This is a really common question. Many people think mediation and arbitration are the same, but they are quite different. This article is intended to give a simple answer.

In short, there are two main categories of processes to resolve disputes between parties:

• Determinative — including arbitration, expert determination, and also litigation in court.

• Non-determinative — including mediation, conciliation, negotiation, and some similar concepts.

The difference is that in determinative processes, a third party decides the outcome, while in a non-determinative process, the parties themselves have to agree with any outcome.

Mediation

Imagine two people who have a disagreement (about anything) and have been unable to work it out by themselves. They ask an independent person, a mediator, to help.

The mediator works with the two people, both separately and together at the same time, in a confidential process to identify the main goals and interests of each. The mediator then helps them identify options to resolve their dispute on terms acceptable to both of them. Often, the terms of a binding agreement are recorded at the end of the mediation.

In Australia, ideally, mediators are qualified under the National Mediator Accreditation System. The NMAS practice standards promote a style of mediation that focuses on self-determination.

Mediation is a process that promotes the self-determination of participants and in which participants, with the support of a mediator:

(a) communicate with each other, exchange information and seek understanding

(b) identify, clarify and explore interests, issues and underlying needs

(c) consider their alternatives

(d) generate and evaluate options

(e) negotiate with each other; and

(f) reach and make their own decisions.

A mediator does not evaluate or advise on the merits of, or determine the outcome of, disputes.

In mediation, while the goal is to settle a dispute, no one is forced to settle. While, unfortunately, not every mediation results in a ‘win-win’ outcome, the parties can decide for themselves on an outcome they think is better than their alternatives. Any settlement must be voluntary.

Arbitration

Imagine the same two people have a disagreement about a commercial contract — one says the other’s work was defective and refuses to pay. They have been unable to sort out their dispute at mediation.

In their contract, they have agreed that any dispute will be decided by arbitration rather than in court. In some senses, arbitration is similar to litigation but has some advantages. Arbitration is confidential, while court is public; arbitration allows more flexibility to achieve a quicker, more cost-effective outcome.

The arbitrator is appointed to be the decision maker; to determine the dispute. The arbitrator listens to both sides, considers the evidence, and reaches a decision — all the time following a process agreed upon by the disputing parties. The arbitrator delivers a written decision in which one party wins and the other loses.

In Australia, ideally, arbitrators are recognised by a professional body (such as Resolution Institute) as having the training and experience to decide a case fairly, according to the law. The Commercial Arbitration Acts (which are essentially identical in every state) give the ‘paramount object’ of arbitration.

Paramount object of Act

(1) The paramount object of this Act is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense.

(2) This Act aims to achieve its paramount object by—

(a) enabling parties to agree about how their commercial disputes are to be resolved …; and

(b) providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly.

At the end of an arbitration, the arbitrator’s decision is binding and can be enforced a lot like the decision of a court.

Conceptually similar processes apply to international commercial disputes and family law disputes.

If you need advice about options for resolving a dispute or have any questions about this article, please get in touch.

Edited 20 October 2022.