In-house counsel hear the same advice in many disputes: try mediation first. It’s cheaper, faster, and preserves the relationship, so what’s the harm in trying? The harm shows up later, when a dispute that needed a binding ruling, or a determined opponent who never intended to settle, instead spent three months in a process neither side was going to use to resolve anything.
Mediation is not a universally safe default. It works when both parties genuinely want an agreement they control and are willing to move toward one. Where that condition doesn’t hold, mediation can become costly. It can eat up time and defeat the confidentiality advantage that made it worth trying in the first place.
Why “Mediate First” Became the Default
Step clauses requiring negotiation or mediation before arbitration are not rare in commercial contracts. The reasoning is straightforward: mediation costs a fraction of arbitration, moves in weeks rather than months, and lets the parties keep control of the outcome instead of handing it to a decision-maker.
Commercial mediation settles a large majority of the disputes that reach it, and most of those settle in a single session or two. That track record is real, and it explains why the advice generalized as far as it did.
A settlement rate calculated across every dispute that goes to mediation says nothing about whether it applies to the one in front of you. It stops holding the moment one of a few specific conditions is present, and recognizing those conditions early is worth more than any tactical advantage mediation offers.
When One Side Has No Reason to Settle
Imagine a licensor who discovers a licensee has systematically underreported royalties across several territories. Mediation could produce a quiet settlement with this one licensee. It would also signal to every other licensee watching that underreporting carries no real consequence beyond repaying what should have been paid in the first place.
Here the incentive structure runs against mediation. The party that benefits from an outcome nobody else hears about is the one that underreported. A determined ruling, even a confidential arbitral one, attaches a different kind of cost to the conduct itself, not just a repayment obligation triggered by getting caught.
The same dynamic shows up whenever delay itself benefits one side. A defendant facing a strong claim and a weak cash position has every reason to spend months in a process it never intends to resolve, using the goodwill and confidentiality of mediation as free extra time.
The pattern is usually visible before the first session is scheduled. A counterparty that has stalled through prior disputes, faces no real reputational cost from being seen as difficult, or stands to gain from keeping the issue unresolved rather than closed is telling you something about its incentives before it says a word at the table.
Disputes That Need a Determination, Not an Agreement
Some disputes are not really about the money in front of the parties. They concern a clause that recurs across dozens of other contracts, and the business needs a considered, reasoned answer on how it applies going forward. This situation is different from a one-off compromise that resolves this particular example without settling the underlying question.
Mediation cannot deliver that. A settlement number reflects leverage, timing, and each side’s appetite for cost and risk, not a considered view of what the clause actually means. It resolves this dispute without telling the business whether its reading of the clause would hold up if tested again, which matters once the same clause is sitting in twenty other contracts. A reasoned, adjudicated outcome does better on that specific point, whether it comes from an arbitrator or a judge. Even a confidential arbitral award, binding only the parties to that arbitration, tells the business whether its position actually holds, something a negotiated number cannot do regardless of how favourable it looks. For in-house counsel managing a portfolio of similar agreements, knowing that, rather than just having settled the one dispute in front of them, is often the more valuable outcome.
That still isn’t the same as precedent. An arbitral award carries no formal weight beyond the dispute that produced it, and it stays out of the public record. Where what the business actually needs is something with precedential or public value, a novel legal question, a compliance finding it may need to defend to a regulator, conduct significant enough that other counterparties or the market should be able to see how it was resolved, arbitration doesn’t get there either. That requires litigation.
The distinction runs two levels deep: first, does this dispute need a reasoned determination rather than a negotiated agreement, which is mediation losing to arbitration or litigation, and second, does that determination need to be public, which is arbitration losing to litigation. Conflating the two levels is how a business ends up in expensive, slow litigation for a dispute that only ever needed a private, binding answer, or in a confidential arbitration that quietly resolves an issue the business actually wanted on the record.
Power Imbalance a Mediator Cannot Neutralize
A skilled mediator manages many imbalances between the parties: separate sessions, careful pacing, deliberate process design. What a mediator cannot do is manufacture information, resources, or legal sophistication that one side genuinely lacks. When a well-resourced company sits across from a counterparty without counsel, without the funds to properly value its own claim, or without access to the facts that would clarify what actually happened, the weaker party can agree to terms that look reasonable, but in fact they are not.
This matters for in-house counsel on both sides of that gap. Where the imbalance runs in your company’s favour, a settlement reached under those conditions is also the one most likely to be challenged or reopened later, once the other side gets proper advice. Where it runs against you, mediating before the informational gap is levelled, through limited document exchange or an independent expert, is a weaker path than it may seem at a first glance.
Choosing the right neutral matters here too. The distinction is covered in more depth in How to Choose a Mediator for a Commercial Dispute, but the short version is that credentials alone don’t tell you whether a mediator will recognize an imbalance like this, or simply run the process around it as though both sides were negotiating from the same footing.
Timing Is Not the Same Question as Suitability
Not every case where mediation stalls was a poor candidate for mediation. Some were simply premature. If key documents haven’t been exchanged, or an expert hasn’t yet valued the disputed loss, both sides are negotiating without enough information to value their own position. That produces an inconclusive session that resembles failure, when the real issue was sequencing.
Readiness isn’t only informational. Parties are often not genuinely willing to settle until the cost, delay, and uncertainty of continued litigation has started to accumulate and actually be felt, not just anticipated on paper. A mediation convened before either side has felt that pressure can fail for reasons that have nothing to do with missing documents, and no amount of process skill from the mediator changes that.
This distinction matters because disputes move through recognizable stages, a pattern explored in Conflict as a Process, and mediation fits some stages better than others. The fix for a premature mediation is not to abandon the process. It’s to complete the missing step first, whether that’s a limited document exchange, an expert report, or a preliminary ruling on a threshold legal question, and return to mediation once both sides can actually value what they’re negotiating.
When Mediation Isn’t Optional Either
Everything above assumes mediation is a choice. In Canada and the US, it frequently isn’t. Ontario is a clear example: Rule 24.1 of the Rules of Civil Procedure requires mediation within 180 days after the first statement of defence was filed, for civil actions proceeding in Toronto, Ottawa, and Windsor. The rule carves out specific categories, including actions on the Toronto Commercial List, most construction proceedings, mortgage actions, and bankruptcy matters. A party can also move for a case-specific exemption. Outside those carve-outs, the obligation applies regardless of whether the dispute fits any of the conditions discussed above. It comes from the applicable procedural rule, not from the parties’ agreement or the mediator’s judgment, and counsel has to work with whatever governs the forum in question. Other Canadian provinces and US states vary widely in whether and how they compel mediation.
Mandatory mediation doesn’t cancel the analysis above. It changes what the analysis is for. Where mediation is a genuine choice, the conditions determine whether to go. Where mediation is compelled, the same conditions determine what to expect from the session and how to use it.
Take an ordinary Toronto example: a distributor sues a supplier over unpaid invoices under a supply agreement, and the supplier has a track record of stalling similar claims until the other side gives up chasing them. Rule 24.1 schedules a mediation within 180 days of the statement of defence, whether or not that incentive pattern suggests the session will produce a settlement. The mediation still happens. What changes is its purpose: not to reach an agreement the supplier has no real reason to reach, but to pin down its position on the record, narrow what is actually contested, and set up the motion or trial that follows.
A compelled session with a low prospect of settling is also worth using for what the mediator learns in separate caucus. A mediator hearing both sides privately often ends up with a franker read of each party’s real position and appetite for resolution than either side gets directly from the other, and asking for that impression candidly, even where the day ends without an agreement, is frequently the more useful outcome of a session neither party chose to be in. This lines up with what litigators active in court-mandated mediation programs are increasingly saying about the same point: a session unlikely to settle is still worth working for what it reveals about the other side’s actual case, not just for the deal it might produce (Mastering Mediation Advocacy: Essential Skills for the Modern Litigator).
The practical implication is that “should we mediate” is sometimes the wrong question to walk into a matter with, because the applicable rule may have already answered it, and the more useful first question is whether the case qualifies for an exemption or a carve-out in the first place. Where it doesn’t, what’s left is what the session can realistically accomplish given the same structural read outlined above, and what should happen immediately after it if that read says settlement is unlikely.
None of this argues against mediation. It argues against treating it as a reflex instead of a choice, and where it isn’t a choice, against walking into it without one. Every dispute deserves the same question: does this specific mix of facts, incentives, and parties fit what mediation can deliver, or does it need a tool built to determine an outcome rather than agree to one, and is a public determination required or a private one.
Answering that question well, before the step clause or the procedural rule runs its course, is what separates counsel who use mediation strategically from counsel who use it because the contract, or the rule, said to.
