Mediation

What it means

Mediation resolves a dispute with an impartial mediator. They decide nothing, only guide the parties towards agreement, so the outcome rests on their will rather than the strength of arguments.

If the agreement is drawn up in the prescribed form and deposited with a notary or mediator, it can be enforceable. That sets it apart from an ordinary settlement, which must be sued on if broken.

Mediation differs from arbitration, with which it is often confused. An arbitrator issues a decision that binds the parties, usually on the basis of an arbitration clause in the contract. A mediator decides nothing; if the parties do not agree, the dispute stays open and either side can go on to court or arbitration.

How it works in practice

In commercial relations it fits where the relationship should continue: a dispute over the scope of work, the quality of a delivery, a final account. A court usually ends the relationship; mediation can preserve it.

It is faster and cheaper than litigation and can start at any time, including during proceedings. Starting it also suspends the running of the limitation period.

When a client is in dispute with a customer about what was delivered and paid, we prepare an extract from the accounts sub-ledger before the mediation: a list of invoices, credit notes, payments and set-offs with dates. The discussion then works from shared figures, and the parties do not argue over which invoice is still open.

What to watch out for

Mediation is pointless where the other side cannot pay or has no interest in settling. It then merely delays a payment order and worsens the chance of recovering anything.

A mediation settlement also has tax consequences that nobody thinks of when signing. If the creditor waives part of a claim, the waived amount is not automatically tax deductible and writing off the receivable must meet the statutory conditions, while for the debtor the forgiven debt increases income. The wording of the settlement is therefore also checked with the accountant before signing.