Arbitration and mediation are not mutually exclusive. Most disputes that are referred to arbitration will make use of a mediation process during the course of proceedings.
Arbitration is akin to a court process, where the parties submit pleadings, gather and review evidence, and eventually end up in a hearing with an arbitrator to reach a final decision on the dispute (unless it settles before then).
Mediation, on the other hand, is a standalone process which usually lasts 1-3 days, and the sole focus is to find a negotiated settlement.
Arbitration vs mediation: binding decision vs facilitated settlement
Arbitration and mediation are both alternatives to court – but they work very differently.
Arbitration ends with an enforceable decision made by an arbitrator, while mediation is a facilitated negotiation in which the parties work towards a settlement they both sign up to.
In contrast, mediation is a facilitative process. The mediator does not make decisions about the dispute. Usually, the mediator does not look at the strengths of each party’s case, but it is possible for the parties to ask the mediator to give his/her view on the merits of the case if they want a steer.
If the mediation is successful, then it will result in an agreed settlement, rather than an award or a judgment. The settlement is binding when both parties have finalised the terms of the agreement and signed the document.
The arbitration process: key stages
The arbitration usually begins by one party issuing a ‘Notice of Arbitration’ to the other.
However, each party will have to follow the steps in their arbitration agreement, which is usually contained within the dispute resolution clause in their contract. That agreement may also specify which rules govern the arbitration, and the parties will need to follow the procedure of that particular institution (for example, the LCIA rules, or the ICC rules).
Step 1: Notice of arbitration
The claimant sends formal notice to the defendant that they intend to begin an arbitration. The notice sets out a summary of the claims, proposals for the arbitrator, and proposals for the venue and rules of the arbitration.
Step 2: Appointing an arbitrator / arbitrators
Depending on the institutional rules, and the arbitration agreement, the parties may appoint one, two or three arbitrators to oversee the arbitration.
Step 3: Agree the timetable
The timetable for the arbitration will be governed by a Procedural Order, which the parties agree with each other, and with the arbitrator(s) at the start of the process.
Step 4: Pleadings
The parties exchange pleadings to set out their case and answer the allegations put to them by the other side. Pleadings include:
- The claimant’s statement of claim:
- The respondent’s defence and counterclaim (if there is one)
- The claimant’s reply
- The respondent’s rejoinder, if a response is required to previous submissions
Step 5: Disclosure
The parties gather documents that evidence the issues in dispute. Disclosure in arbitration is often managed through a Redfern Schedule, which is a five-column table to track document production between the parties.
The table lists:
- requested documents
- reasons for each request
- objections
- replies
- the tribunal’s final decision on the request
Step 6: Witness evidence
Each party may submit witness evidence to prove the facts in dispute. Witnesses will give a written witness statement, on which they may be cross-examined at a hearing.
Step 7: Expert evidence
For technical matters, it may be necessary to instruct an expert. The expert prepares a report giving their opinion of the technical matters in dispute. The expert witness may also be cross-examined at a hearing.
Step 8: Final hearing
Arbitration hearings are held in private. It usually involves opening statements, witness testimony, the cross-examination of experts, and closing arguments. The arbitrator will issue their binding decision in a written award.
The mediation process: what happens on the day
A mediation is usually structured around a single day, designed to give the parties the best chance of reaching a settlement.
After an opening joint session, each side has its own private room while the mediator moves between them, testing ideas, narrowing issues and exploring possible settlement terms.
Opening plenary session
The day usually begins with an open plenary session with all representatives from each party present.
Consultation in private rooms
Each party has a designated private room for the day, and the mediator goes between the rooms to speak to each party and relay information.
The mediator’s role is to be an impartial facilitator, not a decision maker. They will identify the areas of tension, and seek to resolve them.
Discussion with experts
It may be the case that there is a point of fact that the mediator seeks to resolve with the experts.
Decision-maker sessions
Sometimes the mediator may suggest that a session between two decision-makers may be beneficial.
Finalising agreement
If agreement is reached, the settlement agreement can be drafted on the day. Often parties will attend the mediation with a skeleton agreement partially drafted. If the settlement is complex, it may take the lawyers a few additional days after the mediation to finalise the drafting.
When to mediate during arbitration
Parties can choose to mediate at many points in a dispute – before arbitration starts, during it, or even after a hearing has been listed.
In practice, mediation often takes place after submissions, but before disclosure. The issues in dispute between the parties are usually clear by that stage.
The best timing will depend on how clear the facts are, how entrenched the parties’ positions have become, and their appetite for the cost and risk of continuing the arbitration
Is mediation mandatory in arbitration – and what if we refuse?
Mediation is not compulsory in arbitration, but a party that refuses to mediate without good reason may face costs consequences.
Even a successful party in the arbitration can be ordered to bear some of the other side’s costs if it unreasonably declined an opportunity to mediate.
Benefits of using mediation alongside arbitration
Running mediation alongside arbitration can offer several advantages.
Creative settlement options
Parties can agree commercial solutions an arbitrator could not order, such as revised payment structures or future cooperation terms
Reduces confrontation
An independent mediator can reduce tension and help decision-makers focus on practical outcomes rather than past grievances
Curtails ongoing costs
At some point in the day (usually at the outset) the arbitrator will emphasise the costs of taking the dispute through to arbitration, against the costs of settling on the day. That stark awareness of the numbers can help to focus the parties on settlement.
Fosters greater understanding between the parties
Finally, it’s a chance to look the other party in the eye and get the measure of the other side and their attitude towards the dispute. Impressions can be skewed through heated correspondence in a contentious matter, but meeting face-to-face can give a more realistic impression of the other side’s view of the dispute.
Does mediation weaken our position in arbitration?
No. Mediation does not weaken your position in arbitration because it is conducted on a ‘without prejudice’ basis. That means that anything the parties say in mediation will not be disclosed to the arbitrator.
Any concessions discussed during mediation cannot be shown to the arbitrator, so you remain free to pursue your best legal case if no settlement is reached. A party can concede a point for the sake of finding a settlement during the mediation. If the dispute does not settle at mediation, the point can be reinstated, as if the concession had never happened.
The ‘without prejudice’ rule means that mediation cannot weaken a party’s overall position in arbitration. A party can present their strongest case in the arbitration, and they can suggest compromise at mediation, without hindering their position in the arbitration.
Summary: using arbitration and mediation together
Arbitration and mediation are two separate processes that can be used together to resolve a dispute. The arbitration is the process that will make a decision about the outcome of a dispute and bind the parties to a decision.
Mediation is a process of facilitated settlement. When to use mediation during the course of an arbitration is a tactical decision for the parties, and the lawyers can advise on the best time to engage in mediation.
