The term 'arbitration' is not something you hear every day, despite its growing importance in the way businesses resolve their disputes. Indeed in the most recent Queen Mary Arbitration survey, 90% of business people said that arbitration was their preferred method of dispute resolution, along with other forms of ADR such as mediation.
Given its increasing importance, it is essential for mediators and indeed anyone who might be involved in commercial dispute resolution to be familiar with the key aspects of arbitration.
Read on to learn all about the difference between arbitration and mediation.
The Definition of Arbitration and Mediation
Both arbitration and mediation are forms of Alternative Dispute Resolution (ADR), i.e. they are an alternative to going to court to resolve a dispute.
They are both private forms of dispute resolution, whereby the disputing parties consent to have a third party intervene to help resolve their differences.
This means that the proceedings are also confidential. This is an important reason for using ADR instead of going to court, as parties can avoid any negative publicity resulting from an ongoing legal dispute.
In addition, as both processes are private, the proceedings can take place informally and cost-effectively. There is no need to go to through the hassle of attending court. Instead, a neutral location can be chosen that is convenient for both parties. The proceedings can even be done online, as there are no formal restrictions on the processes.
What is Mediation?
So how do these processes differ?
In mediation, the third party is there to help the parties reach a solution themselves. The mediator has no power to impose a binding decision on the parties. Instead, he/ she is there to act as a catalyst for the negotiations and to help the parties achieve a positive and fair outcome.
The presence of a third party has been proven to help overcome certain barriers to negotiation, such as information asymmetry, bias and poor communication. Mediators are trained in negotiation techniques and will implement a structured process that will increase the likelihood of a successful agreement.
The precise process varies from case to case but is often only 1 or 2 days. Therefore, if successful, it can save the parties significant costs and time compared with arbitration or litigation.
The mediator will employ a variety of techniques to help encourage settlement. By way of example, in some cases where the party is unwilling to give away their position to the other party, the mediator may hold private meetings with each party where they can set out their true position in a confidential setting. The mediator will then have a strong idea of both party's interests, and can better help guide them to a solution that meets both of their needs.
If the parties are able to negotiate an agreement, the process will generally end with the lawyers formalising everything that was agreed. The resulting 'mediated settlement agreement' is then signed and becomes a binding legal contract, enforceable in court.
What is Arbitration?
In contrast, in international arbitration, the arbitrator is empowered by contract to impose a binding decision on the parties, rather like a referree. The arbitrator(s) will listen to the parties submissions and evidence, in a similar way to a judge, and then make an award.
Arbitration is usually a creature of contract, and therefore the rules governing the process of the arbitration will depend on what is agreed by the parties. For example, they may choose for the dispute to be heard by a single arbitrator or by a panel of 3 arbitrators.
Rather than set out a detailed system of rules in their contract, it is common for business parties to refer to the rules of one of many 'arbitral institutions' around the world, for example the London Court of International Arbitration or the International Chamber of Commerce in Paris. These institutions have detailed procedures for the appointment of arbitrators and for the conduct of the arbitration itself.
The vast majority of countries around the world will uphold a valid agreement to arbitrate, and therefore hold off on any court proceedings until the arbitration is complete.
Furthermore, the arbitrator's decision is generally final and enforceable in court, subject to only limited public policy exceptions and provided the parties have properly agreed to the process. One of the key advantages of arbitration is in an international context, as an arbitration award is enforceable virtually anywhere in the world under a treaty known as 'the New York Convention'.
Multi-Tiered Dispute Resolution
This post provides a general overview of arbitration and mediation. However, the very flexibility that attracts people to ADR also means it can become much more complicated.
Many weird and wonderful combinations of arbitration, mediation and other more obscure forms of ADR have been developed to fit almost any situation.
A brief example: perhaps you want to mediate your agreement but also want it to be enforceable anywhere in the world under the New York Convention.
It may be possible to use 'arb-med-arb', whereby you begin an arbitration, adjourn proceedings to mediate your dispute, and then have the arbitrator hand down an arbitration award incorporating the terms of the settlement.
If you would like to learn more about mixing and matching ADR processes, Mediator Academy has just the course for you! In this online CPD course Professor Nadja Alexander introduces us to the world of Multi-tiered Dispute Resolution. In it you will learn;
- The key features of different ADR processes
- Know which combinations are suitable for your dispute
- Understand how regulation impacts on your choice of ADR process
- The opportunities and risks of Multi-tiered Dispute Resolution
- How to design your own MDR process