Mediation clauses in private law contracts

25 Basics of mediation (12)

Mediation – the intelligent way in conflicts

Mediation procedures also enable parties who are more at odds with each other to resolve their conflicts effectively and bindingly, away from the courts.

From the perspective of the (state) courts, mediating the conflict situation is a cost-saving and self-determined option.

Nevertheless, the parties still utilise this option too rarely. As a result, they miss out on the associated opportunities to agree jointly and preventively on how they will proceed together in the event of a dispute or conflict.

And few things are more certain than conflict when people want to work together, implement projects and realise visions. The time they spend together will certainly be characterised by conflict sooner rather than later.

Mediation clauses provide orientation

Mediation clauses in contracts can provide guidance for particularly critical times and produce good solutions. It therefore makes sense to agree on this together in advance.

Of course, they do not bar the way to a court settlement if mediation should fail.

Here are a few examples of the possibilities of a contractual agreement for mediation in the event of a conflict.

Examples of mediation-related clauses

The mediation agreement

In principle, mediation must be agreed in a contract. Of course, it is also possible to agree such a contract when the conflict arises. This is usually the case if one of the parties proposes this approach and the other party agrees. The mediator then turns this agreement into a „proper“, i.e. detailed written agreement.

However, the chance that both parties will then be able to agree on whether and how to mediate may already be low – simply because the parties are already hurt and full of mistrust.

That's why it makes sense, Include preventive mediation clauses in the contract. The constructive climate that usually prevails when contracts are concluded is particularly well suited to this.

Examples of various agreements

With the mediation agreement, the contracting parties enter into an obligation to resolve a (more or less) specific conflict situation with a mediator. Mediation in order to find a joint solution. Such a Simple mediation clause could look like this:

"In the event of differences of opinion regarding rights and obligations arising from this contract, the contracting parties agree to seek an amicable solution by way of mediation before recourse to a court."

An agreement that goes beyond this can be useful. The so-called escalation clauses primarily involve an obligation to enter into bilateral negotiations. This can include a Gradual obligation to negotiate be agreed. An example of this would be

"In the event of differences of opinion regarding rights or obligations arising from this agreement or disruptions in its implementation, the contracting parties agree to seek an amicable solution through negotiations at management level before initiating legal proceedings.

The negotiations shall take place within two weeks of the corresponding request by one side on the premises of the…(name of the company, hotel, etc.)…. The…(lawyer, clerk, tax consultant, etc.) may be called in.

In the event that no agreement can be reached, the parties agree to conduct an alternative dispute resolution procedure. Unless otherwise agreed, they shall initiate mediation proceedings. This begins upon receipt of a written request by the other party. If this is also unsuccessful, an arbitration tribunal shall be appointed in accordance with the rules of …." 

(see also Greger/Unberath: Mediation Act, p. 69)

Clearing or conflict resolution clause

It is also possible to have a third party decide on the notified conflict resolution procedure by using a clearing or conflict resolution clause. Such a clause could look like this:

"With regard to all disputes arising out of or in connection with the contract… and for the resolution of which the parties have not yet reached an agreement on the dispute resolution procedure, a conflict management procedure shall be conducted in accordance with the Conflict Management Ordinance of the German Institution of Arbitration (DIS-KMO) with the aim of establishing a dispute resolution procedure."

(model of the German Institution of Arbitration).

What else is important

The clauses mentioned so far concern the question, whether a mediation procedure is carried out.

Qualified mediation clauses

Of course, there is also the possibility, clarify the question of how (exactly) in the contract. 

On the one hand, it can be useful to specify the person of the mediator more or less concretely in the contract beforehand. A specific person can be named (if possible with an alternative name) or certain criteria can be specified (e.g. type of mediation training, experience, etc.). In addition, the selection from a self-created or third-party list of mediators can also be agreed. Such a qualified mediation clause could look as follows:

"In the event of differences of opinion…the parties agree…to seek an amicable solution by way of mediation….

At the written request of one side, the other side shall propose three mediators from the list of … within one week. The parties shall instruct the person selected by the former to conduct the mediation within a further week at the latest."

(see Greger/Unberath: Mediation Act, p. 70).

Objects of the preventive mediation clause

• Agreements on the organisation of the procedure, e.g. whether the mediator moderating or evaluating should be active, whether Individual discussions confidentiality regulations, etc.
• Determination of the Person of the negotiator, which seems particularly useful for commercial enterprises, public authorities or legal entities.
• Agreement on the Statute of limitations, preclusive periods, deferrals, waiver of action, exclusion of set-off, provision in the event of failure of mediation, Agreement of a waiting period in the event of this, sanctions in the event of non-compliance, agreements on the bearing of costs, agreements on the place and language of the proceedings.

Agreement on specific rules of mediation procedure

The agreement of the validity of a specific set of rules of procedure of an institution can also be the subject of the mediation clause. Such a mediation clause with reference to rules of procedure may then look as follows:

"In the event of a dispute arising from this contract, the parties undertake to conduct mediation in accordance with the Mediation Rules before bringing an action before an ordinary court or arbitration tribunal."

(cf. Greger/Unberath: Mediation Act, p. 71)

In case of doubt, such a reference is dynamic, so that the version of the Rules of Procedure that is current at the time the proceedings are conducted applies.

Agreements in the General Terms and Conditions

Mediation agreements can also be agreed by way of general terms and conditions or in form contracts.

Due to the increased prevalence of alternative conflict resolution methods, these can no longer be considered surprising clauses within the meaning of Section 305c BGB. This is only the case if, for example, there is a statutory time limit for taking legal action under the Dismissal Protection Act or if, due to the minor importance of the subject matter of the contract, a mediation procedure would have to be considered disproportionate because it would have to be interpreted as a bar to legal action for the economically weaker party. This can be circumvented by offering the economically weaker party a mediation option.

Legal consequences

The legal consequences of such preventive mediation clauses are problematic in view of the voluntary nature of the mediating parties.

As such mediation agreements constitute a valid contract, they are also valid in principle and the parties are therefore obliged to fulfil them.

If a contracting party refuses this fulfilment, this constitutes a breach of duty in accordance with Section 280 BGB and there is a claim for damages. This could be incompatible with the principles of mediation. However, in the vast majority of cases, the other party should not suffer any damage as a result of the refusal to commence mediation. This is because the voluntary nature of mediation also becomes stronger once mediation begins and mediation could be terminated immediately. In this respect, the mediation clause is likely to encourage formulaic behaviour, which is not the purpose of these clauses.

In this respect, the purpose of mediation clauses could be to remind the parties in dispute that at other times they have already undertaken to pursue a jointly chosen path together.

This sense could, for example, be underpinned by a lump-sum compensation claim.

"In the event of differences of opinion regarding rights and obligations arising from this contract or disruptions in its implementation, the contracting parties agree to reach an amicable solution by way of mediation before initiating legal proceedings.

At the written request of one party, the other party shall propose three mediators from the list of … within one week. The parties shall instruct the person selected by the former to conduct mediation within a further week at the latest.

If a party does not fulfil the aforementioned obligations or does not attend the first mediation session, it shall bear the court costs (fees and expenses) incurred as a result of any proceedings conducted in this matter, regardless of the outcome." 

(see Greger/Unberath: Mediation Act, p. 79).

Confidentiality clauses

In contrast to court proceedings, personal needs, interests and underlying feelings are communicated in the mediation process and the solution is worked out on the basis of these. This requires a high degree of confidentiality. While this confidentiality is elementary for conflict resolution, it also harbours a certain risk in the mediation process, because Information disclosed to the "opponentwhich can potentially be utilised by the mediator in the event of failure of the mediation.

It is therefore crucial to include provisions on confidentiality. The scope of such a confidentiality agreement should not cover the entire content of the mediation, as this would exclude the possibility of subsequent recourse to legal action – or at least open up a new area of dispute.

Agreements that provide for your general confidentiality only for the proceedings in the mediation negotiations appear to make sense. 

Only the fact of the statement is protected by confidentiality, but not the underlying facts of the case. This remains open to legal review. In this way, the legal process can be kept open in a meaningful way. An example of such an agreement would be

"The parties undertake to maintain confidentiality about the course of the mediation and the statements, intentions and declarations made during it. These matters may also not be disclosed in any court or arbitration proceedings."

Another, more detailed option would be:

"The parties undertake to maintain confidentiality about the course of the mediation. This applies in particular to proposals, concessions, settlement offers and similar statements made by a party as well as the reactions to these. These matters may also not be disclosed in any court or arbitration proceedings. The parties expressly waive the right to call the mediator or any other mediation participant as a witness." 

(see Greger/Unberath: Mediation Act, p. 192f.).

Nevertheless, there are no absolute guarantee that confidentiality will be maintained about what is said.

That's why it can make sense, Contractual penalties in order to achieve better enforceability of confidentiality.

Such an agreement could look like this:

"A is prepared to provide insight into its calculation bases for the construction project … as part of the mediation. B undertakes to maintain absolute confidentiality about the content of these documents and not to utilise the knowledge gained outside the mediation process. B undertakes to pay a contractual penalty of EUR 50,000 for each case of non-compliance." 

(see Greger/Unberath: Mediation Act, p. 193).

Confidentiality agreement on the existence of the mediation process

Furthermore, confidentiality can also be agreed regarding the fact that a mediation procedure has taken place at all, as well as its outcome. However, care should be taken to ensure that certain groups of people are not informed of the mediation process taking place. Mediation so that this can actually be carried out. Such an agreement can look like this:

"The parties undertake to maintain confidentiality about this mediation procedure, its course, the statements made in it and its outcome. These matters may also not be disclosed in any court or arbitration proceedings. Excepted from this is the presentation necessary for the enforcement of or defence against claims arising from or in connection with these proceedings. Furthermore, necessary information, e.g. the authorisation of A to inform its liability insurer/the local council/its parent company… under the assurance of confidentiality, remains unaffected." 

CONCLUSION

It has certainly become clear that it can already be useful to conclude a private-law contract (of some magnitude), to think about Mediation and their integration in this contract and to come to an understanding with your contractual partner about this – because he is still a partner with whom you can get along and have not yet fallen out with.