Mediation attempts to resolve disputes by having a neutral person (the mediator) to help the parties reach a compromise. The mediator consults with each party to see how much common ground there is between them and acts as a facilitator, taking offers between the parties. The mediator stays impartial and therefore does not offer an opinion. Mediation is most suitable where there is some chance of cooperation between the parties, but it is not legally binding.
Arbitration is the most formal method of ADR. Arbitration attempts to resolve disputes by enabling the parties to pass the dispute to a third party (an arbitrator) who will make a judgement on their behalf. This judgement, which is called an award, will then be legally binding on the parties. Arbitration is covered by the Arbitration Act 1996. The agreement to go to arbitration can be made by the parties at any time, it can be written into a business contract or the parties may just agree on arbitration when the dispute arises.
The arbitrator, which the parties appoint, is normally someone who is an expert in their particular area of business. The parties can also agree on the number of arbitrators, who will hear their dispute; it could be two or three people or just one person. The parties also decide on the actual procedure to be followed in their arbitration hearing. They can choose between a paper arbitration, where the parties submit everything to the arbitrator in writing who will then read everything and make a decision, or a hearing arbitration, which is where the parties appear and give evidence and may call witnesses.
There are several advantages of using ADRs. Settling a dispute using ADR is usually much quicker than using the court system so speed is an advantage, another advantage is expertise as in ADR a specialist from within a particular trade or industry is able to suggest a reasonable solution which will be acceptable to the parties involved whereas a judge is unlikely to have specialist knowledge, other than in law.
Further advantages are privacy, as most forms of ADR are concluded in private so the public are unable to attend therefore this also avoids publicity from the media; and the maintaining of good business relations, as ADRs aim to find a compromise solution which is acceptable to both parties but court proceedings create a winner and a loser. ADRs enable businesses to remain on good terms and they can continue to trade with each other once their dispute is resolved. The final two advantages are cost, as all forms of ADR are cheaper than litigation, and also the saving of court time, as every case solved through ADR prevents the courts from being overburdened with cases.
There are also some disadvantages to using ADRs. These are that there is unequal bargaining power, as in certain situations one side is able to dominate the other, for example divorce cases, which makes the courts a better option for the weaker party; and lack of legal expertise, as where a dispute involves difficult legal points a mediator or arbitrator is unlikely to have the same legal expertise and knowledge as a judge does. Further disadvantages are that there is no system of precedent, which makes it difficult to predict the outcome of a dispute decided through ADR; another disadvantage is enforceability as most forms of ADR are not legally binding it is difficult to enforce any award and lastly, court action may still be required if ADRs fail to resolve a dispute. This would add to the costs and delay compared to taking a dispute direct to the courts in the first instance.
