Arbitration and mediation are two very different processes that allow parties to resolve disputes outside of court. Mediation involves a facilitated negotiation, whereas arbitration involves a third party decision maker.
Mediation is an alternative dispute resolution process where the parties engage in negotiation to resolve the issues in dispute. An independent third party, the mediator, will assist the parties to identify the key issues in dispute and consider options and alternatives to settle the matter.
Mediation can be voluntary, court ordered or required as part of a dispute resolution clause in a contract. The mediator acts as an independent third party who facilitates the discussion between the disputing parties. They will explain how the mediation will take place, identify the real issues in dispute by asking questions to the parties and help develop options to resolve the dispute.
In most mediations, the parties will be physically separated - as in, they will sit in different rooms, with the mediator speaking with one party at a time, shuffling between parties through the course of the mediation. As an independent third party, the mediator can provide innovative solutions that the parties may not have considered prior to the mediation. However, they will not give advice, take sides or make decisions.
In commercial disputes, and depending on the size of the matter, mediators are often retired judges or other senior lawyers. A mediation usually occurs over the space of a single day. However the parties are able to adjourn a mediation and reconvene on another date if they agree that it may result in a resolution.
Even where mediation does not resolve the matter, the process can clarify the issues in dispute which will help keep costs down if the matter goes to arbitration or litigation. Mediation may not be suitable where the commercial relationship has broken down and there is a real sense that one of the parties is not willing to negotiate.
The obvious disadvantage with mediation is that it's not guaranteed to produce an outcome. It depends on both parties being willing to negotiate, and their ability to reach an agreement that will be acceptable to both of them. Arbitration is a process of dispute resolution where an independent adjudicator makes a binding decision on the issues in contention based on the evidence presented by the parties.
In a practical sense, arbitration is quite similar to litigation - except that arbitrations are conducted outside of court. Once the arbitrator has arrived at a decision, it is binding on parties whether they agree with it or not. It is very much like the way a court case is decided by a judge, except that the process does not take place in a court room, and it is not open to the public. As in a court case, there is usually a winning and a losing party in an arbitration.
In a mediation, the mediator, essentially, helps parties to settle their disputes by a process of discussion and narrowing differences.
The mediator helps the parties to arrive at an agreed solution. He does not decide the dispute. Mediation is less expensive and considerably faster than a court proceeding, and can occur at any time during the pendency of the dispute.
Mediation is a confidential proceeding conducted in a less intimidating environment than a courtroom. Solutions can be creative and more suited to the needs of the parties than what the court might be empowered to order. Mediators do not make decisions or rulings. Rather, they help the parties create their own voluntary agreement in a confidential setting. The agreement, when signed by each party, is a binding contract.
If a settlement cannot be reached in mediation, the parties reserve all of their options to pursue another form of ADR or take their issue to court.
Like mediation, arbitration utilizes a neutral third party, called the Arbitrator, to resolve the conflict between the parties outside of a courtroom.
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