Several posts out here in the legal blogosphere have discussed alternative dispute resolution (ADR). One good post out there relating to arbitration is by my friend Matt Devries (@matthewdevries) at his great blog Best Practices Construction Law. In his post, Matt sets forth the case for arbitration as a dispute resolution mechanism in the right situation.
Matt’s post (like many at his blog) got me thinking about some conversations I have had with my friends in the construction industry relating to two particular forms of ADR, mediation and arbitration. In thinking about these conversations, I realized that some confusion exists relating to the differences between these two forms of ADR and the proper situation for the use of these tools.
I will start with my favorite of the two, mediation. As regular readers of Construction Law Musings know, I am a big fan of mediation as a method to resolve disputes. After years of acting as a construction litigator, including participation in numerous mediations, I threw my hat in the ring as a Virginia Supreme Court certified mediator in 2012. My time as a mediator has only strengthened my conviction that mediation is a great alternative to trial.
Mediation language is found in many construction contracts and often (wrongly in my opinion) is deemed mandatory in those contracts. Mediation is essentially defined as follows:
Mediation is a process in which the mediator facilitates communication between the parties and, without deciding the issues or imposing a solution on the parties, enables them to understand and to reach a mutually agreeable resolution to their dispute.
In other words, mediation (particularly when entered into voluntarily) is a confidential process where the parties seek to resolve their dispute with the assistance of a third party mediator. In a well run mediation, the mediator will use his or her experience to help the parties explore the possible solutions to their issues without having to have a judge make a “you win/you lose” type of decision. This process provides flexibility and allows the two sides to explore business solutions without fear that what they say in the mediation being used later at trial. The process is only binding if it results in a written settlement agreement and, aside from fees to the mediator, is a no lose type situation.
Arbitration is a different animal altogether. Like mediation, many construction contracts contain mandatory arbitration clauses that require the use of AAA or other types of private arbitration. Unlike mediation, an arbitration results in an award that has the same all or nothing hallmarks of a court judgment. In short, arbitration is private court.
Depending on the rules for the arbitration as found in the construction contract, arbitration may or may not be a less expensive and more streamlined way to get to the end of the road in your dispute. Some arbitration rules require the same time and preparation for the hearing as in any other litigation. Also, and importantly, the parties will be splitting the costs of what is usually 1 to 3 “judges” at their hourly rates. Also, unlike mediation, there is no flexibility in how the resolution is determined. Finally, arbitration is almost always binding and essentially supplants the state or federal court litigation process.
Again, in the right circumstances (for instance big money and a very technical point with which an engineer as arbitrator may be better equipped to deal), arbitration may be a good choice. However, be aware that mandatory arbitration provisions are enforced regardless of the size or complexity of a dispute.
I hope that this quick compare and contrast of mediation and arbitration helps clarify the differences and uses of these two ADR tools. As always, comment below or contact me with any questions or thoughts on alternative dispute resolution.
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