Most business people, and many lawyers who don’t try lawsuits for a living, don’t know much about mediation or arbitration, the two most common forms of alternative dispute resolution.  Nearly everyone’s heard of these procedures, but most people don’t learn much about them until they’re called on to participate in some way.  Here are some of the basics.

Mediation

Mediation is meant to be a confidential settlement negotiation assisted by a neutral third party who brings professional training and experience to the table in an effort to help the parties find common ground.  The mediator, who most often is selected by agreement of the parties, may or may not be a lawyer and might have particular expertise in the subject matter of the dispute.  The mediator does not take sides or make any determination of right or wrong, but instead is committed to a full and fair exploration of settlement possibilities.

The parties themselves decide whether a settlement can be reached— the mediator does not have any authority to decide the matter or to force the parties to settle.  If the dispute does settle, the settlement is finalized, usually in the form of a written settlement agreement, in a manner that makes the compromise between the parties enforceable.  If a settlement cannot be reached, the mediator will declare an impasse and the parties will be free to pursue whatever remedies they may have, having lost no rights by virtue of participating in mediation.
Mediation is not designed to reach a determination of right or wrong, winner or loser, but instead is exclusively focused on finding a compromise solution that all parties can accept.  There are no procedural or evidentiary rules to follow, and the process often can be completed in a single day.  Mediation is attractive as it affords the parties an opportunity to discuss and hopefully resolve their dispute before resorting to the expense and risk of full blown civil litigation.

Arbitration

Arbitration is a very old concept that, according to some accounts, dates all the way back to the Code of Hammurabi.  The basic idea is that many disputes, especially commercial disputes among businesspeople, are best decided by a panel of respected neutral persons with subject matter expertise.  Arbitration is a creature of contract, so there will be no arbitration without an agreement between the parties to arbitrate, which could be entered into before the dispute occurs or after it’s happened – increasingly, arbitration clauses are found in everyday contracts as parties select arbitration in advance as a means of opting out of expensive, time-consuming and often counter-productive litigation.

A good arbitration clause will include some key details about how the arbitration will go, such as when and where the proceeding will be held (could be anywhere there’s an open conference room), how many arbitrators will be used (single arbitrators and panels of three arbitrators are most commonly seen), what qualifications and experience the arbitrators must possess (arbitrators may, but do not have to be, lawyers and often have significant subject matter expertise), and what procedural rules, if any, will apply (usually, the selected rules will be streamlined and oriented toward efficiency and keeping costs down).  Many arbitration clauses also provide that a respected organization such as the American Arbitration Association will administer the proceeding – this can assist with identification and selection of appropriate arbitrators and otherwise help to smooth out the process, but does increase the cost.

Once the arbitrators have been selected, the process of identifying and presenting relevant evidence will commence and usually will include at least one live hearing before the arbitrators at which all parties present their side of the case.  Once the evidence has been presented, the arbitrators will decide the matter and will issue a written award that can be enforced through the court system without further evidentiary proceedings – sometimes, if the parties so request, the arbitrators will also provide a written summary of the reasons for their decision.  The decision of the arbitrators usually is final and is not subject to appeal absent serious misconduct in the course of the proceeding.

Control Is The Key Difference

If mediation sounds like it’s an entirely consensual process controlled by the parties, that’s because it is just that.  Parties engaged in mediation retain control over the result, which they craft themselves, and cannot be forced into anything.  Arbitration, on the other hand, is not a consensual process and the award will not be the product of negotiations among, or otherwise determined by, the parties – the parties cannot control the arbitrators’ decision but will be bound by it, the point being to produce a final result that disposes of the dispute without need for further action other than enforcement of the award.

A Suggested Approach

In almost all commercial disputes, the parties should participate in mediation willingly as the potential benefits are substantial and there is no significant downside risk.  Once all avenues of potential settlement, including mediation, have been pursued, then arbitration should be considered, keeping in mind that, once arbitration has been commenced, the parties are no longer in control of the result but will have to live with it.  If a party believes that it must agree to arbitration, whether prior to or after a dispute has occurred, then time and care should be taken to address and negotiate the details of the arbitration provision – as the devil lives in those details. More on that later.

Jim Young is a versatile and effective outsourced general counsel and corporate generalist. He is a qualified arbitrator and mediator and avid proponent of alternative dispute resolution procedures in lieu of litigation. With three decades of deal-making experience, Mr. Young is uniquely qualified to help resolve business disputes by bringing adverse parties to the negotiation table.

This Blog/Web Site is made available by Culhane Meadows, PLLC and its attorneys for educational purposes only and to provide general information about the law—not to provide you specific legal advice. By using this Blog/Web Site you understand that there is no attorney client relationship between you and any Culhane Meadows attorney. This Blog/Web Site should not be used or relied upon as a substitute for competent legal advice from a licensed professional attorney in your jurisdiction. Also, please note that although this Blog/Web Site is made available on the Internet, Culhane Meadows attorneys do not seek to practice law in any jurisdiction in which they are not properly authorized to do so.