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Arbitration vs Mediation - What’s the difference?

Author: Nicola Sharp  27 March 2024
4 min read

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.

Binding vs Facilitative Forums

Arbitration results in a final and binding decision on the parties. After the arbitrator(s) have heard all of the evidence, and submissions from each side, they will write their award. The award is similar to a judgment in court proceedings, where the arbitrator makes their decision on the dispute. The parties have to comply with the arbitrators’ award, or face the consequences of enforcement proceedings.

Mediation, on the other hand, 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 Process of Arbitration

The stages of arbitration include pleadings, disclosure, witness evidence, expert evidence and a final hearing.

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).

The first step is usually to appoint an arbitrator. Depending on the institutional rules, and the arbitration agreement, the parties may appoint one, two or three arbitrators to oversee the arbitration. 

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. 

The Process of Mediation

Mediation is a process which aims to find a settlement to the dispute. Parties to an arbitration may set aside a day to try a mediation.

The day usually begins with an open plenary session with all representatives from each party present. 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 day is flexible and the mediator will identify the areas of tension, and seek to resolve them. It may be the case that there is a point of fact that the mediator seeks to resolve with the experts. Or the mediator may suggest that a session between two decision-makers may be beneficial.

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 Begin a Mediation Process 

The parties can begin a mediation process at any point during the dispute. 

In practice, mediation often takes place after submissions, but before disclosure. The issues in dispute between the parties are usually clear by that stage. Sometimes mediation takes place after the evidence has been gathered and reviewed. i.e. after disclosure and witness statements. 

The decision about timing of the mediation will depend upon a range of factors including: how clear the facts are, the personalities of the parties, and their appetite for risk.

Is mediation mandatory in arbitration?

Mediation is not mandatory in the course of an arbitration process. However, a party could face adverse cost consequences at the arbitration if they have refused to participate in a mediation. Even if they win the arbitration, they could still be ordered to pay a proportion of the other side’s costs for failure to engage in the mediation. 

Benefits of Using Mediation Alongside Arbitration 

1.Creative Settlement Options

One of the benefits of mediation is that the parties can be creative about their settlement options. They can find a commercial compromise that would not be available from the arbitrator. This can help preserve the commercial relationship between the parties.

2.Less Confrontational

Having an independent, impartial mediator helps to take the heat out of the dispute. Parties may be able to make clearer decisions, with less emotion attached to those decisions. The mediator also helps the parties to test their cases in the safety of their own private rooms. 

3.Less Costly

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. 

4.Greater Understanding

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? 

Mediation is always conducted ‘without prejudice.’ That means that anything the parties say in mediation will not be disclosed to the arbitrator. 

So 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

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.

Nicola Sharp C 09983

Nicola Sharp

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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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