By Edmund Mingle
It is common to find in commercial agreements, dispute resolution clauses that refer to arbitration as the first mechanism for settlement before resorting to court litigation.
Other agreements indicate that before arbitration, parties would first attempt an “amicable resolution” often interpreted as negotiation.
Many commercial agreements that recognize the need for alternative dispute resolution mechanisms, continue to ignore mediation.
This is irrespective of the fact that mediation has been acclaimed to be more viable in amicably and conveniently resolving disputes, especially in the business sector, than arbitration, which remains a quasi judicial process.
Analysts indicate that the obsession over arbitration is due to a perception that arbitration helps to protect a party’s rights and offers justice without having to go through litigation. Others too perceive mediation agreement is not binding, and would prefer arbitration irrespective of the high cost involved.
A cursory distinction between Arbitration and Mediation shows a vast difference that makes mediation more beneficial to disputing parties.
In deciding to opt for mediation or arbitration, firms have to consider seven factors of Time, Cost, Past or Future, Control of process, Status of Agreement and Relationship/Amicability.
Although arbitration is less time consuming than court litigation, mediation is a significantly faster alternative. Arbitration resembles a mini-trial, which can make the process grind slowly as parties wait while their attorneys compile evidence, engage in pre-hearing discovery, perform legal research, draft briefs and prepare the case, and during the proceeding itself, both sides go through a long, drawn out process of trying to convince the arbitrator to rule in their favour.
Parties in arbitration have no ability to speed up the process, and after the hearing parties would have to wait while the arbitrator considers the evidence and legal arguments before issuing a ruling.
Parties that use mediation, get their conflicts resolved in a fraction of the time used in arbitration. Mediation cases usually get completely settled in less than a day after short pre-meetings.
It is more economical to resolve a dispute through arbitration than resorting to litigation in court, but mediation is far a less-expensive alternative. Parties using arbitration are required to hire attorneys, who generally bill by the hour. In addition, Arbitrators are an additional cost because they are basically private judges whose fees can be substantial.
Parties in mediation often save money because of the speedy and flexible nature of the process which does not strictly require the involvement of lawyers. Even when attorneys are involved, the legal bills are much smaller, while a party’s share of the mediator’s fee for, even a lengthy mediation is a fraction of the cost incurred in arbitration.
Past or future
Arbitration is a fact-finding process, and like the trial system, the arbitrator is responsible for uncovering the facts or truth about past events to assign responsibility, thereby focusing largely on the past. But mediation takes a different approach of emphasising on the future, as parties are encouraged to find ways to move beyond their conflict zone, and not about determining who is wrong or right.
Although there is an opportunity for everyone to tell their side of the story in a mediation session, the focus quickly shifts to how the parties can jointly resolve their dispute. The majority of time is spent fashioning out a solution and reaching an agreement.
Who decides the outcome?
In arbitration, a third-party arbitrator or panel conducts a hearing, acts as a judge and makes a ruling that is binding on the parties. People and businesses involved in arbitration therefore relinquish all control of the outcome of their case to an outsider, just as parties in a lawsuit hand over control of the result to a judge or jury, although in this case parties have the opportunity to choose the arbitrator.
But in mediation, the parties determine the outcome by working with a facilitator who helps them to negotiate a mutually acceptable resolution. If they do not reach an agreement, they cannot have a settlement imposed on them because the mediator does not make rulings.
The parties therefore retain full decision making authority. For people who want to have input into how their future is decided, mediation is a better alternative than arbitration.
Factors that influence the outcome
The rights and obligations of parties in arbitration are determined with reference to the existing law and contracts, and just like a trial, an arbitrator is required to follow the law, statutes and legal precedence to determine a case.
But with mediation, although the existing law is sometimes a consideration in the negotiations, it is not the primary reference point for deciding the end result.
Instead, the parties discuss their needs and interests with each other, and these are the factors that ultimately drive the outcome. Unlike an arbitrator who is not concerned with exploring creative settlement options or finding opportunities for mutual gain, a mediator is exclusively concerned about discovering what is important to the parties, and allows them to collaborate on a settlement that meets those interests.
Status of Agreement
Parties tend to perceive that settlement agreements reached are not as binding as an arbitration award would be because of the flexible nature of mediation which they believe makes the mediation agreement vulnerable to be breached, and therefore tend to opt for arbitration. On the contrary, in many jurisdictions, settlement agreements reached at mediation are binding and of the same effect as an arbitration award or court ruling.
Many countries that have adopted and mainstreamed ADR have made mediation agreements binding on parties.
For instance Ghana’s ADR Act 2010, Act 798 makes provision for a settlement agreement of a court referred case for mediation, to be adopted by the court as consent judgement.
Settlement agreement from all other mediated cases out of the judicial system, are binding on the parties.
Section 81 (3) of the Act indicates that “When the parties (at mediation) sign the settlement agreement, the parties shall be deemed to have agreed that the settlement shall be binding on the parties and persons claiming under them respectively,” while Section 82 indicates that “Where the parties agree that a settlement is binding, the settlement agreement has the same effect as if it is an arbitral award.”
It is simply said that arbitration produces a win-lose outcome while mediation offers a win-win outcome.
Although arbitration is less formal than litigation, it is an adversarial process that has the effect of driving a wedge between the parties after arbitration proceedings that are characterised by attacks and counterattacks by both sides, with the aim of convincing the arbitrator.
Mediation, by contrast, helps people and businesses in conflict to preserve their relationships. Unlike arbitration, mediation helps disputing individuals and business to maintain and enhance their relationship into the future.
The joint effort experienced in resolving the conflict during mediation, spurs relationships, especially in business for more beneficial partnership.