Mediation and arbitration are both private methods of resolving disputes, but they perform different functions.
The central distinction is straightforward:
In mediation, the parties decide the outcome.
In arbitration, the arbitrator decides the outcome.
What happens in mediation?
A mediator helps the parties negotiate.
The mediator may clarify issues, facilitate communication, meet privately with participants, test positions and help develop settlement options.
The mediator does not impose a result.
A binding outcome arises only if the parties voluntarily reach and record an agreement.
What happens in arbitration?
An arbitrator receives evidence and legal submissions and makes a decision called an award.
The award is generally binding on the parties and can ordinarily be enforced through the courts.
Arbitration is therefore closer to private litigation, although the parties may have greater control over the procedure and choice of decision-maker.
Mediation may be suitable where:
- the parties want to control the outcome;
- a continuing commercial relationship has value;
- the dispute requires a creative or operational solution;
- confidentiality is important;
- management wants an early opportunity to resolve the matter;
- the parties wish to avoid the cost and distraction of a full hearing;
- future performance, transition or cooperation must be negotiated;
- the legal outcome is uncertain;
- both parties are prepared to participate meaningfully.
Arbitration may be suitable where:
- a binding decision is required;
- the parties cannot agree on an outcome;
- liability or contractual interpretation must be determined;
- a party needs an enforceable award;
- the contract contains an arbitration clause;
- confidentiality and a private process remain important;
- a specialist decision-maker is desirable;
- the parties require finality.
Can mediation and arbitration be combined?
Yes.
A contract may require negotiation, followed by mediation and then arbitration if the dispute remains unresolved.
Parties can also agree to mediate after an arbitration has begun.
A mediation may resolve:
- the entire dispute;
- particular claims;
- the commercial relationship;
- procedural issues;
- some matters while leaving defined issues for determination.
Using mediation does not necessarily mean abandoning arbitration. It can provide a structured opportunity to settle before the parties incur the full cost of a hearing and award.
Care must be taken to preserve the independence of each process. The mediator will not ordinarily become the arbitrator in the same dispute unless the parties receive appropriate advice and make a fully informed agreement consistent with applicable professional and legal requirements.
Which process should be used?
The answer depends on:
- the dispute-resolution clause;
- the parties’ objectives;
- whether a relationship remains valuable;
- whether urgent relief is required;
- the need for a binding precedent or determination;
- the number of parties;
- the remedies sought;
- the location of assets;
- the likely cost and duration of each process;
- the parties’ willingness to negotiate.
Parties should obtain independent legal advice about their rights and the appropriate dispute-resolution process.
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