Arbitration, Mediation or Litigation?

Quite the love triangle of dispute resolution, arbitration, mediation and litigation are used by parties to solve problems.

For some clients, litigation can be the only option, whereas, for many others, mediation and arbitration can be far more cost-effective and private, with more control over the outcome.

Here, we look at the main differences between mediation, arbitration and litigation, and when each method should be used.

What are the differences between mediation, arbitration and litigation?

Mediation is the least formal option, entered voluntarily by both parties. An independent third party (mediator) will help the parties to resolve the dispute out of court. The parties are not bound by anything proposed or offered during the mediation unless it forms part of a signed settlement agreement.

Arbitration is another non-court option, where an arbitrator is appointed by the parties to make a legally binding decision, called an award. It is also private, works well for international disputes, and is often more cost-effective than litigation.

Litigation is where disputes are resolved in Court, by a judge. It is not private, can take longer than arbitral proceedings, and judgments can be difficult to enforce internationally.

What is Alternative Dispute Resolution?

Alternative Dispute Resolution (ADR) is a way to resolve disputes without going to court, through more confidential, alternative methods. Mediation and arbitration are common types of ADR.

Decisions arising from mediation are principally a form of mutual agreement, so parties are not bound by anything proposed or offered during the mediation unless it forms part of a signed settlement agreement.

Awards arising from arbitration are legally binding. They are often easier to enforce internationally than judgments in court, and generally must be followed by the parties.

When should mediation be used?

Using mediation before arbitration or litigation can mean that disputes are resolved quickly, privately and more cost-effectively than seeking a legally binding arbitral award or a court judgment.

Once a mediation agreement has been signed, it becomes legally binding.

The main benefit of using mediation, is that the outcome is left firmly in the hands of the parties, enabling a resolution of the dispute before needing to instruct further legal counsel, or delaying the contract at hand, for example.

Parties can freely discuss and present sides of the dispute, generally without fear of having these discussions admitted as evidence in any following arbitral or litigation proceedings.

When should arbitration be used?

Arbitration is best used when a legally binding decision is required, but parties still require confidentiality or want to decide certain factors, such as what evidence will be admitted, or which arbitrator should be appointed.

In brief, arbitration is best used for:

International or cross-border disputes across multiple jurisdictions
Parties who require a high level of confidentiality, such as governments, large corporations or HNW individuals
Disputes where the parties themselves, or the arbitrator, needs to decide what evidence is admissible
Disputes which require a high-level, niche or expert understanding of the matter at hand
Where unprecedented or unusual circumstances affect a contract’s enforceability or directly cause the dispute (such as international sanctions)

When should litigation be used?

Litigation is generally avoided if the dispute requires privacy, confidentiality and more flexibility in the proceedings.

However, litigation could be best used:

For high-profile parties who want the dispute on the public record, such as for reputation management
If a precedent (previous ruling in a similar case) needs to be set
If one or more party is not cooperating with ADR procedures
Where rights to appeals are needed, although this should not be relied upon
If parties wish for stricter guidelines as to what evidence is admissible
When ADR has not lead to an outcome, litigation will always (eventually) lead to a result

Which method of dispute resolution is best?

Whilst each method of dispute resolution has its merits, most parties generally prefer to avoid the costly, public and often time-consuming route of going to court through litigation.

Mediation and arbitration can enable parties to step back and look broadly at their available options. Decisions are either made by the parties with the assistance of a mediator, or by an arbitrator who is an expert in the area of their dispute.

The benefits of ADR are not only applicable to the legal outcome, as they can help with general business terms too. For example, parties may wish to continue their working relationship and be able to move forward with their contract. This might prove trickier if the parties have battled it out in an all-consuming litigation process beforehand.

In conclusion, it is generally best to use litigation as a last resort and resolve disputes through mediation or arbitration where possible.

As experts in ADR, the team at Carlsons have a wealth of experience in settling disputes for a range of UK and international matters. Get in touch for trusted legal advice from our team of in-house barristers, senior solicitors and associates.

Guest User8 April 2021