As small and medium-sized businesses (SMEs) continue their rapid growth and successful scaling-up, it becomes clear that no matter the size of the company, potential disputes may emerge during this process, especially in the international arena. This is where mediation agreements can play a vital role in maintaining healthy communication and constructive collaboration at all times.

So, what happens to a mediation agreement over time? What are the legal implications when entering into a mediation agreement? Is a mediation contract legally binding after the agreement is signed? According to Up4Scale’s philosophy of empowering SMEs with strategic insights, we would like to further explore the legal nuance of mediation contracts and how this can become a relevant matter while the SMEs are going through their expansion and growth period.

A mediation agreement is a legally binding contract that is usually the result of an intermediary process with a neutral third party, which is supposed to facilitate a non-disruptive and constructive conversation between two or more parties. The aim is to achieve consensus and ultimately reach an agreement. If no agreement is reached, parties will need to resort to other means. The same rules are applicable if the mediation agreement is signed for an international matter.

Often SMEs that are successfully scaling up their business have not put any legal strategy in place thinking that it is an unnecessary expense and will be a concern in the future when the business reaches maturity. Sadly, this type of expectation is quite disappointing and can be detrimental to the future development and expansion of the company.

Mediation agreement would typically ensure that the parties will mutually liaise and collaborate to resolve between themselves any disputes during the lifespan of the corporate contract. Hence, such mediation contract provides a huge advantage when SMEs enter into corporate contracts with larger companies, international organizations or other SMEs. These types of collaboration tend to be quite dynamic and there can be occasions when disagreements arise.

With growing disruptions, SMEs are more likely than ever to be part of the international supply chain or enter into trading contracts and arrangements with foreign stakeholders. Therefore, having a mediation framework in place would provide quick access to an unbiased third-party advisor or mediator – in short, professionals who can provide support and guidance throughout the arbitration process.

A mediation agreement can expire, i.e., the contractual engagement might no longer be valid. Mediation contracts can be quite useful and powerful contracting tools, however, there are some caveats to keep in mind. Suppose two parties have entered into a settlement agreement for a dispute, and they wish to mediate to prevent the same issue from surfacing again (and they do not enter into a mediation contract). One party believes that the issue has been resolved and the other believes that it has not. They start to trade again and a new dispute arises on the same issue. Who would be right?

Before signing the mediation contract, the mediation sessions should be very clearly documented, identifying the participants, subject matter and the scope of the issues. Yet, for some reason, legal agreements are often underestimated and seen merely in the context of the desktop or office paperwork, i.e., often, an SME would start closing one contract before opening discussion for another agreement. In a nutshell, what is often forgotten is the basic concept of contract law – once the contract is signed, it is legally binding upon all parties.

If an SME has signed up for a joint venture agreement, for example, they cannot leave the company during the first year of operation without being a breach of contract. Good legal advice would have anticipated such clauses in the contract and ensured that the SME is not at risk of being “locked” into the agreement.

As SMEs expand and grow, so do their markets. The traditional understanding, therefore, would be that bigger companies have larger international exposure, as they are known brands and possibly more experienced. However, SMEs gain a competitive edge via their expertise, unique solutions, products and or services. This is what makes them attractive to international partners.

Having a third-party advisor (mediator) who can provide insights and relevant information would allow SMEs to have the necessary legal preparation and be ready to expand and seize opportunities when they do present themselves.