Mediation or Arbitration - have we become siloed?

The ability to see the situation as the other side sees it, as difficult as it may be,
is one of the most important skills a negotiator can possess.

Fisher & Ury Getting to Yes - Negotiating Agreement Without Giving In


There are many reasons for engaging in "alternative dispute resolution", whether mandated in the underlying lease or construction contract, settling a disagreement over business or property valuations or as a means of settling prolonged litigation; there is, however, a tendency for legal advisors and disputes professionals to be either mediators or arbitrators, with those promoting med-arb (or more accurately arb-med-arb) viewed with some suspicion.

The distinction typically means more to lawyers than to clients.

In construction contracts, and increasingly in other commercial contracts in which the parties have an ongoing relationship, disputes clauses are tiered, requiring an initial consensual approach, followed by a final and binding determinative process if agreement cannot be reached.

For clients, particularly in major projects, disagreement and dispute raises considerable uncertainty; not just in financial exposure, but also in contractual responsibility.  Understanding the other side's position, as outlined in the quote from Fisher & Ury above, is only part of the picture.  Understanding legal obligation is also critical.

Mediation - the consensual process

Negotiating the resolution of disagreement, under the guidance of a negotiator, has its undoubted benefits, balancing the parties' perceptions of their rights against their interests and exploring the best, worst and most likely alternatives to a negotiated agreement.  To be durable, any such agreement must be negotiated and understood in the context of the parties' legal obligations.

In most cases, the advice that mediation as part of litigation settlement should be undertaken once the claim is clear, legal arguments understood and disclosure completed is sound.  In that context, the parties should understand their respective positions, save that they may be somewhat entrenched.

In the construction context, the reverse is true.  Disagreement is best identified early, and resolved before positions have hardened.  Facilitative mediation in that context becomes problematic.  While the sums may be considerable, parties' representatives in the mediation are typically provided with limited authority to settle, ensuring that any agreement will need to be referred back to the chief executive or board for approval.  At board level, the fact that there is litigation risk and settlement agreed will frequently not be enough.  Most will need to understand why the agreement should be accepted.  There may be no doubt that they have to pay, but they may need convincing as to what lies behind the liability and calculation of the amount.

The problem is particularly acute when the disagreement is over obligations which have ongoing impact on the project.

For any mediation, agreement is more durable when the parties' interests are protected in the context of their legal obligations.  At a gathering of disputes professionals not so long ago, the commercial manager of a large insurance company commented that they liked mediation; they liked and understood the process their preferred mediator adopted; and they didn't like a recent High Court decision relevant to their claims management.

I'm not at all sure that he understood the significance of what he had said, albeit in a moment of frankness.

Insurance claims can be stigmatised as a single issue horse-trade.  Most commercial agreements, particularly when settling claims which have lasting significance (for example, Treaty based claims) and those in the technology, construction and infrastructure field, require a more nuanced approach where each issue is examined within an understanding of the parties' legal obligations.

Arbitration - the determinative approach

Conversely, arbitration is a legal approach, under which a final and binding determination is issued.

The tendency in domestic arbitrations is to adopt a High Court Rules approach, with pleadings, disclosure and hearings following an adversarial approach, notwithstanding the flexibility available under the Arbitration Act.  Recent court decisions have also failed to recognise the special nature of arbitration.

There has been some exploration of the benefits and potential pitfalls of combining mediation with arbitration, commonly styled med-arb.  The benefits of a negotiated settlement, combined with the domestic and international enforcement of an arbitral award will be clear to most practitioners.  In order to procure those benefits, while avoiding the pitfalls of combining the privileged nature of mediation with the determinative process of arbitration, would be to engage an arbitrator, then adjourn the arbitration proceedings to allow for mediation (not before the arbitrator), and to then record any mediated agreement in a consent award.  This approach retains the independence of the arbitrator while procuring domestic and international enforcement enforcement under the New York Convention.

Yet, it is not a commonly adopted approach.

Early Neutral Evaluation

Increasingly, contractors and owners wish to maintain a cooperative relationship for the duration of the project; a negotiated settlement of a dispute does not clarify ongoing obligations; adjudication is unattractive, as a result of cost, questionable determinations and inappropriate adjudicator appointment; and the cost and finality of arbitration is disruptive and involves surrendering a level of control many are reluctant to accept.  The issue becomes one of control.

This has lead to hybrid procedures where the parties effectively want a non-binding opinion on what the outcome of a determinative process would be, without actually going through the process.  Typically, this involves the parties presenting their positions in summary, and conference between the parties to discuss the issues, followed by a formal opinion.  In most cases, this provides the parties with an informed basis upon which to conduct further negotiations.


It is only the most sophisticated clients who fully appreciate the differences between mediation and arbitration, and how to make the most each has to offer.  In reality, they want to understand why they have to pay or otherwise perform under the contract, and in doing so to have confidence in what an arbitrator would decide, without incurring the cost, delay and disruption of going through the formal process.

That is a clear indication that, in providing these disputes procedures, in many cases lawyers and practitioners have become enrolled in the process, rather than understanding and meeting their clients' needs. Both mediation and arbitration provide high degrees of autonomy in the selection of the disputes practitioner and the procedure taken.

More needs to be done to use that flexibility, and to understand the clients' needs, rather than to simply follow a well-worn procedure to an uncertain outcome.