When disputes arise mediation is one mechanism, among many others, available to help parties resolve their differences. These mechanisms can be broadly described as alternative dispute resolution or ADR.

The range of ADR choices available is dependent on what parties agreed at the outset or are subsequently willing to agree. If parties are in dispute down the line this may well prove to be challenging.

ADR choices include negotiation, which is probably the most flexible and informal of ADRs (as it takes place without the need for third party assistance) while, at the other end of the scale, there is arbitration.

A range of hybrid mechanisms exist between negotiation and arbitration, including med-arb, early neutral evaluation (ENE) and expert determination (ED).

Med-arb switches from mediation to arbitration if the parties do not arrive at a settlement agreement, while ENE and ED rely on an expert taking a 'what-if' approach.

What is mediation and how does it work?

The Centre for Effective Dispute Resolution (CDER) describes mediation as "a flexible process conducted confidentially in which a neutral person actively assists parties in working towards a negotiated agreement of a dispute or difference, with parties in ultimate control of the decision to settle the terms of resolution".

The mediation process (as with all forms of ADR) follows a series of steps, the most important of which is the agreement to mediate in the first place.

This agreement can either be:

  • an agreement by the parties in dispute,
  • a recommendation by the court; or
  • a clause in the contract between the parties.

It is the mediation settlement agreement that puts all parties fully in the driving seat in terms of what gets incorporated. It is important to note that, under English law, once such agreement is signed by the parties; it does constitute a contract and thus can be enforced in a court of law.

What makes mediation unique is that the neutral third party (the mediator) assists parties in dispute to arrive at a settlement between them. The parties are in control when it comes to determining whether to settle and the terms of that settlement. The mediator merely facilitates the process as the options are explored by the parties themselves, moving towards a mutual resolution.

The following diagram, extracted from Andy Grossman's book "Good Practice Guide: Mediation" by RIBA Publishing, visualises the mediation process in terms of defining and solving problems:



It is important to note that mediation is a non-binding process as the parties are under no obligation to settle the case. The process is also held on a "without prejudice" basis as the parties cannot subsequently rely on anything that may have been said or acted upon if a settlement agreement has not been reached.

Why is participation important?

The importance of ADR, and mediation in particular, should not be underestimated as the English court has been seen to impose cost penalties on the party who "unreasonably refuses" to participate in such process, even though they may have been successful in litigation.

Dyson J, in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 externallink, set down some guidance on the assessment of the term "unreasonably refused". Criteria range from the assessment of the nature of the dispute and the merit of the case to other measures such as whether the cost of ADR is disproportionate to the process or whether ADR had already been attempted and/or whether the process would have had a "reasonable" prospect of arriving at a successful resolution.

In a recent Part 8 Proceedings, Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C41) Ltd externallink [2014] EWHC 2955 TCC, Mr Justice Ramsey gave consideration to the Halsey case above and found BAE's refusal to mediate unreasonable. The judge concluded that the use of mediation would have had a reasonable prospect of success. However, no cost sanctions were imposed due to other factors which, under Part 44.2 externallink (4) of Civil Procedure Rules, gave the court discretion as to costs. In this case, NGM, the claimant, had also decided not to accept the offer by BAE. So weighing the case and weighing the various factors involved, including the two parties' reluctance to engage, the court decided not to impose cost sanctions.

The English court, under the Civil Procedure Rules (CPR), facilitates the use of mediation under CPR 1.4(e) externallink by encouraging "the parties to use an alternative dispute resolution procedure if the court considers that appropriate". To demonstrate the commitment to this process, the court may decide to stay proceedings to encourage parties to settle their dispute via ADR (CPR 26.4) externallink with specific referral to Mediation Service under CPR 26.4A.

It is also worth mentioning the much wider acknowledgement and recognition of mediation, as an ADR process, through Directive 2008/52/EC externallink.

The European Parliament has also demonstrated its commitment in promoting the use of mediation in "certain aspects" of civil and commercial matters. The directive encourages Member States to authorise the courts to suggest mediation. It has also facilitated the recognition and enforcement of settlement agreement from one state by another.

Mediation in construction

In construction contracts, the statutory right to refer disputes to adjudication (Section 108 externallink of Housing Grants, Construction and Regeneration Act 1996 externallink (HGCRA)) is now well embedded as an ADR mechanism.

Indeed, Section 7.1.1 of the Technology and Construction Court Guide externallink provides guidance on the use of ADR: "The court will provide encouragement to the parties to use alternative dispute resolution and will, whenever appropriate, facilitate the use of such a procedure".

Nevertheless, a research project conducted by The Centre for Construction Law and Dispute Resolution at King's College London and The Technology and Construction Court called "The use of Mediation in Construction Disputesexternallink reported that "The use of mediation can no longer be said to be a new phenomenon for the resolution of construction disputes". The report also highlighted the unique flexibility of the process for use at different stages of dispute: "used, in theory, at any stage not just during litigation but during or when other forms of dispute resolution... are contemplated or progressing". This demonstrates mediation as a significantly powerful process that can, not only be used when claims and disputes are in existent "at any stage" but also as a conflict management process that may prevent claims escalating into disputes altogether.

The recent CEDR (Centre for Effective Dispute Resolution) Mediation Audit 2014 demonstrated that the use of this dispute resolution process is on the up. This isn't altogether surprising given that the process has demonstrated itself malleable enough for consideration "at any time".