ARBITRATION V. MEDIATION- A Comparative Analysis

Written by Esther Etim Effiong, Jemimah Ekpe and Idobong Abasiekong. Compiled by Onajite John Akporherhe

In resolving disputes, one must often choose between the array of techniques available to them. The art of dispute resolution has many paths, such as arbitration, mediation and negotiation. This article shall explore the two most popular dispute resolution techniques, and their suitability for various situations.

ARBITRATION

Arbitration is a non-judicial form of dispute resolution procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. It is similar to going to court, but more efficient, cost effective, and less complex than litigation. It is a formal process where parties select a neutral third party, called an arbitrator, to resolve a dispute.

In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. While in most instances attorneys will be present, the outcomes are not decided by a court of law, but by the arbitration panel; or with the assistance of a mediator. In the majority of cases, attorneys represent the parties involved in the dispute. There is a discovery process; there could be hearings; parties may testify under oath; and the arbitrator(s) will render a final and binding decision. The amount of the claim determines how the claim will be heard and the amount of arbitrators.

Now, to focus on the principal characteristics of Arbitration.

First, Arbitration is a consensual dispute resolution process based on the parties' agreement to submit their disputes for resolution to an arbitral tribunal usually composed of one or three independent arbitrators appointed by or on behalf of the parties. In the case of future disputes arising under a contract, the parties insert an arbitration clause in the relevant contract. An existing dispute can be referred to arbitration by means of a submission agreement between the parties. In contrast to mediation, a party cannot unilaterally withdraw from arbitration.

Furthermore, Arbitration is neutral, which means it is conducted in accordance with the terms of the parties' arbitration agreement which are often found in the provisions of a commercial contract or applicable investment treaty.This allows them to ensure that no party enjoys a home court advantage. Arbitration is known for its procedural flexibility and confidentiality which allows parties to engage in an efficient, private and fair process leading to a final, binding and easily enforceable award.

Arbitration is of 2 important types; Institutional and Ad hoc arbitration, each with their different and essential features.

Institutional arbitrations as the name suggests, are administered by an arbitration institution. Therefore, proceedings here are conducted under the arbitration rules selected by the parties which have been drafted by the chosen institution, for instance, the 2013 HKIAC Administered Arbitration Rules and the updated 2018 HKIAC Administered Arbitration Rules, which establish the parameters of the procedure, from the submission of the notice of arbitration to the issuance of the award.

Ad Hoc arbitrations on the other hand are arranged solely between the arbitrators and the parties. The parties must envisage and advance the arbitration procedure themselves under the supervision of the tribunal. The parties may choose to adopt a ready-made set of arbitration rules (such as the UNCITRAL Rules of Arbitration) or the proceedings may be conducted in accordance with a set of bespoke rules, drawn up by the parties specifically for that particular case.

And now, our country Nigeria. In addition to Nigeria being the African country with the largest economy in terms of nominal GDP, it was the first African State to adopt the UNCITRAL Model Law, in 1988, through the Arbitration and Conciliation Decree No. 11 of 14 March 1988. Now, it is governed by the Arbitration and Conciliation Act (Chapter 18, Laws of the Federation of Nigeria 2004) (the “ACA”), which incorporates the 1985 UNCITRAL Model Law on International Commercial Arbitration (“UNCITRAL Model Law”).

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards was ratified by Nigeria on 17 March 1970, with reciprocal and commercial reservations, and incorporated into the Preamble of the ACA. Although the ACA is the primary source of arbitration legislation in Nigeria.The 2009 Lagos State Arbitration Law applies to all arbitration within the federal State of Lagos, except where parties expressly agreed otherwise.

Arbitration, as a means of dispute resolution has been used over the years, and this constant usage is due to the advantages it offers. In businesses, partnerships and investment transactions, many do not anticipate future litigation. However, when a dispute does indeed arise, there are many options to resolve it. If the thought of going to court and enduring the trial ordeal displeases you, arbitration may be preferable, if parties to the dispute would all agree.

Advantages

Efficient and Flexible: It results in quicker resolution and is easier to schedule. The dispute will normally be resolved much sooner. It may take several years to procure a court trial date, while an arbitration date can usually be obtained within a few months. Also, trials must be scheduled into court calendars, which are usually backlogged without hundreds, if not thousands of cases in front of you. On the other hand, arbitration hearings can conveniently be scheduled based on the availability of parties and the arbitrator.

Less Complicated: Simplified rules of evidence and procedure. Litigation inevitably leads down a long path of filing papers and motions, and attending court processes such as motion hearings. The normal rules of evidence used in court may not be strictly applied in arbitration proceedings, making it much easier to admit evidence.

Confidentiality and privacy:

Arbitration hearings are conducted in private and awards are, under normal circumstances, not published.  Therefore, disputes will not be revealed to the public and where possible business relationships can be maintained.

Impartiality: Choosing the “judge”

The parties to the dispute usually pick the arbitrator together, so the arbitrator will be someone that both sides have confidence will be impartial and unbiased.

Finality: The end of the dispute

For binding arbitration, there are limited opportunities for appeal. That gives finality to the arbitration that is not often available with a trial decision, which may be subject to appeals, new trials and further appeals.

And because most things with pros also have their fair share of cons, arbitration is no exception. The reasons why people would be reluctant to toe that path are enumerated below.

Disadvantages

Mandatory arbitration:

If arbitration is mandatory by contract, then the parties do not have the flexibility to choose arbitration upon mutual consent. In these cases, one party can force the other party to go to arbitration, even a jury trial may be more advantageous to the other party.

Subjective Arbitrator:

The process of choosing an arbitrator is not always an objective one. There are cases when the arbitrator could be biased because it has a business relationship with one party or is selected by an agency from a pool list. In those situations, impartiality is lost.

“Arbitrarily” (inconsistently) following the law:

Although generally the arbitrator is required to follow the law, the standards used are not clear. The arbitrators may consider the “apparent fairness” of the respective parties’ positions instead of strictly following the law. This is important especially if your party would be favored by a strict reading of the law.

Final and Binding:

Arbitration awards are usually final and not subject to review on the merits, meaning prolonged court appeal procedures can generally be avoided. While this may be a positive if you find the arbitration decision favorable, you should be aware that if arbitration is binding, both sides give up their right to an appeal. If one party feels the decision is erroneous, there is very limited opportunity to correct it.

Arbitration can at times be more expensive: There are many cases in which arbitration can become more expensive than court proceedings. Quality arbitrators can demand substantial fees that would not apply in court.

An arbitrator may also make rulings that would not be appropriate in court or may push for unconventional solutions that you were not expecting. This could both be a pro or con, so you must carefully evaluate how this may affect your desired ruling.

MEDIATION

Mediation is the most commonly used ADR method in the 20th century and although more expensive than a simple negotiation, it allows the parties to retain control, and be intrinsically involved in the resolution process. Mediation is said to be a process in which a third-party neutral assists in resolving a dispute between two or more other parties. It is a non-adversarial approach to conflict resolution.

Unlike arbitration, where the intermediary listens to the arguments of both sides and makes a decision for the disputants, a mediator assists the parties to develop a solution themselves. Although mediators sometimes provide ideas, suggestions, or even formal proposals for settlement, the mediator is primarily a "process person”, helping the parties define the agenda, identify and reframe the issues, communicate more effectively, find areas of common ground, negotiate fairly, and hopefully, reach an agreement.

In too many situations, mediation is viewed as the last step in adjudication (i.e. when impasse has been reached), rather than as the first step in a collaborative effort to head off a problem or work out a creative solution.

Mediation can be of advantage and disadvantage to both the mediator and the parties in dispute.

The advantage of mediation is that of flexibility. Mediation allows for creative solutions that might not be available in a court setting. This flexibility often leads to more satisfying and tailored outcomes for all parties involved. Mediation can also help the parties feel like the outcome is collaborative. It focuses on finding common ground and fostering understanding between parties. By working collaboratively, mediating parties can preserve their relationships and promote a cooperative environment. This is especially valuable in situations where ongoing interactions are necessary, such as within businesses, families, or workplaces. The mediation process is also said to be confidential, which can be a significant advantage for parties who want or need to keep their dispute private. Unlike court proceedings, which are often public, mediation allows parties to have open and honest discussions without fear of their statements being used against them in the future. Confidentiality encourages parties to freely express their concerns, interests, and potential solutions.

The primary disadvantage of mediation is that it cannot always ensure an outcome that is favorable to both parties. Because the mediator is not an impartial decision-maker, it can be difficult to enforce the terms of an agreement in the event that one or both parties do not comply with the terms they have agreed to. This could leave you without legal recourse if your case does not proceed as planned.

Mediation is also a disadvantage when the balance of power between the parties is too great. Mediation assumes that parties have relatively equal bargaining power and ability to advocate for their interests. However, there may be situations where power imbalances exist, such as disputes between couples with a history of domestic violence or disputes between individuals and large organizations. In such cases, the disadvantaged party may feel pressured to agree to terms that are not truly in their best interest. Cases like these call for the guidance of an experienced attorney.

Finally, while mediation can provide a forum for parties to express their concerns and explore potential solutions, it does not offer the same legal protections parties would find in a court of law. The mediator’s role is not to provide legal advice or enforce legal rights.

Therefore, parties involved in mediation should consult with legal professionals to ensure that the process adequately protects their right.

In conclusion, both arbitration and mediation are effective alternative dispute resolution (ADR) processes, but they cater to different needs and offer distinct benefits. Arbitration provides a binding decision, akin to a court judgment, offering finality and enforceability, whereas mediation facilitates a negotiated settlement, promoting party autonomy and flexibility. Arbitration is suitable for disputes requiring a definitive outcome, whereas mediation excels in preserving relationships and finding mutually beneficial solutions. Considerations such as cost, time, complexity, and the need for expertise should influence the choice between these ADR processes.

Ultimately, the selection of arbitration or mediation depends on the unique circumstances and priorities of each case. By understanding the strengths and weaknesses of both processes, parties can make informed decisions and harness the advantages of ADR to resolve disputes efficiently and effectively.