Mediation and arbitration are both found within the alternative dispute resolution sphere because they offer ways to resolve disputes outside of the traditional litigation process. However, the procedures are very different. Each system presents its own benefits and challenges, and neither system is truly superior to the other. Understanding how and when to use each of these processes is vital to settling a dispute.
The decision to choose one or the other is often a question that turns on a variety of factors. This article will define mediation and arbitration, discuss the similarities and distinctions between the systems, and discuss the benefits of choosing one over the other.
Arbitration and Mediation Defined:
Before diving into a comparison between arbitration and mediation, let us first define the terms.
Mediation is the process of resolving a dispute through a formal negotiation process, usually in a roundtable setting. It often involves two opposing parties, although there can be more parties and opposing legal stances. This process is voluntary and private and the disputing parties have some control over the venue and mediator. These disputes are often about how to resolve a question of liability or how to partition the money at issue in the case. The mediator does not decide the case but instead helps the parties try to reach an agreement on the dispute. The outcome of mediation will be a settlement agreement that resolves the dispute, or it will end with the parties agreeing that the case will not settle at mediation and needs to move on to another dispute resolution process.
Arbitration is the process of resolving a dispute in front of a neutral third party-an arbitrator or a panel of arbitrators. The process is private, and the parties have some control over the venue and decision-makers. IT often involves disputes of a commercial nature, but the process can resolve a variety of disputes. It can be between two parties or more. The panel can decide the dispute—distinguishing it from mediation. The outcome of an arbitration is called an award.
An Important Note on Agreements to Arbitration or Mediate:
Before discussing the benefits of choosing one system over the other, it is important to acknowledge the role that agreements play in both mediation and arbitration. For arbitration, the parties must consent to an agreement to arbitrate. This agreement can either be made as part of a contract outlining the relationship between the parties or the parties can agree to arbitrate after a dispute arises. Many modern contracts include agreements that require any dispute arising between the parties to be resolved through arbitration. Pre-dispute arbitration agreements are typically enforced in the courts when challenged, especially in the United States. Therefore, if a contract that governs the relationship between the parties has an arbitration clause in it, the parties will likely not be able to choose litigation over arbitration. If there is no pre-dispute agreement to arbitrate, the parties will have to choose the way of resolving disputes. Mediation also requires an agreement to participate, although it is not as formal as arbitration.
Arbitration vs. Mediation: Similarities and Differences:
While arbitration and mediation are often grouped under the alternative dispute resolution, they have quite a few differences that set them apart from one another Yet the differences between the two systems allow savvy litigants to choose the best venue for their dispute. The similarities and differences provide a window into the factors that will need to be considered as the parties decide whether arbitration or mediation will be the best option for their dispute.
- Cost: Both mediation and arbitration are heralded as cheaper alternatives to litigation, which is usually true. Litigation will often have lower fees for filing and proceeding with the case, but the cost of lawyers is fairly prohibitive for most litigants. Both mediation and arbitration may have higher fees, but they move faster and use less attorney time, usually making them cheaper.
- Rules Used: Both arbitration and mediation allow the parties to control aspects of the process. Mediation is fairly party-driven, which means that the mediator is sensitive and responds to the needs of the parties. Arbitration allows the parties to choose the governing law and the arbitration procedure.
- Selection of the Neutral: The neutral is the person that will oversee the proceedings. In both systems, the parties have the opportunity to either choose the specific mediator or arbitrator, or they can choose the process that will appoint the arbitrator or mediator.
- Speed: Arbitration is often a fairly quick process because once the arbitration panel is agreed upon, the panel can hear the case almost immediately. It is similar to mediation because the parties can arrange mediation and complete it on their own time with the mediator.
- Privacy: Arbitration and mediation are both confidential processes. The parties agree that was is shared in the process cannot be shared elsewhere. This ensures that the topics and facts discussed are kept within the process.
- Role of Attorneys: In arbitration and mediation, the role of the parties’ lawyers may be limited. Lawyers may assist in presenting the case, but neutrals often appreciate allowing the parties to have a voice in the process when using mediation or arbitration.
- Equitable Results: While it is not always the case, arbitration and mediation leave open the possibility of an equitable result that would not be possible in litigation. The neutral third-party arbitrator has more room than a judge or jury because they can issue awards outside a typical assignment of liability. The arbitrator could order one party to pay but also have the other party perform a task or stop doing something. Mediation takes this a step further by allowing the parties to create these results.
- Structure of the Hearing: The structure of the hearing will be different in arbitration than in mediation. In arbitration, the parties will present their case, the panel will consider the evidence presented and legal arguments, and then there will be a decision. In mediation, the parties will present their case, but then they will discuss the case and possible settlements until they reach an agreement.
- Flexibility: Arbitration may or may not be legally binding, depending on what the parties agree on. The parties may agree that the arbitration award is legally binding, or they may agree that the decision must be affirmed by the parties for it to be binding. However, the default for arbitration is typically legally binding. Mediation is rarely binding on the parties unless there is an element of arbitration added to the mediation agreement.
- Decisionmaker: Unlike mediation where the parties are responsible for coming up with a solution to the dispute, in arbitration, the neutral third-party arbitrator can issue a binding decision about the dispute that the parties can or have to follow.
- Representation: Most of the time, the parties in arbitration vs mediation are represented by lawyers. However, it is more common for parties to be unrepresented in mediation than in arbitration.
- Formality: Arbitration is often more formal than mediation. Because arbitration involves the presentation of the case and a binding decision issued by a neutral, there are certain rules and procedures that the parties will need to follow. Mediation is more often relaxed and a discussion rather than a presentation.
- Finality: Arbitration produces an award that is rarely appealable unless it meets a small number of possible exceptions. Mediation produces an agreement that should be followed; however, the parties may be able to modify or remove the agreement if it does not work for them any longer.
Advantages and Disadvantages of Arbitration:
Reading through the differences listed above, a few advantages and disadvantages may be fairly evident. Factors like finality, decision-making, and representation lean strongly toward arbitration. However, on the other hand, these factors and many of the others will likely weigh in favor of arbitration in some cases and mediation in others.
- The expertise of the Arbitrator: Because the parties involved can choose the panel in arbitration and the panel makes the final decision, for disputes that include specialized knowledge or particular issues, the parties can choose a panel with specialized knowledge and experience in the field. With mediation, the parties may choose a specialized mediator but still may need to make some decisions on their own.
- International Appeal: Specifically in international disputes, it can be helpful to use arbitration to avoid hearing the case in one of the parties’ home court systems, which could be more sympathetic to their own citizen’s requests. Mediation is less popular internationally because it does not produce a final result.
- Enforcement: Arbitration awards are typically enforceable no matter where the parties are. Occasionally, it can be difficult to enforce a judgment from litigation or a mediated settlement agreement. This is especially true in international disputes.
- Appealability: As mentioned above, arbitration awards are only appealed for very specific and limited reasons. It is important to consider the strength of the case and whether any solution possible would be agreeable or understandable to you. If a party would need to appeal an adverse decision should probably use the litigation system or consider mediation to resolve the dispute.
- No Interim Relief: Some cases will need a judgment while the dispute is being resolved that regulates the actions of the parties involved while the dispute is being decided. Because arbitration is defined by the agreement and often moves quickly, arbitrators are not able to issue interim decrees.
Advantages and Disadvantages of Mediation:
As evidenced above, there are some great advantages to choosing to use arbitration. The same is true for mediation. Mediation is often cheaper and faster than even arbitration, but it does not produce a guaranteed result.
- Control: Mediation allows the parties involved to have total control over the dispute resolution process. They can choose the mediator, and they are responsible for resolving disputes with each other. When arbitration or litigation happens, the parties hand the decision over to another party.
- Collaborative: Mediation is a collaborative process, requiring the parties to come together and create an agreement that works for them. This can help the parties strengthen or develop their relationship and encourage the parties to remain cordial throughout.
- Finality: Mediation does not produce a guaranteed result. This means that after mediation, the parties may have resolved their case with an agreement, but they may leave without any resolution and need to find other ways of resolving disputes.
- Unstructured: Much of the mediation process is unstructured and relies on the parties. This can be difficult in some cases when the parties need more direction to be able to resolve their dispute. Some parties are unable to create their own ideas for resolution, and mediation may not be the option for them.
Choosing to use arbitration or mediation is not an easy decision. And it is not true that one option will always be better than the other. Sometimes, the finality and enforceability of arbitration will be the best option for the case. Other times, the parties will need the control and collaboration that mediation provides. When comparing the two, the answer to whether arbitration is better than mediation is the tried and true lawyer answer—it depends.