Arbitration Versus Mediation

Many contracts in construction and design have mediation provisions and/or arbitration clauses. It is important to know the differences between arbitration and mediation before entering into a contract containing either provision.

The American Arbitration Association defines arbitration and mediation this way:

Arbitration is the submission of a dispute to one or more impartial persons for a final and binding decision.

Mediation is a process in which a neutral [a mediator] assists the parties in reaching their own settlement but does not have the authority to make a binding decision.

Arbitration

• Arbitration is much like going to court, without the public event of court.
• Arbitration results in a final and binding decision by an arbitrator, sitting like a judge, that can be enforced as if it were a judgment from a court.
• Arbitration can be significantly less formal than litigation, although it is typically governed by rules and procedures regarding the disclosure of information to the other parties and the presentation of claims. Arbitrators usually have subpoena rights so that third-party documents can be obtained.
• At the arbitration hearing, the parties present their respective evidence and witnesses to the arbitrator. Following the arbitration, the arbitrator renders a decision based on the information presented at the hearing. The arbitrator’s decision is final and binding, and in most jurisdictions the parties have very little opportunity or grounds to review or appeal an arbitrator’s decision.
• Arbitration can be less expensive and less time consuming than litigation.

Mediation

• Mediation is not binding unless the parties reach a settlement and execute a settlement agreement.
• In mediation, the parties attempt – with the assistance of an experienced mediator – to negotiate a mutually agreeable resolution of their dispute.
• Mediation can be quite informal, and the rules, if any, are left to the parties and the mediator to decide.
• Mediation does not provide any formal mechanism for obtaining documents and information from non-parties, and the parties to the mediation are usually free to choose what information they disclose to the other parties and even to the mediator as part of the mediation. Nonetheless, if the mediation is to succeed, each party in the mediation should be fully prepared with a comprehensive understanding of their case.
• A mediation is scheduled at the convenience of the parties and mediator (and can also be ordered by the court), and if desired can be scheduled on very short notice.
• In many instances, the parties to a mediation will agree to submit position papers to the mediator in advance of the mediation. Mediation position papers – often submitted confidentially to the mediator alone – are usually only a few pages long and set out the basic positions of the parties.
• At the mediation, the mediator works between/among the parties in whatever way makes sense based on the circumstances of the dispute.
• Mediations sometimes conclude without a resolution or settlement, although a resolution that is a byproduct of the mediation may be achieved in the days and weeks following the mediation.
• Mediation – which seldom lasts more than one day and requires far less preparation than a trial in litigation or an arbitration hearing – is less expensive and faster than either litigation or arbitration.

Arbitration and mediation, although quite different, are not mutually exclusive. Often, parties working toward an arbitration or court trial will engage in mediation – even multiple mediations – before the trial, in an effort to resolve their dispute without the time and expense of the trial.

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Bulletin provided by Phelps Dunbar, LLP. Disclaimer: the information contained in this bulletin is for general guidance and educational purposes only and does not constitute legal advice. Discussion of insurance policy language is descriptive only; every policy has different language and is subject to different terms and conditions. Please refer to your own policy for its specific language.