By Edmund Mingle
In recognition of the benefits of mediation, especially in settling commercial disputes, more organisations have become keen on including mediation clauses in contractual agreements.
It is definitely an effective strategy to express the will of the parties, in using mediation to resolve disagreements or disputes that arise in the execution of contracts, before any consideration for arbitration and litigation.
However, poorly drafted mediation clauses tend to create confusion that often compounds the dispute it seeks to resolve.
Often, this is the nature of mediation clauses generally found in many contracts: “All claims, disputes, and controversies arising out of or in relation to the performance, interpretation, application, or enforcement of this agreement, including but not limited to breach thereof, shall be referred to mediation before, and as a condition precedent to, the initiation of any adjudicative action or proceeding, including arbitration.”
But this is just not enough.
There is no strict formula for drafting a mediation clause, but to ensure that such a clause is adequate enough to serve its purpose, six key factors regarding the terms and conditions, have to be clearly specified in the mediation clause.
Although the details of the mediation process would be spelled out by the parties in a mediation protocol developed with the aid of a mediator, the clause must be precise so as to maximize the effectiveness of a mediation provision.
The triggering condition
The clause must indicate which condition is required to trigger a mediation process. The dispute has to be related to specific condition such as the “performance, interpretation, application, enforcement of this agreement, or breach of agreement.” This ensures that the dispute to be mediated pertains to a specific agreement.
Choosing a mediator
The decision on how a mediator is chosen, as well as the mediation forum to be used has to be stated clearly in the clause. The clause should require the parties to either choose a mediator or an institution, by consensus.
The clause needs to state the kind of mediator required, regarding certification, level of experience and knowledge in a sector, as a qualification standard for appointment.
If the parties prefer an institution, the details of the mediation body must be clearly stated in the clause. It should also be made clear that by choosing an institution, the parties are obliged to abide by the mediation rules of that institution. The language spoken by the mediator should also be considered.
The mediation clause has to determine the venue for the mediation sessions. It usually has to be a neutral location away from the premises of either party. Where a mediation institution is chosen, the organisation can be asked to provide a neutral venue for the sessions.
Although mediators or mediation centres would stipulate the mediation procedural in accordance with their rules, the mediation clause has to be clear on long the parties should spend at mediation.
It can possibly determine the number of minimum sessions to be attended by the parties towards the resolution of the dispute. Without the full participation of either party in the minimum number of sessions, the case would be deemed as not mediated, and would therefore not have the condition to qualify it as failed mediation, for the case to move to arbitration or litigation.
Although mediation is inherently confidential, the clause must clearly state the confidentiality condition. The confidentiality condition is usually invoked at the pre-meeting with the mediator, but the clause has to ensure high confidentiality about the dispute even before mediation starts.
Issues about cost often create problems between parties, and in order to avoid any disagreement in that respect, the mediation clause needs to specifically state how costs emanating from the mediation process should be borne.
The clause should stipulate how the costs should be shared by the parties, whether equally or by a particularly ratio between petitioner and the respondent.
A mediation clause with these factors will be highly effective in advancing the resolution of disputes between commercial parties. This is because half of the dispute is already solved once parties are able to effectively execute the right mediation clause.