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While both mediation and arbitration aim to achieve a settlement of the parties’ dispute the way in which they do so is different.
In a mediation or to give it its full name, a facilitative mediation, the parties discuss and negotiate a binding settlement agreed by each party and are helped to do so by a neutral third party acting as mediator and who does not express opinions or give a decision.
In an arbitration the parties present their evidence and arguments to the arbitrator as they would do so in a court hearing including witness testimony if needed and the arbitrator evaluates each side’s position and makes an evaluative decision in much the same way as a judge would.
So, what is the difference between mediation and arbitration? And which may be more applicable to your circumstances?
In a mediation, the parties have a much greater degree of control over the process and whether a settlement is reached is entirely up to them.
This is advantageous for parties who wish to avoid a “winner takes all” scenario that they risk in either court or arbitration proceedings. On the other hand where a party can afford to risk losing all then they will often be more inflexible in a mediation and decline to settle on terms that they feel are not to their advantage.
Mediators do not make decisions on the rights and wrongs of the dispute and should not offer or give opinions on legal technicalities even if one party is legally represented and the other is not. They can, however, offer their views on matters of process such as where for example a binding settlement agreement between the parties must meet certain legal criteria in order to be binding.
Examples of this are employment dispute settlement agreements that require independent legal advice in certain circumstances or where HMRC in a tax dispute purports to bind itself as to the tax liability of a taxpayer in future years as distinct from years that have passed.
Normally, the parties to a mediation meet together at the start of the mediation and make pre-prepared opening statements of their position and what they are seeking to achieve. They will usually then break-out into separate rooms and the mediator will then meet with each party privately to discuss and explore possible ways to settle the dispute.
The mediator will not divulge to the other party anything they learn in the private meetings without the express consent of a party. Any offers must be reduced to writing by the party making the offer and not the mediator. Any such offer is then conveyed by the mediator to the other party and discussed with them and a counter-offer may then ensue.
The mediator may go back and forth in this way several times in the search for a settlement that each party can accept. If a mutually acceptable solution has been arrived at the parties will be invited by the mediator to put it into writing and sign it as a binding settlement agreement.
It is important to select a mediator who is experienced in providing mediation services because the skills they bring to the proceedings are important and will often make the difference between reaching a settlement and not doing so.
Mediation also gives the parties the freedom to put litigation aside and to enter into a “without prejudice” commercial negotiation in an effort to find a settlement. Anything can be tried in an effort to structure a deal, and this can be abandoned if it is not acceptable without it endangering a party’s position. Parties are not committed until the deal is put into writing and signed. Mediation if used effectively puts the parties to a dispute in control and takes away the risk and unpredictability of an arbitrator or third-party judge making their own decision and imposing costs awards.
On the other hand, an arbitration is like a private court hearing where the parties agree to be bound by the decision of the arbitrator and the case proceeds much like a court hearing although with less formality. The arbitrator’s award at the end of the hearing is legally binding and can be enforced in a court by the winning side. It can be seen that the parties are giving up control over their dispute to the arbitrator instead of reaching a mutually acceptable outcome that is available using mediation.
Arbitrations involve each side attending with their lawyers and sticking to fairly formal rules of procedure. Aside from allowing the parties more control over the outcome of their dispute mediation is usually much more cost-effective because it is relatively informal and proceeds like a structured settlement negotiation instead of a quasi-court hearing with formal evidence and witness testimony and rules of evidence and procedure.
Patrick Cannon is a registered mediator with over 35 years of experience, providing an easier and more cost-effective solution to your dispute. For legal and mediation services, contact Patrick Cannon.