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Curing The Pitfalls Of Mediation Clauses: Better Drafting Or Default Rules

There is undoubtedly a push to consider non-binding ADR mechanism such as mediation when disputes arise. ADR offers parties the potential for a time and cost effective dispute resolution mechanism. However, in the promotion of mediation, significant issues have arisen regarding enforceability of both the agreement to mediate and the resulting settlement. As it stands, there is inconsistency amongst national courts and arbitral tribunals faced with a party seeking enforcement of the mediation portion of their [agreement to mediate] clause, which results in increased costs and inefficiency while parties seek clarification regarding the binding nature of their agreement. Today, when parties opt to include a mediation clause in their commercial contracts, they are often times warned about the importance of careful drafting. In absence of drafting that follows the specific national requirements for enforceability, parties face increased transaction costs in attempting to enforce their obligations.

Parties that seek to draft enforceable mediation clauses can consult the numerous freely available online sources. However, what these sources lack is at times a sense of reality. It is rare for parties to carefully draft their dispute resolution clauses as they are often the last aspect of the contract to be concluded. Such clauses are even nicknamed “midnight clauses.” This was confirmed by a questionnaire conducted in the context of my PhD researcher where 65% indicated that such agreements are often copy and pasted with minor adjustments.[1] There is evidence in the form of case law that the parties’ failure to address minor points such as the remuneration of the mediator results in the unenforceability of their agreement [why does one clause render the whole agreement? do you simply mean the clause?]

Therefore, the need arises to consider an alternative route to careful drafting, namely that of legislation. In the realm of arbitration, numerous states utilize default rules to fill in the gaps in the parties arbitration agreement. It is therefore hypothesized that a similar approach for mediation clauses would reduce the persisting pitfalls of these agreements. On the basis of this hypothesis, I am currently conducting a systematic analysis of 170 agreements to mediate in attempt to uncover “common practice”. If common practice is uncovered, national courts and arbitral tribunals can ensure that the parties’ intention in concluding agreements to mediate are adhered to. Moreover, the creation of default rules will reduce the transaction costs of drafting a detailed agreement. In writing ending this post, I would like to ask readers to give me their personal opinion on whether they agree or not regarding the need for default rules in the field of mediation.