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Mediation and Arbitration - Similarities and Differences

How Mediation and Arbitration Work to Resolve Business Disputes


Mediation and Arbitration

In today's business world, more and more contracts include arbitration and mediation as alternatives to court settlement of cases. Before you sign a contract which includes one or more of these two types of dispute resolution, you should know more about them and the similarities and differences between them.

Mediation is a method of resolving misunderstandings. In a dispute, a third party mediator is brought in to assist the parties in reaching a settlement. In many cases, the mediator does not have authority to make a binding decision. Some benefits of mediation over litigation are:

  • It is private and confidential, as opposed to trials, which are very public.

  • The mediator is objective and helps the parties explore alternatives.

  • The process of mediation is quicker than going to a trial.

  • The process is less expensive than a long and costly trial. Both parties share in the cost of a mediator.

  • The possibility of continuing the business relationship later is much greater, since the dispute has been resolved with consideration of both parties.

  • The mediator may be able to propose creative solutions or accommodations.

According to the American Arbitration Association (AAA), about 85% of mediations result in a settlement. If the parties cannot agree through mediation, they can proceed to arbitration.

Arbitration is the process of submitting a dispute to an impartial person for final and binding determination. In an arbitration process, legal rules of evidence don’t apply and there is no formal discovery process. The arbitrator may ask for relevant documents, and the arbitrator submits an opinion after reviewing the case. As with mediation, the process can be scheduled and resolved quickly, and it is much less adversarial than litigation.

Arbitration vs. Mediation - How They are Different

  • Arbitration is a hearing process in which parties bring their dispute to someone for a decision. Mediation is a facilitation, negotiation process in which a trained mediator works to bring the parties to agreement.
  • Mediation is informal; arbitration is formal.
  • The goal of mediation is to resolve misunderstandings, while the goal of arbitration is to come to a decision in a dispute.
  • The mediator has no power to force the parties to come to a decision; the arbitrator makes a mandatory and (usually) binding decision.
  • In a mediation, either party can withdraw at any time; in an arbitration, once it begins there is usually not possibility of withdrawal.
As you can see, there is a place for both of these processes in dispute resolution.

More about Mediation for Business Disputes

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