Businesses embroiled in a dispute - whether internally or with another organisation - should consider taking the mediation option rather than fighting it out through the courts, says Andrew Perrin.

Most individuals and business when faced with a commercial dispute inevitably think that the only way of resolving the matter is to take it to court and present the facts to a judge to decide. Anyone who has been involved in a commercial dispute will realise that is not always as simple as this.

Even if judgment is obtained it can be a matter to enforce it. Furthermore, it can be a costly and time consuming matter to see the process through to its conclusion - with some cases taking over a year to get to court and involving costs in excess of the sum being sued for.

A succession of case law has established that a successful litigant has no guarantees of recovering his legal costs if he refuses mediation.

Lord Justice Ward (Court of Appeal Judge) described as 'horrific' the £185,000 run up in legal fees in a small building dispute where the claimant won £5,000 overall. Lord Justice Ward said 'The (legal) profession can no longer with impunity shrug aside reasonable requests to mediate.'

Mediation is a commonsense approach involving bringing parties together with an 'independent' umpire or rather an accredited mediator with the aim of resolving the dispute which is acceptable to both factions.

Sounds too good to be true? Not so. Statistics show that some 90% of cases referred to mediation reach settlement.

The mediation option

The mediator must first ensure that both parties have authority to reach agreement and that they are aware that the procedure is undertaken 'without prejudice'. that is to say not binding until the agreement has been reached and signed.

He or she will also ensure that both parties are aware the entire day's proceedings are confidential.

While there are models that are commonly followed, there is no laid down for mediation. However the process generally starts with each party making an opening statement to demonstrate the strength of their case to both the other and the mediator. Both parties and the mediator have the opportunity to put questions and clarify matters.

After the initial session, the parties are separated into private rooms for confidential discussions with the mediator who will explore the strengths and weaknesses of the conflicting arguments and seek to identify possible settlement options. At no time does the mediator rush to judgment on the merits of each party's case - acting at all times as an independent facilitator.

In most cases, the mediation will end with a written agreement between the parties. When signed, it becomes a legally binding agreement.

As the process is entirely voluntary, the parties and the mediator are free to terminate proceedings at any time. The mediator may terminate the process if he feels there is no further progress to be made. The parties may terminate if they feel similarly or, for example, if further information is required. The mediation process can be resumed at any time in the future.

Cost effective?

The Chartered Institute of Arbitrators has set a scale of fees for mediation, depending on the value of the dispute. Disputes with a value up to £100,000 cost £1,500 for a days mediation which includes three hours of preparation time. In addition there will be the costs of the room hire and the mediator's out of pocket expenses.

Fees are, unless otherwise agreed, paid equally by the parties. Thus, a £100,000 will cost each party £750 (for a two party dispute) plus expenses.

Contrast that with the figure from the official publication Access to Justice which shows a median cost of 38,882 per party for breach of contract claims where the amount of the dispute is under £12,500.

Many larger companies now incorporate a mediation clause as standard in their terms and conditions of business. This is proof positive that to 'see you in court'' could cost you dear, while mediation is increasingly preferred as a fast, flexible, low-cost alternative to dispute resolution.

Settled - inside 48 hours

One Wednesday afternoon I was approached by a party to a dispute who had been told of mediation by their lawyers. They contacted me in a last ditch attempt to resolve the dispute before embarking on court action.

It became apparent to me that the case needed to be resolved rapidly or both parties would end up on the losing side.

A storage company (company A) was holding goods owned by company B with a market value of approximately £50,000. Company A had invoices outstanding in respect of storage charges and freight costs to a value of £18,000. Of the £18,000, approximately £3,000 of storage charges had accrued since the parties had been in dispute. Company B argued that these charges were not payable, as company A would not release the stock. Company A would not release the stock, insisting on payment in full for its outstanding invoices.

Both parties had estimated that the costs of taking this action to trial would cost them about £7,000 to £8,000 each.

It became evident during the course of the mediation that company B would not survive if it did not receive, within a month or two, the cash locked up in its warehouse goods. Company A had an inkling that this was the case and was concerned that it would not receive anything for its outstanding invoices. Furthermore it would be left with company B's stock which it would have to dispose of for a negligible value. Clearly the stakes were high for both parties.

Following telephone calls with both parties throughout Wednesday, I arranged a meeting in a hotel convenient to both parties less than 48 hours later. During the course of the day an agreement was thrashed out. Company A agreed to waive all storage fees that had accumulated while the dispute had been running and for the period for which company B had not been allowed access to its stock. Company B was to have released to it one third of its stock. It had a confirmed buyer for the stock, so it provided a post dated cheque for one third of the value of company A's outstanding invoice. The post dated cheque enabled company B to generate the cash flow from the sale of its stock before having to pay company A. A similar principle applied to the remaining stock which was released over the following two months in two tranches. The final stock was not released until the second cheque had cleared and a post- dated cheque received for the third tranche.

Obviously, both parties ended up getting what they wanted. This is not something that a court would have been able to do. It demonstrates the unique flexibility of this method of dispute resolution.