In Short
- Mediation is a collaborative process where a neutral third party facilitates negotiation between disputing parties.
- Arbitration involves a neutral arbitrator making a binding decision after reviewing evidence and arguments.
- Both methods offer a cost-effective and time-efficient alternative to traditional court litigation.
Tips for Businesses
Choose mediation for disputes where preserving relationships is important and openness to negotiation exists. Opt for arbitration when a binding decision is needed but you wish to avoid court. Tailor dispute resolution methods to suit the nature and context of the dispute while considering the relationship dynamics between parties.
If you are involved in a commercial dispute, you should always consider mediation or arbitration to resolve your dispute before going to court. Going to court can involve:
- high legal costs;
- a lengthy time frame; and
- the stress of an uncertain result.
Mediation and arbitration are both forms of alternative dispute resolution (ADR), which is an increasingly popular method to resolve disputes. This article will explain the factors you need to consider when choosing whether to undertake mediation or arbitration for your commercial dispute.
Mediation
How Does Mediation Work?
At the start of mediation, the parties will each have a chance to state their position and desired outcome from the dispute. Then, with the guidance of a mediator, the parties will discuss the matters and aim to reach a common ground. If you cannot reach common ground, each party will put forward settlement offers.
The parties often use separate break-out rooms during mediations, allowing them to discuss options with their lawyers in private. If you reach a settlement, the terms are usually confirmed in a deed of settlement. After you and the other party sign the deed, it binds you both to the settlement.
Types of Mediation
There are many types of mediation. You can choose one that best suits your commercial dispute:
| Informal Mediation | Here, the parties may attend alone or with legal representatives. They can also choose whether or not they wish for an independent mediator to conduct the mediation. |
| Formal Mediation | An independent mediator conducts formal mediation through an organisation, such as the NSW Small Business Commission. |
| Court-Appointed Mediation | Court-appointed mediation is run by a mediator employed by the court and conducted at the court. Many courts will refer legal matters to court-appointed mediation before the issue can proceed through the court system. |
Benefits of Mediation
Mediation is an efficient and business-friendly way to resolve commercial disputes. You will only need to prepare a minimal amount, and the costs are not high, as most mediations only take a day. Parties pay their own legal costs, plus a fee for the mediator, which the mediator splits between them.
There can be a real benefit to having an independent third party give the parties a fresh perspective on the dispute, even where they are not making a determination.
Mediation Tips
When undertaking mediation, you need to ensure that you:
- are organised: have copies of all relevant documents at hand to refer to if needed;
- keep an open mind: listen to the other party's position and avoid becoming argumentative. Mediation aims to find common ground that is satisfactory to both parties;
- are prepared to compromise: this may mean coming out with a lesser result than you think you deserve, even if it resolves the issue.
Choosing a Mediator
If you are choosing your own mediator, look for a mediator with some knowledge of your business area, such as:
- construction;
- franchising; or
- retail.
You can find a list of accredited mediators online at the Australian Mediation Register. Many mediators have worked as barristers and have extensive knowledge of the court process. Your solicitor may also recommend mediators they have worked with previously.
Arbitration
How Does Arbitration Work?
Arbitration is another form of alternative dispute resolution. Unlike mediation, one or more appointed arbitrators conduct the proceedings. Generally, the process for arbitration is similar to that of a court proceeding. Parties need to file documents in advance, and an arbitrator will conduct a formal hearing. The arbitrator hears evidence from the parties and then makes a finding. This finding is binding on the parties in the same way a court judgment is enforceable.
Commercial contracts commonly include clauses that require parties to use arbitration, rather than court proceedings, to resolve disputes. Arbitration clauses will often also specify where the arbitration should be held and what rules should apply, such as the arbitration rules of the Institute of Arbitrators and Mediators Australia.
Benefits of Arbitration
Arbitration is more structured and formal than mediation, but a more efficient option than going to court. Benefits include:
- privacy: the proceedings of arbitration are confidential, so there is no risk of unwanted publicity;
- efficiency: arbitration can be held soon after it is requested, unlike court, which can take many months to reach a hearing;
- flexibility: the format of arbitration can be adapted to suit the dispute, with a more streamlined process for simple matters and more complex to suit larger matters:
- costs: arbitration is cheaper than going to court, but there can still be costs for legal representation and fees for the arbitrator; and
- international use: arbitration is an effective way to resolve disputes between parties in different countries. There are several international forums and rules of international arbitration, such as the International Chamber of Commerce, which has forums around the world.
Guide to Resolving Business Disputes
This guide provides key information on how to manage a business dispute as quickly and cost-effectively as possible.
Key Takeaways
If your business is involved in a dispute, you should consider undertaking mediation or arbitration before taking the matter to court. Mediation is a process where two parties try to negotiate the issue with the assistance of an independent mediator. In comparison, arbitration is much like court proceedings, but are more efficient and can be closed off from the public.
If you have any questions about using mediation or arbitration for your commercial dispute, contact our experienced dispute resolution lawyers as part of our LegalVision membership.You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 1800 534 315 or visit our membership page.
Frequently Asked Questions
What is mediation?
Mediation is a form of negotiation between two parties and an independent person (a mediator). The mediator assists the parties in identifying and assessing options to resolve the dispute.
What is arbitration?
Arbitration is similar to mediation in that both parties negotiate with an independent person (an arbitrator) present. However, arbitration often results in a binding agreement between the parties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
