Contract disputes can be long running, stressful and costly in terms of both time and money. Often one party buries their head in the sand and hopes the matter will go away, it rarely does, and because one or both of the parties refuse to discuss the issues of the dispute the matter ends up in court.
Going to court can be an expensive business due to court fees and solicitor costs. There is no guarantee of what the outcome of court proceedings will be as the issue is dealt with by a judge and the parties are bound by a decision that possibly neither want. On top of this it is usual that the losing party pays the winning party’s costs, which includes solicitor’s fees.
Mediation is a cost effective way of resolving contractual disputes. Mediation is first and foremost a non-binding procedure. This means that, even though the parties have agreed to submit a dispute to mediation, they are not obliged to continue with the mediation process after the first meeting. In this sense, the parties remain always in control of a mediation. The continuation of the process depends on their continuing acceptance of it.
The non-binding nature of mediation means also that a decision cannot be imposed on the parties. In order for any settlement to be concluded, the parties must voluntarily agree to accept it.
Unlike a judge or an arbitrator, therefore, the mediator is not a decision-maker. The role of the mediator is rather to assist the parties in reaching their own decision on a settlement of the dispute.
Mediation is a form of Alternative Dispute Resolution (ADR) that is recognised by the court system. It is seen as a way of resolving issues before a matter escalates to court action therefore saving the courts time and money. The courts may even impose sanctions on a party that has failed to mediate. This issue is covered in the Civil Procedure Rules (CPR) that govern the courts.
Below is an extract from the CPR which allows a judge to impose cost sanctions on a party regardless of whether they have won their case.
Factors to be taken into account in deciding the amount of costs
(3) The court will also have regard to –
(a) the conduct of all the parties, including in particular –
(i) conduct before, as well as during, the proceedings; and
(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;
In the case of Dunnett v Railtrack (2002) Railtrack refused to mediate and even though they won their case the judge did not award them costs. This meant Railtrack had to pay their own solicitor’s fees and it is worth remembering that the fees associated with court action can often be much higher than the value of the dispute.
In brief mediation has the following advantages over court action, where a party wants to:
- maintain a relationship with the other side once the dispute is over;
- stay in control of the process and not hand it over to a judge;
- keep the dispute and settlement confidential;
- stay in control of costs;
- achieve an outcome that can be agreed between the parties;
- achieve a settlement rather than take the risk of a judge finding against them;
- use a system that is voluntary;
- use a system that encourages early settlement of disputes;
- use a system that is less stressful than going to court;
- use a system that is less formal than a trial by a judge.