Mediation Services versus Arbitration: What’s the Difference?

Mediation Services versus Arbitration: What’s the Difference?

Mediate2go: Mediation Services versus Arbitration: What’s the Difference?

Intro - Forms of Alternative Dispute Resolution

Mediation and Arbitration are two forms of alternative dispute resolution (ADR).  This means that they are ways of settling disputes without having to resort to the court system and traditional litigation.  Remember that the starting point to both mediation and arbitration is consensual.  That is, both parties have decided to use mediation or arbitration as a “first resort” rather than simply going to court.  Some jurisdictions in Canada and the United States have mandatory mediation for certain types of disputes. 

Often, a mediation or arbitration process may arise because the parties have a contractual relationship that specifies that any disputes will be solved by such methods.  Other times, the parties voluntarily agree to do so because it appears that a mutually agreeable result might be more readily attainable, or because a more timely decision is needed than would be available through the courts.  Another major benefit is that both are private, so evidence and any settlement or order that is eventually reached need not be disclosed to the public. 

There are reasons why choosing mediation or arbitration (or neither) might make more sense than the other options, depending on the situation. This post should serve as a short guide to how and why you might consider either option.

What is Arbitration?

Traditional Process

Arbitration is more like a traditional courtroom process than mediation. Both sides and their representatives (lawyers, usually) appear before an arbitrator, who is an individual selected to resolve the specific dispute. At the outset, the parties can adjust or agree on specific rules for the arbitration. This can help speed up the process or make it more efficient for the parties.  For example, the rules of evidence or disclosure of documents may be altered from what they might be in the jurisdiction’s court system.  After a sort of “trial”, which includes different procedural stages such as submission of evidence and arguments, the arbitrator renders a final decision.  The decision of an arbitration can be enforced like a court order and is binding on both of the parties.  The parties can agree to limit the right to “appeal” the decision of an arbitrator. In such cases, unless there are obvious and serious violations of procedural rules or norms, the outcome is final.

Advantages to Arbitration

There are several advantages to arbitration.  An obvious one is the ability of the parties to choose the arbitrator.  For commercial parties, this could mean picking someone with much expertise in the area of the dispute.  This can easily save time and reduce the need to introduce certain types of evidence, because the arbitrator is already familiar with the subject area and the applicable law. Arbitration can save time and can get to the final judgment stage much more quickly than a standard trial. Sometimes the benefit of having an issue decided once and for all can be a huge benefit, even for the party that loses.  Arbitration can also be less costly, especially when it does not drag on. Many of these benefits are more likely to be attained when the parties have a detailed and satisfactory “arbitration agreement”, which is the document that sets the rules for the arbitration.

Issues with Arbitration

Those considering arbitration should be aware, however, that the financial costs are not necessarily lower than relying on the court system.  Any lawyers and representatives still need to be paid, as does the arbitrator.  Depending on the rules of the arbitration agreement, it may or may not be possible to award “costs” as part of the decision.  The potential limits on the right to appeal may not sit well with parties who initially agree to such terms, but then find themselves on the losing end.

What is Mediation?

Mediation, a more flexible process

Mediation is most different from arbitration in that it never results in an “order”, though it may still result in a settlement. In a mediation, a third-party mediator prompts and guides the parties through a negotiation process. This is notably less formal than courtroom proceedings or arbitration. Mediators are not judges and they do not act like them. Instead, they help facilitate discussion in the hope that the parties may come to a mutually-agreed resolution - a consensual settlement. Mediations may take hours or days depending on the parties and the complexity of the case involved.   

Advantages to Mediation

Like arbitration, the advantages to mediation can be numerous.  By definition, any mediated settlement must be at the express consent of each side.  Thus any result is presumably more to the liking of the parties than in a case where a party is adjudged to have “won”.  For this reason mediation can be less adversarial. It is also a powerful tool to ensure that pre-existing relationships remain intact. Employer/employee relationships, for example, may be better handled through mediation. Mediations can lead to faster settlements than arbitration, and it gives the parties a high degree of control. While the mediation itself is private, the parties can and often do seek legal advice about their position, so that they can come to the mediation better informed. The relatively informal process may also put the parties at ease and remove the anxiety or seriousness of courtroom proceedings.  They can also be “paused” and resumed at a later date if the parties require additional time to consider the circumstances.

Issues with Mediation

Mediation may not be appropriate in all situations. A key factor that may hamper the effectiveness of a mediation is the status of the relationship of the parties and their willingness to negotiate. “Failed” mediations may leave parties dissatisfied and may feel like time and money has been wasted.  If the dispute has not been satisfactorily resolved, the parties may feel the need to move to arbitration or litigation.  Finally, some cases, such as where one party has a high degree of power, control, or expertise versus the other, may not be appropriate for mediation.

Mediation versus Arbitration: Conclusions

Both mediation and arbitration can be effective tools for resolving a dispute outside of the court system. Arbitration is distinctly more formal and presupposes that there is an unresolvable matter on which the parties would like to have a judgment from a neutral third party. Mediation is consensus-based and can only lead to mutually-agreed settlements, or a standstill. Each have distinct advantages and the potential to lead to cost- and time-savings versus traditional litigation. If you find yourself in the midst of an important dispute,  consider whether either arbitration or litigation may be an appropriate course of action before you jump to the conclusion that a lawsuit is the only option. 

For more information about mediation, arbitration, and other forms of alternative dispute resolution, please visit ADR Canada, or Cornell's Legal Information Institute.

About the Author

Dan Lawlor is a Mediate2go Blogger focused on estates and commercial dispute resolution. Dan is a graduate of McGill University's Faculty of Law with interests in conflict resolution, business law and writing. He played an important role as a director with Mediation at McGill, building connections with the community to improve outreach. Currently he is a lawyer with Campbell Mihailovich Uggenti LLP in Hamilton, Ontario. Dan loves team sports, reading, and traveling.