By Renee Gerstman
Congratulations! The mediation was successful and the parties executed a term sheet
setting forth the substantive terms to be included in a formal definitive agreement. The parties,
intending the term sheet to be binding despite lack of executed final settlement documents,1
include a sentence providing that the mediator will resolve any disputes regarding the mediated
term sheet.
In the process of finalizing the settlement agreement a dispute arises, and the mediator is
asked to step in to resolve the dispute. What have the parties authorized the mediator to do? Has
the mediator been tasked with rendering a final and binding decision on: (i) whether the mediation
term sheet is binding;2 (ii) the final terms of the settlement agreement or collateral documents;
(iii) whether the term sheet has been breached; or (iv) the merits of the underlying dispute and
the relief to be awarded? Can the mediator engage in ex-parte communication and private
caucuses to find a compromise or has the mediator become an arbitrator such that ex-parte
communications are no longer appropriate? Assuming the term sheet did not include a dispute
resolution provision other than a statement that the mediator will resolve any disputes about the
term sheet, what is the scope of the arbitration, the extent of the arbitrator’s authority or the
arbitration process to be followed?
Disputes That Arise Before the Final Settlement Agreement
The most common disputes concern the language and terms to be included in the final
settlement agreement, such as the scope of a release or confidentiality provision, or the terms of
collateral documents such as promissory notes and security instruments, easements, licenses or
business contracts.
If the issue presented to the mediator/arbitrator is what language will be included in the
final settlement agreement the mediator/arbitrator has to decide whether the parties are looking
to the named mediator to assist with finding language they all can agree on, or whether the parties
Disputes concerning the final language of the definitive agreement can often be resolved
without switching to the role of arbitrator. Still acting as a mediator, the neutral can hold a virtual
meeting with counsel with the disputed documents or language shared on the screen. The parties
can provide their concerns regarding the proposed language of the definitive agreement or
documents, and the mediator can explore alternative language that addresses all parties’
concerns. If at the end of the day there are provisions that the parties cannot agree on, the neutral,
now acting as an arbitrator, can propose a simplified process for deciding between the two
competing proposals of the parties or enter an order ruling on the language to be included in the
definitive agreement.
The moment the mediator becomes the arbitrator there is an obligation to ensure that
there are no ex-parte communications with the parties or their counsel. The arbitrator must also
make any and all customary and necessary disclosures that may not have been made when
acting as mediator, set a date for a scheduling conference and provide direction on the arbitration
process to be followed.
Disputes That Arise After a Formal Settlement Agreement
Disputes that arise after the formal settlement documents are executed typically address
the parties’ performance of the settlement agreement. These disputes present less of an issue
as the authority given to the arbitrator to resolve disputes should be detailed in an arbitration
provision in the definitive agreement. Where the arbitrator was the mediator, the parties may not
involve an administrative tribunal and may simply name the mediator, now arbitrator, without
reference to arbitration rules or tribunals. If this is the case, the arbitrator should, at the prehearing
conference, address the rules that will be applied to the arbitration, including the possibility of
using ad hoc rules or a simplified process such as baseball or final offer arbitration, if appropriate.
Final Thoughts
Don’t wait until the day of the mediation and drafting of the mediation term sheet to decide
what role the mediator should play in resolving disputes over the mediated term sheet or the
process to be utilized to resolve such a dispute. Come to the mediation with a prepared dispute
resolution provision3 outlining the role of the mediator/arbitrator, including their authority as
arbitrator (i.e., the type of disputes they are empowered to resolve and the nature of relief they
may award), the dispute resolution process to be followed, the arbitration act and rules that will
be applied, whether attorney fees and costs may be allocated by the arbitrator for the arbitration
proceedings, and how the arbitrator’s fees and costs will be paid. Having a prepared dispute
resolution provision that can be included in the mediated term sheet avoids later arguments over
the mediator/arbitrator’s role or authority, saves the parties time and money and is less likely to
lead to court review of any final award issued by the mediator turned arbitrator.
- There are situations where the parties do not want their mediation term sheet to be binding until all collateral
documents have been negotiated or additional information and facts confirmed. In that situation, the term sheet
should expressly provide that the parties are not bound by the mediated term sheet or specify the circumstances
that will render the term sheet binding. ↩︎ - Formation disputes are typically decided by courts and are not addressed in this article. ↩︎
- “The Parties consent to submission of any dispute relating to the Term Sheet, including without limitation,
the language to be included in the final documentation, to [Name of Arbitrator] as arbitrator (the “Arbitrator”).
The Parties waive any objection to the appointment of the Arbitrator based on the Arbitrator having
previously served as mediator for the Parties and in such role having had ex-parte communications with
the Parties and their counsel.
The Arbitrator shall have exclusive, final and non-appealable authority to resolve any dispute over the terms
to be included in the final settlement documentation [and/or disputes concerning formation, interpretation,
compliance or enforcement by the Parties of the Term Sheet or final settlement documentation]. In the
event a dispute arises, the complaining Party shall submit the matter to the Arbitrator for prompt, final,
binding and non-appealable resolution according to the procedure the arbitrator deems appropriate in view
of the specifics of the dispute. The arbitration will be governed by the [specify the Arbitration Act] and
[specify the Arbitration Rules] and substantive law of the State of _. The Parties will share equally in
the fees and costs of the Arbitrator.” ↩︎
©2026. Published in Just Resolutions, March 1, 2026, by the American Bar Association. Reproduced with permission. All rights reserved.
