Why Mediation Is Usually the Right Starting Point for Family Business Disputes

Family business mediation is almost always the right starting point when a dispute develops. Specifically, mediation is faster, cheaper, more confidential and more flexible than litigation. Importantly, it is also significantly better suited to the underlying nature of a family business dispute. Crucially, family business disputes are rarely just about the legal issue on the table. By contrast, they are about decades of relationships, expectations and history that a court cannot address. As a result, mediation provides a forum in which the legal issue and the wider context can be handled together. Importantly, the great majority of family business disputes that reach a satisfactory conclusion do so through mediation rather than judgment.

This page explains why family business mediation works, when it is appropriate, how it differs from litigation, what to expect from the process, and how to make it succeed. Specifically, it covers the practical mechanics, the strategic considerations, and the legal context that now effectively requires mediation in most family business disputes.

What family business mediation is

In short, family business mediation is a confidential, voluntary process in which the parties to a dispute meet with an independent mediator to try to reach a negotiated settlement. Specifically, the mediator does not decide the dispute. By contrast, the mediator helps the parties to identify the issues, explore options, and reach an agreement that works for everyone. As a result, the outcome of mediation is whatever the parties agree, on whatever terms they agree.

Importantly, family business mediation is a specialised form of commercial mediation. Specifically, it requires the mediator to understand both the legal framework of family business disputes and the wider family dynamics that drive them. As a result, not every commercial mediator is well-suited to family business work. For the general framework of commercial mediation, see commercial mediator and the mediation knowledge hub.

Why mediation is particularly suited to family business disputes

Crucially, mediation is particularly suited to family business disputes for several reasons that do not apply with the same force in other commercial contexts.

The relationship continues

First, the parties to a family business dispute usually have to continue dealing with each other after the dispute is over. Specifically, they are siblings, parents and children, or cousins. As a result, weddings, funerals, birthdays and Christmas continue to bring them together whether or not the legal issue has been resolved. Importantly, court proceedings tend to damage the relationship beyond what the underlying issue would have done. By contrast, mediation can resolve the legal issue while preserving the relationship.

The real issues are wider than the legal claim

Second, family business disputes are rarely just about the legal claim. Specifically, the legal claim is usually the tip of something older. Importantly, mediation can address the wider issues, where a court cannot. Crucially, the wider issues often have to be addressed for any legal settlement to actually hold. As a result, settlements reached through mediation tend to be more durable than judgments imposed by a court.

The outcome can be tailored

Third, the court is constrained in what it can order. Specifically, the menu of remedies under section 996 of the Companies Act 2006 is wide but not unlimited. By contrast, mediation can produce settlements that no court could order. For example, an apology, a change in governance, a re-allocation of family responsibilities, an undertaking about future conduct, or a commitment about family events. Importantly, these non-legal elements are often the most valuable parts of the eventual settlement.

Confidentiality protects the business

Fourth, mediation is confidential. Specifically, the discussions are without prejudice and cannot be referred to in any subsequent court proceedings. By contrast, court proceedings are public. Importantly, the disclosure of internal family business affairs in court can damage the business, the family reputation, and the personal interests of those involved. As a result, mediation protects the business in a way that litigation cannot.

The cost is a fraction of litigation

Finally, the cost of mediation is a small fraction of the cost of contested litigation. Specifically, a typical family business mediation costs between £5,000 and £25,000 per party, including the mediator’s fees and the legal preparation. By contrast, a contested unfair prejudice petition typically costs each side between £150,000 and £750,000. As a result, the cost saving from a successful mediation is enormous. For the wider cost picture, see the cost of family business litigation.

The legal context: mediation is now effectively required

Importantly, the legal context has shifted significantly in recent years. Specifically, the Court of Appeal in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416 confirmed that the court has the power to stay proceedings and require the parties to engage in non-court dispute resolution where it would be just and proportionate to do so. As a result, parties who refuse to engage in mediation now risk significant costs penalties and procedural sanctions.

Crucially, family business disputes are exactly the kind of cases where the court will expect serious engagement with mediation. Specifically, the cases are typically between people with continuing relationships, the costs are often disproportionate to the sums in dispute, and the issues are particularly suited to mediation. As a result, parties who issue an unfair prejudice petition without first attempting mediation can expect the court to ask why. By contrast, the court is increasingly willing to use its case management powers to direct mediation at an early stage. For the wider framework, see the legal framework for family business disputes.

The shift since Churchill v Merthyr Tydfil

Specifically, the decision in Churchill represented a significant change in the legal landscape. Before Churchill, the Court of Appeal in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 had held that the court could not require parties to engage in alternative dispute resolution. Importantly, Churchill overruled Halsey on this point and confirmed that the court does have that power. As a result, the position of parties who refuse to mediate has weakened significantly. By contrast, parties who engage in mediation in good faith are now in a much stronger position on costs even if the mediation does not produce a settlement.

Importantly, this is consistent with the wider direction of the Civil Procedure Rules. Specifically, the overriding objective of dealing with cases justly and at proportionate cost is now being applied with greater rigour. As a result, the court is more willing to use its case management powers to direct the parties towards non-court dispute resolution. Crucially, family business disputes are squarely within the category of cases the court considers most suitable for mediation.

When mediation is appropriate

By contrast, mediation is not appropriate in every situation. Specifically, the following are situations where mediation may not be the right starting point.

• First, where urgent injunctive relief is needed. For example, where a director is about to misappropriate company assets, or where a transaction is about to complete on terms that would prejudice the petitioner. Specifically, the court can grant urgent relief that mediation cannot.
• Second, where a limitation period is about to expire. Importantly, mediation does not stop time running for limitation purposes. As a result, the petitioner may need to issue proceedings to protect their position.
• Third, where one of the parties refuses to engage. Specifically, mediation requires both sides to participate. By contrast, even where one party refuses initially, the court may direct them to engage.
• Fourth, where the issues genuinely require a public judgment. For example, where a legal principle needs to be tested. Importantly, this is rare in family business disputes.
• Finally, where one of the parties has clearly acted in bad faith and rewarding their conduct with a settlement would be inappropriate. By contrast, this is also rare in family business disputes, where most parties believe they are in the right.

Crucially, in the great majority of family business disputes, mediation is appropriate and likely to be productive. As a result, the default starting position should always be to attempt mediation.

The mediation process

Importantly, the family business mediation process is structured but flexible. Specifically, the typical stages are these.

Pre-mediation preparation

First, the parties prepare their cases. Specifically, each side prepares a position statement that sets out their view of the dispute, the issues, and the outcome they are seeking. Importantly, the position statements are exchanged before the mediation. As a result, each side knows what to expect from the other.

By contrast, family business mediations also benefit from additional preparation that is not always necessary in ordinary commercial mediations. Specifically, the parties may want to think carefully about who attends. Likewise, they may want to identify the non-legal issues that need to be addressed. Crucially, the most successful family business mediations are those where the parties have done serious work on what they actually want before the day.

The opening

Second, the mediation opens. Specifically, the mediator typically gathers everyone together for an opening session. Importantly, this is the only stage where the parties are likely to address each other directly. As a result, the opening can be tense. By contrast, it can also be the moment when something important is said for the first time. Often, the parties have not been in the same room together for months or years.

Private sessions

Third, the parties separate into different rooms. Specifically, the mediator moves between the rooms, exploring each side’s position, identifying the underlying interests, and testing the strength of the legal arguments. Importantly, the private sessions are where most of the real work happens. As a result, the mediator builds up a detailed picture of what each side actually needs, as distinct from what they are publicly asking for.

Negotiation

Fourth, the negotiation proceeds. Specifically, the mediator helps the parties to develop options, identify trade-offs, and move towards a settlement. Importantly, the mediator does not impose a solution. By contrast, the mediator helps the parties find one that works for them. Crucially, the mediator’s role is to keep the conversation going when it would otherwise stall.

Settlement

Finally, where the parties reach agreement, the settlement is recorded in writing. Specifically, the settlement agreement is signed by all parties and becomes legally binding. Importantly, the settlement can include provisions that no court could have ordered. For more on what a good settlement looks like, see settling a family business dispute.

The choice of mediator

Crucially, the choice of mediator matters in family business cases. Specifically, the mediator needs to be experienced in commercial mediation and to understand family business dynamics. Importantly, not every commercial mediator has this combination of skills. By contrast, the mediator who understands both the legal framework and the family dynamics can do work that a purely legal mediator cannot.

In practice, the most useful mediators in family business cases are those who have professional experience of family business disputes themselves. Specifically, this often means barristers who specialise in shareholder and family business disputes and have qualified as mediators. As a result, the mediator brings legal authority and procedural credibility alongside the family business expertise. For more on the role of the mediator and the experience that helps, see commercial mediator.

Who should attend the mediation

Importantly, the question of who attends the mediation is one of the most important strategic decisions. Specifically, the right combination of attendees depends on the dispute. By contrast, getting the attendance wrong can undermine even a well-prepared mediation.

Typically, the family members directly involved in the dispute should attend. Specifically, they need to be in the room with the authority to settle. Importantly, advisers should also attend, both lawyers and where relevant accountants or family business consultants. Crucially, the question of whether spouses should attend often arises. Specifically, spouses can play a constructive role in supporting the family member. By contrast, they can also derail the mediation if they are more interested in the dispute than the family member is. As a result, the question needs to be considered in advance and agreed between the parties.

Importantly, in larger families, the question of whether non-disputing family members should attend also arises. Specifically, family members who are not directly part of the dispute can sometimes help to broker a settlement. By contrast, they can also widen the dispute. As a result, the inclusion of non-disputing family members should be considered carefully.

The role of the mediation advocate

By contrast, the role of the legal representative at the mediation is not the same as in court proceedings. Specifically, the lawyer at a mediation is acting as a mediation advocate. As a result, the skills required are different. Importantly, the best mediation advocates are not necessarily the best trial advocates. By contrast, they understand how to use the mediation process to achieve the client’s objectives.

Specifically, mediation advocates do several things that are different from the trial role. First, they prepare the client for the mediation in a different way, focusing on interests rather than legal arguments. Second, they support the client’s negotiation rather than acting as the negotiator themselves. Third, they help the client to read the room and identify when to move. Fourth, they manage the relationship with the other side’s advocate to keep the process productive. For more on this, see mediation advocacy.

What family business mediation can achieve

Crucially, family business mediation can produce outcomes that no court can order. Specifically, the typical successful settlement includes a combination of legal and non-legal elements.

• First, a buyout or other financial resolution. Specifically, one party buys out the other, or some other financial restructuring takes place. Importantly, the price and the terms can be agreed in ways that suit both sides, including phased payments, earn-outs, or tax-efficient structures.
• Second, governance changes. For example, the introduction of independent directors, the adoption of a shareholders’ agreement, or the establishment of a family forum.
• Third, role changes. Specifically, agreements about who does what going forward, who reports to whom, and how decisions will be taken.
• Fourth, transparency commitments. For example, agreements about the regular reporting of financial information, the conduct of board meetings, and the disclosure of related-party transactions.
• Fifth, behavioural commitments. Specifically, agreements about how family members will treat each other, both inside and outside the business.
• Finally, family commitments. Crucially, agreements about how the family will continue to function as a family despite the business dispute. As a result, the settlement preserves what matters most to the family beyond the business.

The cost and the timeline

Importantly, family business mediations are typically faster and cheaper than people assume. Specifically, the mediation itself usually takes one or two days. Importantly, the preparation typically takes a few weeks rather than a few months. As a result, the entire process from initial decision to mediate to signed settlement can be complete within two to three months.

By contrast, the cost is similarly favourable. Specifically, the mediator’s fee is typically between £3,000 and £15,000 depending on the seniority of the mediator and the length of the mediation. Importantly, each party also incurs its own legal preparation costs. As a result, the total cost to each party is usually between £5,000 and £25,000. Crucially, this is a small fraction of the £150,000 to £750,000 cost of a contested unfair prejudice petition.

What if mediation fails?

Importantly, even where mediation does not produce an immediate settlement, the process is rarely a complete waste. Specifically, several positive outcomes can result even from an unsuccessful mediation.

First, the issues are clarified. Specifically, each side has a much better understanding of the other’s position after a mediation than before. Second, settlements are often reached after the mediation. Importantly, the discussions at the mediation continue to influence the parties, and many settlements are reached in the weeks following an apparently unsuccessful mediation. Third, the case is better prepared for litigation. Specifically, the issues are tested, the weaknesses on both sides are exposed, and the case is more focused. Fourth, the costs position is preserved. Crucially, parties who have engaged in mediation in good faith are in a much better position on costs than parties who have not. As a result, mediation is rarely a wasted investment even where it does not immediately settle the dispute.

Mediation as part of the family business toolkit

Crucially, mediation should be seen as part of a wider family business toolkit rather than as a one-off event triggered by a dispute. Specifically, families that have used mediation once often find that it can be used again. For example, family councils sometimes use external mediators to facilitate difficult conversations. Likewise, family constitutions sometimes provide for ongoing access to mediation as a routine part of family business governance.

Importantly, this approach turns mediation from a dispute resolution tool into a preventive tool. Specifically, regular use of mediation surfaces issues before they become disputes. As a result, the family develops habits of structured conversation that significantly reduce the risk of serious disputes arising. For more on the wider preventive context, see preventing family business disputes and family constitutions and family forums.

Frequently asked questions

What is family business mediation?

In short, family business mediation is a confidential, voluntary process in which the parties to a family business dispute meet with an independent mediator to try to reach a negotiated settlement. Specifically, the mediator does not decide the dispute. By contrast, the mediator helps the parties to identify the issues, explore options, and reach an agreement that works for everyone. The outcome is whatever the parties agree.

Is mediation legally required in family business disputes?

Effectively, yes. Specifically, the Court of Appeal in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416 confirmed that the court has the power to stay proceedings and require the parties to engage in non-court dispute resolution. As a result, parties who refuse to engage in mediation risk significant costs penalties. Family business disputes are exactly the kind of cases where the court will expect serious engagement with mediation.

How much does family business mediation cost?

Typically, family business mediation costs between £5,000 and £25,000 per party in total, including the mediator’s fees and the legal preparation. Specifically, the mediator’s fee is usually between £3,000 and £15,000. By contrast, contested unfair prejudice litigation typically costs each side between £150,000 and £750,000. As a result, mediation is a small fraction of the cost of litigation.

How long does family business mediation take?

Generally, the mediation itself takes one or two days. Specifically, the preparation typically takes a few weeks rather than a few months. As a result, the entire process from initial decision to mediate to signed settlement can be complete within two to three months. By contrast, a contested unfair prejudice petition typically takes 18 to 36 months from issue to trial.

What happens if mediation does not produce a settlement?

Even where mediation does not produce an immediate settlement, it is rarely a wasted investment. Specifically, the issues are clarified, settlements are often reached in the weeks following, the case is better prepared for any subsequent litigation, and the costs position is preserved. As a result, parties who have engaged in mediation in good faith are in a much better position on costs than parties who have not.

Further reading on this site

• Family Business Disputes (main page)
• What to Expect at a Family Business Mediation
• Settling a Family Business Dispute
• The Cost of Family Business Litigation
• Unfair Prejudice Petitions
• The Legal Framework for Family Business Disputes
• Preventing Family Business Disputes
• Family Constitutions and Family Forums
• Commercial Mediator
• Mediation Advocacy
• Mediation Knowledge Hub
• Direct Access Barrister

Get advice on your situation

Family business mediation is almost always the right starting point for a family business dispute. Specifically, the cost saving is substantial, the timeline is short, and the outcomes are usually better than anything a court could order. As a result, early specialist advice on mediation is one of the most valuable investments you can make. I act as a direct access barrister, commercial mediator and mediation advocate in family business disputes throughout England and Wales.

Call 020 4538 0246, use the contact form, or book a call directly. In addition, my book Winning in Commercial Mediation covers the mediation process in detail, and my forthcoming Winning in Family Business Disputes covers the family business mediation context specifically. See also my published work on shareholder disputes. Organisations like Family Business United also publish useful guidance for family business owners.

Important disclaimer: This page is provided for general information purposes only and does not constitute legal advice. The content may not be legally accurate for your situation or at all. You must not rely on anything on this page in respect of your legal rights. Before taking or refraining from taking any legal action, you should seek advice from a qualified lawyer. I disclaim any and all liability for any loss, damage or expense howsoever caused by reliance on the contents of this page. If you would like advice on your specific situation, contact me here.