What is the difference between mediation and arbitration?


Arbitration may be likened to a private court process in which the parties appoint and pay for the services of a person of their choosing known as the arbitrator, to resolve their dispute by adjudication according to rules which they set and agree in advance. Sometimes more than one arbitrator is required.

In New Zealand the arbitration process is usually governed by the rules set out in the Arbitration Act 1996, but sometimes the rules of international bodies apply.

The arbitration process tends to be relatively formal and lengthy. The parties present their evidence and put their arguments to the arbitrator who makes a decision which is binding on the parties whether they like it or not.

Usually the arbitrator has no discretion other than to rigidly apply the law, and make orders prescribed by law, even if that results in an outcome which is less than ideal for one or more of the parties.

In contrast, mediation is a process in which a neutral and independent person called the mediator assists parties reach agreement in the course of negotiations.

The parties can enter into any into whatever agreement they want, whether or not that reflects their legal rights and entitlements, and whether or not the outcome is one prescribed by law.

Importantly, the mediator does not impose a decision on the parties.

Generally speaking mediation is a quicker, more flexible and cheaper process than arbitration. The parties retain control over the outcome.

One advantage of arbitration is that the dispute at hand will definitely be resolved one way or another. Mediation can result in no settlement, in which case the parties may have to resort to arbitration or the court.

Another advantage of arbitration is that the parties receive a definitive ruling as to the matter in dispute.

On the other hand mediation may be preferred to arbitration because it is less adversarial, enabling the preservation of important relationships.

Also, in mediation the parties may discover that their dispute is not as it first appears or is capable of settlement hitherto thought to be unachievable. Thus as a result of mediation, unnecessary litigation, whether in arbitration or court, may be avoided.

See also:

What is mediation?

What is a mediator?

The benefits of mediation.