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Tony Bingham's article, "A tragic obsession", (30 September, pages 58-59) got me thinking. It dealt with the case of Hurst vs Leeming, the outcome of which was that Mr Hurst had to pay his costs as the loser to the action even though the other party had refused to mediate. The judge accepted the argument that mediation would have been futile given Mr Hurst's obsessive character. Despite that, Bingham warned: "I wouldn't bet on that argument winning if I were you." That advice is sound.

Mediation is the dispute resolution process most likely to deliver an early and amicable settlement. It also provides an opportunity for the disputing parties to exchange information and learn the extent of each other's grievances. Such an exchange may lead to settlement further down the road. Another benefit is that it encourages parties to put in place a structure for future meetings under the guidance of an unbiased referee. This may keep alive a dialogue and business relationship.

Parties used to mediate because they thought it was a good idea. Now they are obliged to mediate because the contract or the courts tell them they have to. If they do not, they can be punished by having to pay the costs of the action – even if they win. How long before a solicitor is found negligent for not recommending mediation to their client at the outset of the dispute? But forcing people to mediate raises its own problems. Mediation, by its very nature, is a consensual process. Traditionally, parties have agreed to mediate in order to find an amicable solution. There is a danger in forcing people to participate in this. Parties may go through the motions – making the process ineffective.

There are two common types of construction industry dispute. The first involves complex issues with a value up to about £1m, for which arbitration or litigation is often not economic or efficient. Adjudication does not work because the dispute is too complex to allow for quick resolution. For the parties involved, costs and risk should be the primary consideration. To use the language of Lord Woolf, the lord chief justice, the costs are disproportionate to the sums in issue. A good mediator should be able to persuade parties to settle, and in this context "compulsory mediation" is to be recommended.

The second type of dispute is more complex, of higher value, and may involve claims and cross-claims relating to both time and money. Mediation (especially compulsory mediation) in these circumstances is much more difficult. It will require evaluation of the merits of each party's case and a more structured approach from both the parties and the mediator if it is to succeed. Although formal pleadings as such may be considered excessive, it will be necessary for each party to set out its case in detail. Further, the mediator will need to set a structure for the mediation itself, perhaps allowing parties a set time for opening remarks and detailing each claim or defence. The mediator could institute a continuing programme of meetings, or "mini-mediations", to deal with a large number of issues to keep dialogue alive and make sure the parties are not fatigued by long, intensive meetings over a short number of days.

The amount in the offer must be carefully considered. It must be realistic enough to make the other party sweat

A hybrid mediation combines a mediation and an arbitration, whereby the referee acts initially as a mediator, with the option of acting as an arbitrator if the parties cannot agree. This is to be avoided, as parties will not be open in discussions if they know the mediator will become the final arbiter of their legal rights. The two roles should be kept separate.

The introduction of the Civil Procedure Rules in 1999 provides a tactic that can be employed to great effect. It is to make an offer to settle (a Part 36 offer) combined with an offer to mediate. If the dispute ever goes before a court, and the other side is awarded less than the settlement offer, it may be severely penalised in the awarding of costs.

The benefit of this tactic is that it gets the other side thinking. Depending on how the mediation progresses, it may become convinced that the amount in the settlement is the best it can get, and therefore be dissuaded from starting litigation. For this reason, the amount in the offer must be considered carefully. It must be realistic enough to make the other party sweat and wonder whether it can beat it in court or arbitration. At the same time as the offer is on the table, arguments will be put forward that may make accepting it the most sensible way forward. These types of offer make a powerful combination.