If you've read our previous post on the difference between arbitration and mediation, then you'll know what makes these processes unique.
However, you may still be uncertain what situations call for mediation, arbitration or litigation. Read on and learn the key advantages of arbitration vs mediation.
Differences to Litigation
Both mediation and arbitration have certain advantages over litigation.
First, they are both confidential and private. This means that parties can avoid any negative publicity that may result from bringing a case to court. There are some exceptions to this, for example in relation to 'international investment arbitration', but this is a topic for another day.
In addition, as both these processes are private, the proceedings need not comply with the many formalities of attending court. Instead, a neutral location can be chosen that is convenient for both parties. The proceedings can even be done online, provided both parties have agreed.
A further advantage in the international realm is neutrality. Say you have one party from Russia and another from Brazil. It may be the case that neither party wants to submit to the jurisdiction of the other party's courts, for fear of favouritism. Often in this situation, they will choose a neutral jurisdiction such as the UK to decide their dispute.
However, another option is submit the dispute to a panel of arbitrators who are appointed for their neutral background and perhaps their technical expertise. Similarly, the parties can agree to appoint a neutral mediator who they all agree is above reproach.
Cost and Time
As a result of this informality and procedural flexibility, both processes tend to allow parties to save significant costs and time compared with litigation.
The amount that may be saved by mediation depends on a number of factors. The first is at what stage of the dispute the mediation begins. Mediation may be used at various stages in the dispute and can be used in conjunction with other processes like arbitration. Obviously, the earlier the dispute is settled, the greater the cost savings will be.
Moreover, the likelihood of success should be taken into account. If the mediation is successful, the dispute will end and therefore huge amounts of costs can be saved. However, if it is unsuccessful, it will add a further layer of costs to the dispute, although these are often small in proportion to the overall costs.
Also note that some of the cost savings may be indirect. For example, a mediation can help narrow down the issues and therefore reduce the costs of the remaining litigation/ arbitration.
The amount of time and cost saved in arbitration also varies from case to case. In more high value and complex disputes, arbitration today has become much more court-like as parties opt for detailed procedures to ensure a fair outcome. As such, arbitration nowadays can often cost as much as litigation.
In response to criticisms of these high costs, many arbitral institutions have begun to introduce 'expedited' arbitration rules for situations where cost is more important. Choosing expedited or simplified arbitration rules can help dramatically reduce costs. The tradeoff, of course, is that the arbitrators have less time to consider all the evidence. This can result in a form of 'rough justice'.
Whether this is acceptable in return for the reduced cost is a question for the parties to decide.
There is an important difference between arbitration and mediation in the context of international disputes. In arbitration, there is an international treaty signed by over 150 countries on the enforceability of international arbitration awards, commonly known as 'the New York Convention'.
As such, a valid arbitration award can be enforced almost anywhere in the world. This is often even better than a foreign court judgement, which may not be immediately enforceable in many other countries.
In mediation, the result (if successful) is usually a signed 'mediated settlement agreement'. This is effectively a regular contract, and does not have the same special status as an arbitration award. There have been some calls among the mediation community to create a similar international treaty for mediated settlements, however little progress has been made thus far.
Preserving the Relationship
A key advantage of mediation is that it is better for preserving business relationships than arbitration.
Arbitration uses an adversarial model, similar to litigation. This means that each party, or rather their lawyers, will present a very one-sided picture in their evidence. This can often lead to increased hostility which can damage any future business relationship.
In contrast, mediation can allow the dispute to be handled more amicably, as parties are working together rather than against each other. This sharing of information and collaborative approach can also help to put more creative options on the table, which benefit both sides.
Furthermore, the fact that the parties are involved in the outcome is often said to improve compliance with the result. Parties are much more likely to comply with something they have agreed to, than with something imposed on them by an arbitrator. This can avoid the extensive costs and time involved in applying to courts to enforce an award, particularly in international disputes.
Multi-Tiered Dispute Resolution
Clearly the choice between arbitration, mediation and even litigation is not always clear cut, as every dispute has different requirements.
Furthermore, the title of 'arbitration vs mediation' does not really reflect reality on the ground, as these processes can often be used effectively together, or adapted to the particular circumstances.
Indeed, many weird and wonderful combinations of arbitration, mediation and other more obscure forms of ADR have been developed to fit almost any situation.
If you would like to learn more about mixing and matching mediation and arbitration to suit a dispute, why not try the Mediator Academy course on multi-tiered dispute resolution with Professor Nadja Alexander. Just click the big green button below!
We hope you find this information useful. If you have any questions or comments, please share them in the comments box below.