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Basic Differences Between Arbitration and Mediation
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Basic Differences Between Arbitration and Mediation

October 16, 2013 Professional Services Industry Legal Blog

Reading Time: 4 minutes


Alternative dispute resolution, or “ADR,” comes in many forms. Two of the most commonly used methods of ADR are arbitration and mediation.  Both of these ADR vehicles allow for resolution of disputes outside the public forum of the court system. Many people, including sophisticated businesspeople and even attorneys, do not fully understand the differences between the two or how they are used.  Knowing the process is vital for obtaining the best result for clients and successfully navigating the dispute resolution arena. Below is a basic description of both ADR methods and how they differ from the other.

Mediation

When a dispute arises, the parties can confer amongst themselves to negotiate a resolution. They can bring in attorneys and have meetings to try and work things out. Sometime this works and sometimes this does not and there is never a guarantee that the dispute will be settled. Mediation is simply an extension of the parties’ efforts with the help of a third party, the mediator.

Mediation is basically an informal settlement conference, while arbitration is similar to court in that a decision is made for you by a neutral party.  In mediation, the parties are free to work out a resolution, essentially having total control over effectuating a solution to their dispute.  The mediator is simply there to guide and assist the parties in formulating this solution.

The advantages of mediation are many. If the parties can settle, the cost savings over litigation or arbitration are substantial. Most mediations last only a single day, following perhaps a few weeks of preparation. The cost of the mediator plus the costs for each side, such as attorneys’ fees, are modest. Success rates for many mediators is often above 85%, depending, of course, on many factors. A successful mediation may also salvage a business relationship. There is more opportunity for the parties to agree on the current dispute, and continue the business relationship for the future.  This is rarely the case where the parties bloody eachother in court or arbitration.

Arbitration

If parties cannot settle the dispute, there are usually two remaining choices: go to court or arbitrate. Generally there will be an agreement between the parties to submit all disputes to an arbitrator and the language of such clauses are very important.  For starters, the arbitration agreement needs to be written by someone who understands arbitration. While standard industry contracts, such as those by the American Institute of Architects, are a good start, they may not fit a the needs of the parties. These agreements are typically drafted before there is any dispute, and usually by attorneys who are not conversant with arbitration.  The arbitration clause can dictate local of the proceeding, what discovery will be allowed, the number of arbitrators, the rules to be followed, and prevailing costs and fees.

Traditionally, arbitration’s advantages have been that: (1) it is overall less costly and quicker than litigation; (2) you get to pick an arbitrator who is better versed in the subject than the typical judge (especially true in construction disputes); (3) there is limited discovery thus resulting in further cost savings to the parties; and, (4) it is final and private.

One potential pit-fall is that many attorneys are not completely comfortable with arbitration and as a result they handle the arbitration as if it were court. This means there is a lot of discovery, such as depositions, interrogatories, as well as motions and other trial tactics. All of these proceedings can dramatically increase both the cost and time involved in the arbitration. Sometimes, in the case of expert witnesses, the depositions may be absolutely necessary, thus some of the discovery expense is unavoidable.  The arbitration loser also finds that it is virtually impossible to appeal an arbitration award, adding to the misery. The arbitrator’s award is turned into a final judgment by a court of competent jurisdiction.  Basically, in order to appeal an arbitration award, you have to show bias or fraud by the arbitrator or that the arbitrator refused to hear evidence that was relevant to the case.

Conclusion

Mediation and arbitration are two ways to avoid the expense of protracted litigation. Successful mediation is the best and most cost effective alternative. If that does not resolve the dispute, a well-designed arbitration, with a good arbitrator and experienced attorneys, will be far less costly for all parties and can result in a decision that is as good or even better than if the matter was submitted to the court system.

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