Mediation as a Conflict Strategy

In Austria, mediation is often treated as an informal exploratory conversation, an opportunity to see whether a settlement might be possible. The detailed legal and economic analysis is postponed until it becomes clear that no agreement can be reached. This approach frequently leads to exactly the outcome that fuels skepticism towards mediation: loss of time, additional costs, and no meaningful progress.

A different picture emerges in the United Kingdom. There, around 70 percent of mediations are concluded on the same day. A key factor is preparation. Parties enter mediation with a clear understanding of their room for manoeuvre, defined interests, and a mandate to make decisions and reach a binding agreement. Those who invest in this preparation do not use mediation as a test, but as a decision-making forum. The question is therefore what this preparation looks like in practice.

Process risk analysis: What the conflict actually costs

An example. A company claims 100,000€ under a supply agreement. The supplier delivered critical components late, causing production delays. Court proceedings are expected to take three years, with litigation and legal costs estimated at 20,000€. It is expected that the other side will accrue similar costs. According to counsel, the likelihood of success is 75 percent. 10,000€ has already been spent.

The legal position to commence court proceeedings is therefore promising based on the merits.

The basic questions have been asked and answered. What is the dispute about? What is the legal position? What is the litigation risk? What are the expected costs over time?

This is often where the analysis stops. The more relevant question, however, is: what are the broader consequences of this conflict?

• Operational impact. Opportunity costs are often overlooked. Management capacity tied up in the dispute, for example two days per month over several years, accumulates significantly. For a managing director with a daily rate of 2,000€, this amounts to 144,000€ over three years, exceeding the claimed amount. In addition, decisions are delayed. Investments are postponed and expansion plans put on hold because liquidity is tied up or uncertainty is too high.
• Ongoing business relationships. In volatile markets, such as those affected by supply chain disruptions, maintaining access to a reliable partner may be more valuable than the amount claimed. If litigation damages or ends a business relationship, the economic loss may exceed the disputed sum.
• Reputational risk. Public proceedings can affect how customers, suppliers, and business partners perceive the company, with indirect economic consequences.
• Liquidity. Litigation ties up financial resources over an extended period and may restrict operational decisions in financially sensitive situations.
• Solvency of the counterparty. Will an enforcement title still be meaningful once proceedings, including appeals, are concluded?
• Position versus interests. In some cases, the focus is on a monetary claim, a precedent, or an enforceable title (position). In such situations, litigation is often the appropriate path. In others, the economic context is more important than the claim itself. Planning certainty, stable operations, and maintaining a business relationship may be the real drivers (interests). In those cases, mediation can be a strategic alternative.
• Sunk costs. 10,000€ has already been spent and may not be recoverable. What matters is the forward-looking assessment. A further 10,000€ is expected, bringing total costs to 20,000€. Even if the case is won, statutory cost recovery (according to RATG in Austria) will not cover actual expenses. A settlement today may therefore be economically more rational than the remaining costs of a multi-year proceeding, even if the 10,000€ cannot be recovered.

Such an analysis can lead to a reassessment of the case despite a strong legal position. In this example, a settlement at 80,000€, achieved within months through mediation, may be economically more attractive than pursuing 100,000€ over three years, even if full recovery is possible.

At the same time, this analysis informs negotiation strategy. It defines the framework for evaluating settlement options against non-settlement alternatives and sets the negotiation range. What are acceptable outcomes based on this analysis, and what are the alternatives if no agreement is reached?

It also becomes clear that preparation is not a purely legal exercise. Depending on the dispute, different functions are involved, including management, production, sales, legal departments, external counsel, and other experts. These perspectives need to be aligned and ultimately represented at the mediation table. More on this in Part 3.

Interests: Expanding the scope of negotiation

In litigation or arbitration, preparation typically focuses on positions, claims are put forward and supported by facts and legal arguments. This approach is insufficient in mediation and significantly limits the range of possible outcomes.

The key shift is from positions to interests. From "what happened and what am I entitled to" to "what do I actually need from an operational and economic perspective, and how should things move forward."

Positions are often a consequence of underlying interests. Stepping back and identifying those interests expands the scope of negotiation.

Why is this relevant? Without this clarity, the discussion remains confined to legal positions and arguments and is therefore limited to the types of solutions a court can provide.

In practice, it is also common that different internal stakeholders have different interests. These differences often become visible only during the mediation and can block decision-making. Management may want to preserve the business relationship, the legal department may want to set a precedent, and the operational team may require planning certainty. Without alignment beforehand, effective decision-making in the mediation is not possible.

Preparation therefore requires identifying and aligning objectives and decision parameters. What is required? Where are the limits? What is non-negotiable? This analysis requires a sound understanding of the legal framework and serves one purpose: being able to make decisions during the mediation.

An example. A company claims a contractual penalty of 50,000€ for late delivery. The supplier refuses to pay. The situation reaches a standstill. As long as the discussion is limited to the position, 50,000€ yes or no, there is little room for movement. Once the underlying interests become visible, the picture changes: The company is otherwise satisfied with the supplier. What it needs is planning certainty, better communication in case of delays, and more reliable processes. The supplier is currently facing liquidity constraints, and an immediate payment would create financial pressure. If this information is brought into the mediation process, potential solutions emerge even in this deadlock, as outlined in the next section.

Options: Developing tailored solutions

Based on the identified interests, viable options can be developed. This requires understanding the interests of the other side. Only when both sides' priorities are clear can meaningful solutions be explored.

The key difference compared to litigation is that mediation is not limited to the claims as pleaded. While a court decides on defined legal entitlements, mediation allows solutions to be structured around actual economic needs. These solutions can be tailored and may go beyond what a court could award. This is often where their value lies.

In the example of delayed delivery and the contractual penalty, once interests are on the table, planning certainty on one side and liquidity constraints on the other, new options become available. These go beyond the binary question of 50,000€ yes or no and may include instalment payments, binding communication standards, revised contractual terms, escalation mechanisms, price adjustments, exclusivity arrangements, or even joint projects.

In court, the dispute would be reduced to whether the 50,000€ is owed. In mediation, both dimensions can be addressed: the financial aspect and the future relationship. This creates movement where the situation was previously stuck and allows for business continuity and faster operational recovery.

Options can only be prepared to a limited extent. A significant part, particularly the interests of the other side, is not yet known at the outset.

To avoid losing momentum during the negotiation, continuous coordination is required with legal advisers and internal decision-makers. Internal stakeholders like management, production, and sales must be involved. Any solution must be legally sound and operationally workable. More on this in Part 3.

How preparation feeds into the process

How are these elements brought into the mediation process? Depending on the case, mediators may use different approaches, such as initial individual meetings with the parties or written submissions in the form of position papers or mediation briefs. These documents typically set out the relevant facts, the legal background, the key economic interests, and possible solutions. They may be confidential for the mediator or shared with all parties.

International frameworks such as the VIAC Mediation Rules, the ICC Mediation Rules, or the DIS Mediation Rules treat such position papers as a standard element of the process.

This preparation shifts clarification work out of the mediation session itself and creates space for actual negotiation. Structured options allow parties to make informed decisions during the session rather than spending time establishing the basics.

A common concern is that mediation may be used as a tool to gather information for subsequent litigation or arbitration. This concern is typically addressed by the set-up of the process and its regulatory framework. Mediation takes place in a confidential setting, supported by confidentiality agreements, and information disclosed in mediation cannot generally be used in subsequent proceedings.

Ultimately, each party decides what information to disclose and to what extent. The more targeted and transparent the information shared, the more efficient the negotiation. At the same time, even if not all preparation is disclosed, the process itself creates internal clarity regarding interests and decision parameters. This alone is often a significant step forward.

Takeaway: What does effective mediation require?

• Is mediation the right format? Before any preparation begins, it must be assessed whether mediation is appropriate or whether litigation or arbitration is the better option (see in more detail here).
• What does the conflict actually cost and what are its broader effects? This includes not only legal costs but also opportunity costs, impact on business relationships, reputational risks, liquidity, and the solvency of the counterparty. This analysis defines the economic framework and the acceptable range for settlement.
• What is the BATNA? What are the alternatives if no agreement is reached? This serves as the benchmark for decisions in the mediation.
• What are the relevant interests? Not only the legal position but what is actually required. This includes internal perspectives from management, sales, production, and legal teams. Without alignment, decisions cannot be made in the mediation.
• What solutions are conceivable? What is negotiable and what is not? A clear direction is sufficient, detailed solutions often develop during the process.
• Who needs to be at the table? Roles, advisers, and decision-making authority must be clarified in advance. More on this in Part 3.
• How is this preparation used in the mediation? How the mediator works with these elements and how the process unfolds will determine whether preparation leads to actual decisions. More on this in Part 4.