The fundamental element of every commercial dispute is a written or unwritten agreement, as E. B. White noted, "There is nothing more likely to start disagreement among people or countries than an agreement." But it is also true that a well-prepared agreement can avoid unnecessary litigation processes. One should bear in mind, that if it is necessary to start a litigation process to resolve a commercial dispute, the claimant must be fully prepared and well-advised about all aspects of available resolution methods and their advantages and disadvantages before starting a claim. It is important to note that the intention of this article was never to recommend one process over other available methods or to tell which dispute resolution method is the most promising one, which depends on the circumstances and characteristics of each dispute. Arbitration and mediation are considered alternative dispute resolution methods, which are used to resolve disputes outside traditional litigation methods, such as lawsuits. However, as the Supreme Court of the United Kingdom recently highlighted, it is not just an alternative resolution method anymore, since it has been used frequently, " Such is the emphasis today on encouraging the use of such methods of dispute resolution as the primary resort that the description of them as “alternative” is no longer apt." para 60 [1]
Obviously, this short article cannot explain all elements of each resolution method, knowing that each one has its own characteristics and procedure, which are subject to long academic discussion. The goal of this project was to shed light on this complex matter and help a general observer understand the pros and cons of each method. In order to choose a resolution method that may offer fairness and equity as its expected outcome, the parties must first understand the characteristics of each resolution method. Knowing that, as they share some similarities, also have distinct qualities.
Arbitration:
Arbitrations generally result in a final and binding decision, which delivers a clear resolution to the dispute and disregards the need for further litigation, there is always a possibility to follow the path of the traditional litigation methods, yet this will not have any effect on the outcome of Arbitral decision. However, the court can decide to take the arbitral decision into consideration, whether to consider the decision or just discharge it, depends on the decision of the court. Another advantage of arbitration is that parties can select arbitrators with specific expertise and knowledge related to the subject matter of the dispute, ensuring that someone makes the decision with relevant capability. Also, Arbitration proceedings are commonly confidential, allowing parties to prevent the exposure of sensitive information to the public and maintain their privacy. Another benefit of arbitration is that it can be quicker than traditional litigation, as parties have more control over the timeline, procedures, and scheduling of hearings. Finally, arbitration awards are usually easier to enforce internationally due to the New York Convention, which simplifies the recognition and enforcement of arbitral decisions in many countries which were party to the convention.
Just like other things in our imperfect world, arbitration may be to a lesser extent practical, when compared to traditional litigation, the discovery process in arbitration is often more limited, potentially limiting access to certain evidence and information. Generally, it can be expensive, as parties are responsible for arbitrators' fees, administrative costs, and other expenses linked to the procedure. Besides, it is less formal, while sometimes informality can be an advantage, it may also lead to a perception of less thoughtfulness or legality, particularly when dealing with complex cases. Furthermore, arbitration decisions are typically final and offer limited space for appeal, which may limit a party's ability to challenge a disapproving decision. Finally, arbitration decisions are characteristically confidential and do not create legal precedents, that may result in less predictability and consistency in similar future cases.
Mediation:
This brings us to the next alternative method of resolution, contrary to other methods, during mediation the parties actively participate in negotiations to reach a mutually acceptable solution, which promotes a sense of involvement and control over the outcome. Especially when parties have a deeper going relationship, Mediation can help preserve the relationship between the parties and maintain the ground for future collaborations. While arbitration Mediation focuses on achieving a defendable decision, mediation focuses on preserving relationships between parties, as it encourages open communication and understanding, which can lead to a more amicable resolution. It is also generally less expensive compared to arbitration or litigation since it requires fewer formal procedures and legal representation. Furthermore, mediation allows parties to explore creative solutions that may not be available through formal legal processes, giving them more flexibility in crafting an agreement that meets their specific needs. Like arbitration, mediation proceedings are typically confidential, ensuring that sensitive details stay private.
However, one difference with arbitration is that mediation does not result in a legally binding decision unless the parties reach a mutually agreed-upon settlement. Inequality of power is just another aspect of mediation, when there is a significant imbalance of power between parties, such as unequal bargaining positions, limitation, or lack of financial resources, mediation may not provide an equal podium for conciliation. Another disadvantage of mediation is that there may be less control, while the mediator facilitates the process and has no authority to impose a resolution, which means the outcome ultimately depends on the readiness of the parties to reach an agreement. As mentioned earlier, mediation relies greatly on the willingness of parties to compromise to reach an agreement. However, if parties are reluctant to cooperate or have incompatible differences that lay too far from each other, the mediation process may end up in a deadlock. It can also take a long process, especially in case there are multiple sessions required to investigate and agree on all the terms of an agreement, or in the worst case, having no settlement at all.
It should be reminded, that the advantages and disadvantages of each system can heavily depend on the circumstances and the complication of each case, and also not to forget the preferences of each party. The distinction between arbitration and mediation in the context of international contract law and domestic law needs to be carefully investigated and judged by a qualified expert with the required experience and knowledge.
Arbitration and Mediation in International Contract Law:
When dealing with cross-border disputes, it is worth noticing that there are some complications along with advantages and disadvantages to both systems under international law.
Arbitration:
Although arbitration is applicable to international disputes as it creates an impartial forum and avoids potential bias towards certain jurisdictions, it can also be expensive, as it often requires travel, translation services for processing documents, having to deal with multiple legal systems and the requirement for arbitrators with cross-border knowledge and expertise. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards made it easier to enforce arbitral awards, but international arbitration outcomes may still face delays due to the difficulties of coordinating with parties coming from different jurisdictions, timetable conflicts, which can make executing and enforcing awards in a cross-border setting more challenging. Parties can also choose arbitrators with expertise in international trade, contract law, and specific industries, ensuring that the arbiters have a deep understanding of the complexities involved. They also have the flexibility to determine the governing law of the contract, which may provide more control over the substantive law that will be applied to their dispute. However, coming from different jurisdictions with different legal traditions, practices, and expectations, may influence the conclusion or even the ability to reach an agreement. Arbitration procedures are characteristically confidential, it may be more difficult to maintain privacy and investigate the relevant evidence in complex cases. Next to 'substantive justice and fairness', reasonable speed, efficiency, and finality ‘and albeit more tentatively, privacy.
As mentioned earlier, arbitration decisions are commonly confidential and do not establish binding legal precedents, subsequently, it may not create certainty in interpreting future disputes. It also depends heavily on the choice of the governing law by the parties as expressed in a recent lecture By Lord Briggs, where he clearly highlighted characteristics of cross-border dispute resolution, "In the cross-border commercial context the rule of law works rather differently. There is no developed system of international commercial law that applies whether you like it or not, nor any trans-national courts or law enforcement authority. The rule of law depends heavily upon merchants choosing a mutually agreed system of law and jurisdiction for incorporation in their contracts". And he continued, "It depends critically upon there being courts and tribunals with the skills and resources to resolve cross-border disputes with speed and efficiency, and the independence sufficient to give comfort that neither the home player nor the richer party will be preferred. It also depends upon the existence of mechanisms for the enforcement of their decisions in a way, and at a place, where it will be effective, usually where the losing party has assets available for seizure. Finally, it depends upon there being in place systems for dealing with cross-border insolvency, under which reconstruction may be attempted and, if it fails, all the international creditors of the insolvent business receive equal treatment in the competition to share in any remaining assets" para 6 [2]
Mediation:
Mediation more heavily fosters open communication and collaboration, which can be particularly beneficial in international business relationships where maintaining goodwill and ongoing partnerships are crucial. Also, mediation allows parties to tailor the process to their specific needs, accounting for cultural, legal, and business differences, thereby increasing the chances of finding a mutually agreeable solution. In addition, it can be a more cost-effective alternative to international arbitration or traditional litigation, as it often requires fewer formal procedures, legal representation, and potential travel expenses. Similar to arbitration, mediation proceedings are generally confidential, protecting sensitive business information from public disclosure. Furthermore, Mediation empowers parties to actively participate in the resolution process and create an outcome that best suits their interests, without having a binding decision imposed upon them. Moreover, mediation, just like arbitration, can be held anywhere, it does not require any form or location, as clearly stipulated by Lord Briggs, " Arbitrations and mediations can be held almost anywhere where there is a hotel and an airport, in a location convenient to the parties, or even by video link between parties almost anywhere in the world. It requires little or no infrastructure or taxpayer-funded investment." para 26 [3]
Finally, there is some good development through interventional Conventions which offer new possibilities to enforce mediation awards, As emphasised by Lord Briggs, "Even more recently arrived is the Singapore Mediation Convention, signed in August this year by 46 countries including Malaysia but not yet alas the UK. This seeks to make a settlement of a cross-border dispute by mediation as good a piece of international legal currency as a judgment or an arbitration award, so that, once signed by the mediator, the settlement agreement can be speedily enforced in any of the countries which ratify the Convention, regardless where the mediation took place, the law under which it was conducted or the nationality of any of the parties." para 31 [4]
But, as is so often the case, every system of law has its weakness, and mediation is not an exception, which greatly relies on the voluntary participation and cooperation of the parties. If one party is unwilling to engage in the process of negotiation in good faith, reaching a resolution may be extremely challenging or even impossible. Despite the positive developments within the context of enforcing an award as mentioned earlier, mediation results are non-binding agreements unless the parties are willing to accept the consequences of the settlement, which means the outcome may not be enforceable if either party decides to defy it. Another aspect of mediation could be the fact that one party has significantly more bargaining power or resources, which potentially may create an imbalance that affects the fairness of the mediation process. Furthermore, mediation has naturally an informal nature that may lead to concerns about the thoroughness, consistency, and legal enforceability of the outcome, particularly in complex international disputes. Finally, mediation involves parties from different countries and may face creating challenges related to language barriers, cultural differences, and divergent legal regimes, potentially obstructing effective communication and understanding.
In conclusion, the choice between arbitration and mediation depends on different factors, including the nature, subject matter, expected results, the parties involved, and their specific circumstances and preferences for each dispute. Indeed, each method has its own advantages and disadvantages, and the choice of arbitration or mediation depends on each dispute. It is extremely important that the parties involved, carefully determine their own needs, objectives, and the specific characteristics of their dispute when deciding on their approach.
However, the first and most important advice for the parties would be to win professional advice before entering into any agreement, as beautifully mentioned in the judgment of the Supreme Court of the UK, "Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party." para 20 [5] Having an expert with the right expertise on your side is the key to any successful agreement.