Originally from Arbitration Clauses for International Contracts - Second Edition

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NEGOTIATION OR MEDIATION AS A FIRST STEP BEFORE ARBITRATION

Both negotiation and mediation are consensual, rather than adversarial, and produce a resolution only if both parties agree thereto. The difference between negotiation and mediation, in brief, is that negotiation involves only the parties, and mediation involves the intervention and assistance of a third party (the mediator) as a facilitator in the parties’ effort to resolve their dispute.

Contractual undertakings to negotiate or mediate are increasingly enforceable before national courts, as well as before arbitrators.

Even where there is no provision for negotiation or mediation, parties can choose to negotiate or mediate at any time. The question is whether the chances for settlement are significantly increased by providing for negotiation or mediation as a mandatory first step before resort to arbitration, and there are no statistical answers to this question.

Two-step clauses, by practical necessity, require negotiation or mediation as a first step before arbitration. This can be a significant impediment to settlement via negotiation or mediation, because parties at the outset of a case are often entrenched in their positions, and their overconfidence in their case will diminish only once they receive an opposing submission or have the opportunity to observe the reactions of the arbitrators (even in a context as seemingly innocuous as the drawing up of terms of reference).