The Worst Case Scenario in a Mediation

The worst case scenario resulting from a mediation is the parties thinking that their dispute has been resolved on entering into a binding Heads of Agreement at the conclusion of the mediation and hen having a further dispute as to the terms of that agreement.

A recent decision of the Supreme Court of NSW (Fatseas v Fatseas bht Basha [2022]NSWSC402) is an example of what can occur when there is an ambiguity in the terms of the Heads of Agreement.

In that case both the Court and the parties accepted that the rights and obligations of the parties were governed “for better or worse” solely by the terms of Heads of Agreement entered into at the conclusion of the mediation .

The issue that arose under the Heads of Agreement that needed to be decided by the Court was whether, as a matter of construction of the terms of the document, a payment provision was unconditional or conditional on certain events occurring. The Court ultimately held that the payment obligation was conditional.

What the case demonstrates is the need for the legal representatives of the parties to be crystal clear in the drafting of a Heads Of Agreement that is to be binding on the parties, especially where there are payment obligations on one party to the other.

Mediators typically are not involved in documenting the settlement they have assisted in achieving.

Lawyers attending the mediation need to be aware of their duty to their clients in ensuring that no further disputes result from a binding agreement entered into at the conclusion of a mediation.

At the end of a long day mediating it is understandable that unintended consequences can flow from the terms of the Heads of Agreement. All the more reason to take extra care.