Why I love the mediation clause, why you should too & a sample mediation clause for your use
Updated: 9 August 2023
I love the mediation clause.
Because it can save you time and money if there’s a dispute.
For this reason, to me and to many others, the mediation clause makes sense.
Basically, you agree upfront to mediate with the other party to your agreement, instead of first going to court. You work things out to avoid court.
Some people don’t agree with me though.
Why some legal agreements don’t have mediation clauses
Some businesses prefer to end an agreement if there’s a dispute. Simple.
Because it may not make sense to work things out if there’s a dispute.
This approach is particularly true for supplier agreements. For instance, if there’s an over supply of suppliers in a particular industry, they can be easily replaced, so some business owners won't bother with mediation.
Ultimately, it's up to the parties to be willing to work together to resolve a dispute because let's face it, a mediation clause alone won't solve all your problems.
How they work & a sample
Mediation costs are usually split equally between agreement parties for mediation.
While you can agree to mediation if you don’t have an agreement with a mediation clause, it's much easier to have a mediation clause in your agreement before a dispute occurs.
Below is a sample mediation clause that you can use. And it can be used for virtually any legal document.
The one below is for a founder’s agreement.
In the event of any dispute arising between the parties to this Agreement about or in connection with this Agreement (including the validity, breach or termination of it) and if the dispute cannot be resolved within 30 Business Days of it first arising, the parties will, without prejudice to any other right or entitlement they may have pursuant to this agreement or otherwise, explore whether the dispute can be resolved by agreement between them using informal dispute resolution such as negotiation, mediation, independent expert appraisal or any other alternative dispute resolution technique.
2. Co-Founders to seek resolution in good faith
Where a Co-Founder gives notice of their intention to refer a dispute to mediation under sub-clause 1, that Co-Founder must with that notice provide to the other Co-Founders a letter setting out its position on the dispute, its reasons for adopting such a position and the desired outcome to settle the Dispute.
3. Compulsory mediation
If the Co-Founders do not agree within 5 Business Days of receipt of that notice as to the:
- dispute resolution technique and procedures to be adopted;
- timetable for all steps and procedures; and
- selection and compensation of the independent person required for mediation,
the Co-Founders must mediate the Dispute in accordance with the mediation rules of the Australian Commercial Disputes Centre, with the mediator to be selected and the mediation organised by them or a similar organisation agreed by all parties.
4. Cost of mediation
Each Co-Founder must bear their own costs of dealing with any dispute and the costs of any Expert or mediator will be borne equally by the Co-Founders.
The negotiable parts
Parties may choose to negotiate the wording of mediation clauses like the ones above, to make them work for their case.
For example, parties may agree to vary the time to resolve a dispute. In some cases, it will be shortened to as little as 5 days so that parties can move on quickly or take more formal legal steps if there is no resolution.
What's next for you?
As always, get advice if you are not sure whether to include a mediation clause in your contracts or how to revise one.
Be sure to leave your comments and questions below.
I wish you success in your ventures!