Mediation vs. Arbitration vs. Litigation: The differences you need to know about in business

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As a business owner, it’s extremely important to familiarize yourself with dispute resolution and the processes you need to take depending on the severity of a case. Whether this is for your own protection, for example if you are offered poor advice or a service, or if you are facing a legal case with one of your clients. 

For the purpose of this article, we will explore the following example and apply it to the mediation, arbitration and litigation process:

You have paid for a service, the contract has a deadline and have been provided with an extremely poor standard of work that is incomplete.

Dispute resolution can be a long and meticulous process, however in order to get the right outcome, it’s important to follow protocol. Many contracts, especially in the design and construction industry have a clause, which states that before escalating to arbitration or litigation, you must first go through the mediation process. In this article, we will break down the three steps of dispute resolution and apply this to the aforementioned scenario.

Mediation

Mediation is an informal and confidential way for parties to resolve their disputes with the assistance of a third party who is entirely neutral to the party. For example a dispute resolution solicitor who has no previous affiliation with either sides. Choosing a neutral mediator is extremely important as this avoids bias from coming into place.

The mediator doesn’t decide who is right or wrong but instead is trained to help parties to discuss their differences and helps the individual parties to find a resolution on their own. If there is no resolution from the mediation session, then you can seek recourse through arbitration or litigation.

In many instances, an issue can be resolved during the mediation process, as many companies will want to maintain a good reputation. By failing to agree to a deal or compromise, the defendants could in fact damage their own business reputation and lose customers as a result of this.

Successful mediation

You have met with the business in question and have been granted a full refund and a sincere apology for the poor service.

 

Unsuccessful mediation

 

You have met with the business and they are unwilling to provide a refund or claim responsibility for the unsatisfactory service in question. No progress was made during the mediation meeting and you are left feeling even more frustrated than when you started.

Arbitration

If you’ve gone through mediation and have failed to come to a resolution, then arbitration is often the next step. This is a settlement process that is exercised outside of the court in order to settle a dispute. Typically, arbitration is a voluntary process but in some instances this is a legal requirement.

The arbitrator is essentially the decision maker in this ruling and if both parties agree to be bound by the arbitrator’s decision, then this becomes a binding arbitration. Unlike mediation, arbitration and litigation are both binding forms of dispute resolution where evidence is provided to either the arbitrator or the judge to make a ruling. 

The arbitration process is favored by those who work in specialist industries, such as construction. This is because they are able to select a panel of arbitrators who are knowledgeable of the construction industry, which can greatly work in their favor. In some instances, a dispute resolution is too complex for arbitration, in which instance, individuals opt for litigation.

Successful arbitration

During the arbitration hearing, the arbitrators make a decision that works in your favour. The company is responsible for compensating you and are forced to admit wrong-doing.

Unsuccessful arbitration

The arbitrators are unable to come to a fair conclusion and therefore your dispute remains unresolved.

Or

The arbitrators rule against your claims and your business and you are left out of pocket and unsatisfied with the hearing.  The decision made from an arbitrator cannot be appealed.

Litigation

Litigation is reserved for more severe and complex dispute resolution cases, in which a judge or jury decides the outcome. As a business owner and plaintiff, it’s your responsibility to prove that a case is valid. So, for example, if you have paid for building work to be completed on your office, but this has been left incomplete and to an extremely poor standard, then you must bring evidence to support your claims.

Although litigation and arbitration cases are similar in many ways, it’s important to note that if you’re not satisfied with the outcome of a litigation case, then you can appeal the decision, but the decision of an arbitrator cannot.

Successful litigation

The court rules in your favor and the company is made to compensate you for your losses and also lost time.

Unsuccessful litigation

The court rules in favour of the defendant, which means that your dispute is unresolved and you are out of pocket still. In this instance, you have the capacity to appeal against the judges ruling. This will mean more time and money will be invested into the dispute.