I was asked today to explain to a prospective client on no more than two pages what arbitration is and what mediation is and how they could be useful for that client and its members. I only had ten minutes to do it and as I sent it off I thought “that could be a useful blog for SMEs” - so here it is.
It isn’t legal advice, it is a snapshot to help someone explain what arbitration and mediation to their colleagues. If, like them, you want more, just ask!
Arbitration is a cost-effective way to have a binding decision made by an expert arbitrator rather than going through the courts.
An Arbitration Award (that is the name given to the decision) can be made within three months of the beginning of the case, so the parties get a binding decision more quickly than going to the court. The arbitration service is also designed to promote its use, so it is quicker, cheaper and easier to use than litigation.
Arbitration is binding in more than 140 countries signed up to the New York Convention 1958, which means that an Award made in the UK is automatically enforceable in any of those 140+ countries - the parties do not have to start a new legal case in each country - in or out of the EU.
The arbitrator will be selected based on criteria of the parties and will often be more knowledgeable in the area of dispute than a judge would be. The arbitration will normally be done by documents only meaning that the parties don't even have to retain a solicitor, they can do it themselves in their own time.
Arbitration is an ideal way to resolve disputes between members of a group, association or institution, or even between those groups, associations and institutions and their own members. It would be a good member benefit to have it available.
We also discussed mediation. A significant difference between the two is that an arbitrator is like a private judge - he or she makes a decision and it is binding. He or she does not try and find a fair resolution or settlement - one party will lose and one will win (though sometimes both parties might feel like they have lost, but believe me that feeling is amplified at court!).
In mediation the mediator tries to help the parties to negotiate an outcome but ultimately it is up to the parties, they can walk away at any time (you can't walk away from an arbitration, the arbitrator can still issue an Award even if a party doesn’t take part once arbitration has begun).
Mediation tends to be slightly cheaper than arbitration because it is often done in a day and the mediator does not have to make a written decision. Arbitration takes a little longer and the Award has to be compliant with the Arbitration Act 1996, so the arbitrator tends to be paid slightly more. That’s not always the case but it is a good rule of thumb and, in my view, fair.
A big advantage of mediation in a dispute between members of a group, association or institution or that group, association or institution and their own member is that it often helps repair fractured relationships and the parties can even end the dispute on good terms - it is not unusual for a new deal to be struck at mediation and for the parties to end up in the pub having a beer. Arbitration, like I said earlier, is win / lose and does not protect existing / future relationships in the same way. However, it is much better than litigation which is akin to war and washing your dirty linen in public. Both arbitration and mediation are done in private - nobody even knows that a dispute has taken place and anything said in either process can't be used if the matter goes to court.
A mediated settlement is binding as a contract, and if it is breached one party can sue the other for breach of contract. Arbitration is much tighter, the failure to take action under an Arbitration Award can be dealt with swiftly by the court who will not treat it like a breach of contract, but as a breach of an order of the court.
Arbitration Awards can only be appealed on a point of law, not on a point of fact and as such appeals are very rare (and expensive) and successful appeals even rarer still. You can build an appeals process into a scheme but not many people do as one of the advantages in the first place is that it is difficult / impossible to appeal.
Finally, if there is a mediation or an arbitration clause in a contract and a party tries to go direct to the courts the courts will generally tell them to go away and mediate or arbitrate. Mediation under those circumstances is still voluntary but the court will make it clear that they will frown on a party refusing to mediate without very good cause - their frown will most likely come in the way of penalties relating to costs. If a party wins at court but had earlier refused to mediate and the court feels there was no valid reason to turn mediation down, the court will more likely than not award costs against the winning party set from the date that they refused to mediate. The same applies if it was the losing party refusing to mediate.
Arbitration is different, the court will just stay court proceedings and tell the parties to arbitrate if there is a clause. It is very unlikely these days that a case would even get as far as court if it had a good clause in it because a lawyer would tell their client to try mediation first - or tell them they have no real choice other than to arbitrate, depending on what the clause says.
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