Agreements reached in mediation are enforceable as contracts if the requirements for a valid contract are satisfied. This means that parties following mediation will seek to formalise the terms of mediation as a contract.
However when this is not done, one party may argue that no binding contract was ever reached. In DMA Financial Solutions Ltd v Baan UK Ltd 2000 WL, the question arose whether the negotiations during meditation had resulted in a binding contract. One party argued that it did where as the other submitted that there was no binding contract.
The outcome of the case lead the High Court ruling that the following factors need to be considered when deciding whether negotiations resulted in a binding contract:
- The mediator/negotiator had actual or ostensible authority to commit the parties to a contract.
- The mediator/negotiator was such that parties might become contractually bound before the execution of a written agreement.
- Negotiations were not conducted on a “subject to contract” basis.
- There was no evidence that the parties would not be bound until a formal written agreement was signed.
- There was no usage in the industry in issue that agreements were never binding until drawn up and signed.
- The agreement did not omit any crucial element.
- All the matters raised in the negotiations were agreed by both parties.
- Performance was terms of the agreement has commenced.
Accordingly, statements or conduct can indicate that a valid contract has been reached. If the above can be showed to exist a valid contract will have been reached.
NOTE: To overcome these difficulties, most standard form Mediation Agreements will provide that the parties will not be bound until the agreement is signed. Mediators will encourage the parties to sign an agreement, if one has been reached, before leaving the mediation.