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Why You Should Insist on a Mediation Clause in Contracts

When a dispute occurs, choosing to mediate as a first step makes good business and financial sense. Litigation and arbitration can be both expensive and time-consuming, not to mention stressful, what with the worry that comes with long, drawn-out court battles in the former and the finality and legally-binding nature of the latter. In what is a growing trend the world over, many organisations and individuals now insist on including a mediation clause in contracts, one that calls for mediation as the first step in settling disputes. Here are three reasons why:
  1. Most businesses and people want to resolve disputes as quickly and as cost-effectively as possible. It is in all parties’ interests to do so. Mediation has a remarkable track record - between a 60 to 75% settlement rate - especially when used at an appropriate juncture during the dispute.
  2. Mediation allows each party to tell their side of the story. In our experience, many disputes escalate because the different parties want their positions to be heard and validated. Mediation encourages empathy and understanding, something which more adversarial processes do not.
  3. A mediation clause pre-empts conflict and protects all parties from acting in the “heat of the moment”. If the contract does not have a mediation clause, it may be a challenge convincing the parties to use mediation when they are in a middle of a dispute. Think of the mediation clause as an active reminder to always pursue a peaceful resolution to conflict before embarking on a more adversarial approach.
An example of a mediation clause that can be inserted into a commercial contract is provided below: “If a dispute, controversy or claim arises out of or relates to this contract, or breach, termination or invalidity thereof, and if such dispute, controversy or claim cannot be settled and resolved through negotiation, the parties agree first to try in good faith to settle such dispute, controversy or claim through mediation, under the rules of [to insert rules governing mediation1]. The mediator shall be mutually agreed to by the parties, failing such agreement, the mediator shall be appointed by HMG.” While most practitioners agree that every lawyer-drafted contract should have some form of a dispute resolution clause, there is still a widespread variance as to the mode of dispute resolution to employ. Mediation is a sensible first-step, and we are likely to see the growing trend of its inclusion in contracts both locally and globally. Do contact us to find out more about how mediation can help you and your organisation minimise conflict. Dora Yip, HMG Research Associate 1. Refer to paragraph 3.6.7