space where they can reach as positive a solution as might be achieved whilst also avoiding the cost of an ongoing legal dispute.

How does creating space help?

A commercial mediator with in-depth knowledge and understanding of commercial realities may decide to extend the scope of the discussions beyond the matters at hand, in a way which is not really possible in litigation.

By opening up the discussion, the mediator can help them look beyond the dispute at hand. For example, questioning whether they want to continue working together might lead to agreeing new terms going forward and therefore salvage and rebuild their working relationship.

Why would parties want to continue working together after a dispute?

It is far costlier to acquire a new client than it is to develop more business with an existing client, so many commercial relationships are worth rebuilding after a dispute, especially if the mediator has been able to get all the differences out in the open and aired, so terms can be agreed.

I have also been able to help parties reach agreements that have stopped other actions from proceeding. One case comes to mind where one party believed that the other party owed him a large sum of money. I was able to establish that he didn’t owe the money, but a third party did. With the ground rules acknowledged, as to what each could and couldn’t do, it was possible to layout a route to a settlement.

Are there any limitations to commercial mediation?

The primary limitation is the parties themselves.

I have had situations where both parties wanted to shout at each other, and at me, not really realising that my role is to help them resolve the dispute, not for them to score points off each other.

They do need to be in the right mindset when they come to the mediation and the mediator will want both parties to be engaged in the process, for it to be effective. Mediators will also try to ensure that the decision makers are actually at the mediation.

It is of course a well-known negotiation tactic to use subordinates to break-down the barriers, before the main decision maker pushes further on to get that little bit more. All very interesting and impressive, but not within the spirit of what we are attempting to achieve.