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B R I TA N N I A N E W S

JUNE 2007

Arbitration and mediation: a comparison

In England there has been a significant growth in interest in the use of mediation to
resolve commercial disputes. Commercial mediation has gone through the archetypal path
for acceptance of new ideas: initially they are ignored, if they persist they may be treated
with suspicion (even hostility) and then, suddenly, they are orthodox and part of
mainstream thinking. By Rhys Clift, Partner at Hill Dickinson LLP solicitors in London.
Over the last 10 years, particularly since the
implementation in 1999 of the new Civil
Procedure Rules, there has been a cultural
shift in the management of disputes. Law
firms now have dispute resolution
departments, not litigation departments;
the focus on the actual handling of disputes
(familiarity with the rules and procedures of
arbitration; knowledge of the Commercial
Court Guide) has shifted emphatically to
trying to resolve the dispute. Mediation is
both a key feature and a key driver in this
cultural change.
What explains the successful rise of
mediation? There are several reasons: it is
quick, it preserves relationships, it saves
money and, quite simply, it works. The
success rate (settlement rate) in mediation is
very high. It is believed that about 75% or
80% of cases settle either on the day, or
shortly after. It is an astonishingly effective

process and has been successful even in

those types of case that are considered the
most difficult such as those involving
allegations of fraud or dishonesty.
It is well recognised that litigation and
mediation are different, but many think that
arbitration and mediation are similar. In fact
they are fundamentally different. How?
I would identify four key areas:
1 Arbitrators have powers over the parties
and can make binding orders against
them for failure to comply. Mediation is
voluntary. The parties can walk out at any
time and, although it is rare, sometimes they
do just that.
2 Arbitration is private, but the privacy is
by no means guaranteed. That privacy can
be lost by the pursuit of an indemnity claim,
an enforcement action or an appeal.

By contrast, mediation is wholly private and

confidential and nothing that is said on the
day and no documentation created for the
purpose of the mediation should ever see
the light of day.
3 Arbitration is a decision-making process
in which arbitrators make orders. Although
every case is different, most arbitrations will
work their way through the same steps:
exchange of pleadings, disclosure of
documents, witness statements, experts
reports, a hearing or hearings and a final
determination of the issues which remain
live between the parties. By contrast, whilst
mediators have control of the process, they
have no power to make any order or any
final determination between the parties.
They do not issue an award or judgment, nor
generally will they express any view on the
merits of each partys case. Mediation is
a process of managed negotiation.

B R I TA N N I A N E W S

4 Arbitration awards are binding and

enforceable. A popular misconception of
mediation is that it is not binding. Certainly
the process itself is voluntary, but if the
parties reach an agreement and that
agreement is committed to writing, it is
binding, either as a contract of settlement or
possibly as a judgment or award by consent.

completely different mindset to the

management of litigation or arbitration.
Where mediators do not make orders, do not
issue awards, do not issue judgments, do not
express opinions on the merits of the cases
and have no power to stop the parties just
walking out of the room, why does it still
work? I would identify four main reasons:

So what are the relative advantages and

disadvantages of the two processes?

1 It involves an independent third party.

This is the key defining feature of the process
and the catalyst for deal making.

Arbitration (and indeed litigation) in England

and Wales has been refined over a period of
over 100 to 150 years. In many ways, the
process is excellent and the standards are
high. But as a very broad generalisation, it is
slow, costly, adversarial and risky (indeed this
is true of legal process wherever it is
conducted, in England and Wales or abroad).
Mediation, on the other hand, is quick,
inexpensive, collaborative, and reduces risk
to a minimum.
Some might say that there is no real need
for mediation and that disputes should be
resolved by negotiation. Many lawyers are
indeed highly skilled in identifying risk at an
early stage and they do seek to resolve
disputes by negotiation. But it takes two to
tango. To strike a deal, all parties must
engage in negotiation and shrug off
personal issues. And even then the best
efforts may be frustrated. The more complex
the case and the more parties there are
involved, the more difficult it is to tango; you
cannot dance with six people.
Despite that, the vast majority of cases are
settled by negotiation, and always have
been, long before commercial mediation was
on the scene. But how often was settlement
reached after completion of discovery
(disclosure of documents), after exchange
of witness statements, after experts reports,
after deliveries of briefs to Counsel and in
some cases after part or all of the trial? In
short, notwithstanding the abandonment
of trial by battle, how much would the
process have cost, how much pain would
have been suffered and how much blood
spilled on the floor?
In some ways, where there has been an
established culture that disputes (of all
types) should be resolved by a decision,
mediation is a curious process. It requires a

2 It involves the decision makers from

amongst the clients, rather than just the
lawyers. The clients involvement is crucial.
3 It has a timetable, structure and dynamic
which negotiation lacks.
4 There is an unusual but powerful sense of
shared purpose.
Of course, some parties go into mediation
with absolutely no intention of settling and
their only purpose in attending might be to
find out as much as they can about the other
sides case, while giving away as little as
possible about their own. But looking at the
statistics of settlement, these are probably
the minority. Most cases reach a point where
all parties want to settle and that shared
sense of purpose informs their behaviour.
Mediation has other advantages. For
example, disputes can be resolved by deals
which go way beyond any kind of
apportionment of issues between the parties
or any sort of adjudication of who is right
and who is wrong. It is a substitute for a day
in court without the risk and cost of a trial.
The parties can say to each other exactly
what they think about the other side and
the other sides case. That is never going to
happen in court or in arbitration where
there is a fine structure for the running of
the case. Furthermore, parties have an
opportunity to vent their feelings, without
the risk and cost of going to a final hearing.
This can be cathartic: it can release a pent-up
tension that would otherwise preclude
negotiation. And finally, mediation minimises
the risk of damage to relationships and
reputations. Instead of becoming ever more
deeply entrenched in an adversarial process,
parties can be engaged in a constructive
discussion with their counterparts in a

manner that simply cannot and will not be

achieved through the traditional process of
dispute handling. Indeed, their relationship
may even be enhanced.
As to reputation, individuals may adopt a
particular stance in handling a problem
and choose to stick by it even when
evidence emerges to suggest that it might
be unwise. The ultimate damage to
reputation is to those who feel compelled to
go to the witness box to give evidence only
to find that their evidence is treated as
unsatisfactory by an arbitration tribunal (or
worse, in public by a court).
Mediation is not a soft process of
compromise. Mediation is not conducted
in a vacuum. The expression alternative
dispute resolution is something of a
misnomer. Mediation is generally conducted
in parallel to the normal legal process
(whether litigation or arbitration) or with the
threat that legal process might be engaged.
Indeed, sometimes it is essential to engage
legal process to take protective steps to
ensure that one can negotiate in mediation
from a position of strength (for example, to
interrupt a time bar, to obtain a Search and
Seizure order for evidence or to obtain a
Freezing order over property assets and
cash). Whilst in many cases it may not be
necessary, the threat or pursuit of legal
process can be the steel fist in the velvet
glove of mediation.

Note
Much of the ground touched on in this article
is expanded and clarified in a paper published
by Rhys Clift entitled Introduction to Alternative
Dispute Resolution: A Comparison between
Arbitration and Mediation which is available on
the firms website at www.hilldickinson.com