Arbitration is “a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the “arbitrators”, “arbiters” or “arbitral tribunal”), by whose decision (the “award”) they agree to be bound.” In simple terms, arbitration is a form of dispute settlement, where parties can avoid resolving their dispute in the public litigation. Arbitration need not be confused with mediation. In the arbitration, the arbitrator is obliged to determine the dispute by reference to certain rules, rather than to seek compromise which is mediator’s task.
There are two kinds of arbitration: ad hoc arbitration and arbitration organized in permanent institutions (institutional arbitration). Ad hoc arbitration is conducted independently from any influence of institutions and according to the rules chosen by the parties. In this type of process, the arbitrators are appointed on a case-to-case basis, usually by the parties. One option is that the parties select an appointing authority who will appoint arbitrators for the proceeding. The composition of the tribunal can vary from one to several arbitrator depending on procedural rules.
In the institutional arbitration, the process is more bound to the rules of the said institution. The institution provides arbitral services and normally appoints the arbitrators. One example of this kind of institution is the International Chamber of Commerce.
The arbitration process has certain advantages, when compared to public litigation. First of all, it is confidential process, which can be important in disputes involving commercial secrets. The arbitration process usually also gives the parties the freedom to appoint their arbitrators. Thirdly, it is usually quicker and more flexible than public litigation. However, one disadvantage is that arbitration is normally more expensive than public litigation because of high salary of the arbitrators. That said, once the arbitrator has arrived at a decision, it is binding on the 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.
Mediation is a procedure in which the parties discuss their disputes with the assistance of a trained impartial third person(s) who assists them in reaching a settlement. It may be an informal meeting among the parties or a scheduled settlement conference. Any settlement is recorded in an enforceable contract.
Mediation is an efficient and cost-effective way of achieving that result while preserving, and at times even enhancing, the relationship of the parties.
Certain principle characteristics of mediation are;
Mediation is a non-binding procedure controlled by the parties
A party to a mediation cannot be forced to accept an outcome that it does not like. Unlike an arbitrator or a judge, the mediator is not a decision-maker. The mediator's role is, rather, to assist the parties in reaching a settlement of the dispute.
Mediation is a confidential procedure
In a mediation, the parties cannot be compelled to disclose information that they prefer to keep confidential. Mediation's confidentiality allows the parties to negotiate more freely and productively, without fear of publicity.
Mediation is an interest-based procedure
In court litigation or arbitration, the outcome of a case is determined by the facts of the dispute and the applicable law. In a mediation, the parties can also be guided by their business interests. As such, the parties are free to choose an outcome that is oriented as much to the future of their business relationship as to their past conduct.
What is the difference between arbitration and mediation?
Though mediation and arbitration have the same goal in mind, a fair resolution of the issues at hand, there are some major differences which both parties must understand beforehand.
In an arbitration, the arbitrator looks into the legal rights and wrongs of a dispute and decides accordingly. Once the arbitrator has arrived at a decision, it is binding on the 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 the 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. A successful mediation results in an agreement signed by the parties, whereas a contested arbitration results in a decision by the arbitrator himself without the agreement of the parties. In a mediation, there is no such thing as a winning or losing party, because there is no binding decision without both parties agreeing to one.