The Difference between Mediation and Arbitration

Filing a formal lawsuit can be very expensive. Lawsuits, more specifically class-action lawsuits may take several years to get resolved. Needless to say, the cost of attorney’s fees, consultation fees and other legal expenses are extremely expensive and may eat up all compensatory damages involved in the case.

Hence, most legal disputes especially those involving large multinational corporations are being solved through the practice of mediation and arbitration.

Mediation refers to a special, private form of dispute resolution wherein both parties, the complainant and the defendant, attempt to reach a compromise.

According to, around 85 percent of the top 1,000 U.S. companies are “using mediation as a way of settling legal disputes with other corporations and individuals”. Mediation can be considered as a diplomatic way of solving disputes between companies and individuals.

Similarly, arbitration is also a form of private dispute resolution. However, arbitration differs from mediation in several ways.While mediation is more of diplomatic and allows the opposing parties to reach an agreement by themselves, arbitration is more strict and formal.

In order for an arbitration to push through, a third-party arbitrator should take charge of the proceedings. An arbitrator acts out as a judge and looks into the arguments of both parties, in an effort to make a decision that binds both parties.

In the case of mediation, a mediator acts more like a referee, allowing the parties to resolve their issues by way of talking things out and understanding the point of view of the opposing  party.  

Mediation is preferred because it creates less negative publicity, unlike arbitration wherein parties are bind by an obligation dished out by the arbitrator. Likewise, mediation is a voluntary act while arbitration is mandatory.

In most cases, arbitration follows a failed mediation. When parties failed to reach a compromise, the best recourse, apart from court proceedings, is arbitration.

Arbitration is common in divorce settlements. An arbitrator determines the validity and legitimacy of the claims and testimonies of each party, after which the arbitrator decides on the dispute.

Normally, an arbitrator hands out a 50/50 decision, making good on some of the interest of both parties. However, the decision isn’t entirely favorable for a particular party as both parties win and lose.

Both mediation and arbitration are conducted in front of a third party; the mediator and the arbitrator. The main difference lies between the functions of the third parties involved. In mediation, the mediator acts as a facilitator while in an arbitration, the arbitrator acts a judge.