Litigation, arbitration or mediation in the UK - What’s the difference?

We all hit conflicts almost every day. We have a disagreement. We talk. We fix it. But not always. Litigation takes forever, costs the earth, causes stress beyond the imagination, and someone still has to lose.

Arbitration and mediation are both forms of “Alternative Dispute Resolution”. Alternative to litigation, that is to say. Mediation can be arranged immediately – at low cost – comparatively stress free – and no one has to lose.

Litigation is easy to start - but not so easy to finish. As the days and weeks go by, as your solicitor asks for his or her fourth payment on account, you begin to wonder whether litigation was really the best way forward.

Probably not.

Having spent many years in litigation, concerned with different areas of law, our simple advice about litigation is – don’t even think about it.

Litigation is uncertain, even if your case seems watertight

The problem with litigation is quite simple. No solicitor knows exactly how the merits of the two respective cases will work out until the evidence is laid in front of the Court. That is because the entire litigation process is designed to extract the truth, as shown in the evidence, so that what the judge gets before him is not just what you decided two years earlier was due to you, but what the law says is your reasonable entitlement, when absolutely all the eggs are in the basket, including the bad ones.

Judges are human beings. Yours might be having a particularly good or bad day. A well argued case on behalf of your conflict-party might sway his or her opinion away from your favour.

Alternatively, the judgment might be generally in your favour, but not to the extent that you expect.

Even if you win, the proposition that your losing conflict party will pay your legal costs is rarely true. The rules of Court do not allow for a solicitors costs to get completely out of hand. That usually means your solicitor will charge you for a proportion of time and expenses that he or she has been unable to recover from the other side even though you have won your case.

Actually, fewer than 10% of cases actually get to a hearing in Court. There are several reasons for that but the most important is that when all that information is laid out on the table it becomes clear that one of you has the stronger case or can afford the time and money to see it through to a hearing, or is prepared to take the risk that the other side will give up first. What is more, in many cases the facts are not clear-cut and the judge will be unable to make an order in the same specific terms that one or the other of you really wanted. So a compromise is agreed. You went into litigation to win but you have come out with less. There is no such thing as a win : win.

That means that both sides leave court with astronomical legal bills, a loss of business management time and without the satisfaction of having achieved very much in that lost time.

Solicitors spend many hours on your case

Successful litigation takes a lot of time, thought and care. It involves drawing documents where every single word counts, extremely careful consideration of every file comes across your desk, frequent liaison with your client, periodic attendances before a Master or District Judge, locating and often interviewing witnesses and deciding whether they have a place in your case. Before you can say “Order of the Court” you, the client, are down by tens of thousands of pounds.

Never forget that everyone of your advisors, consultants, and so on, is working for money to buy the groceries on Friday. The six-figure sum you spend over two years buys those groceries. So if you decide to settle your case, bang goes their fee. That’s another reason why their advice to settle is strongest on the day before you are due in court.

By the time you are at the door of the court and you have paid out thousands of pounds, your barrister has become distinctly pessimistic and is urging you client to settle.

It is difficult to compare what might have happened had you decided at an early stage to go to mediation. However, you can safely say that in very many situations you would have achieved a more satisfactory solution with £500,000 still in your back pocket.

Arbitration

Arbitration is an alternative form of dispute resolution. The court system has long embraced it. It has been used extensively in international disputes.

Arbitration is a judicial process whereby dispute parties agree to accept the judgement of an arbitrator.

The idea behind arbitration is to create a process that is less formal, less time consuming and less expensive than litigation. It should be simpler and faster than the process following issue of a claim in court.

However, in the UK, arbitration has now become a quasi-judicial process presided over by an arbitrator, regulated by the Arbitration Act 1996.

More often than not, an arbitrator is selected on the basis of his/her particular specialism – other than law. The judgement of an experienced expert in a subject like insurance is likely to provide a fair outcome to arbitration. Unfortunately however many specialist arbitrators have insufficient knowledge of the law to be able to assess the strength of the case of one party against the other notwithstanding their specialist expertise.

This happens most frequently when the parties are following a requirement to appoint an arbitrator as set out in their contract. Such paragraph usually specifies that the arbitrator is to be appointed by the president or chairman of a specialist organisation.

As you will understand, a senior expert in an esoteric subject is likely to have less experience of the legal system than you or your conflict party. So you might have a civil engineer arbitrating a dispute about a road construction contract or a building surveyor about a housing contract. It sounds good, but arbitration is not suitable for all disputes.

On the other hand, and arbitrator who gravitates to that work through a career in the legal profession is likely to make a decision along very similar lines to what a judge would order, as the outcome of the far longer process of litigation.

In summary, if you want arbitration, we advise you to find a London based judge or senior barrister. Away from London, choose carefully or avoid arbitration.

Similarities to litigation

The arbitration process is designed to follow similar procedures to those of a court.

The arbitrator has more power than a judge to "do it his own way", but few arbitrators are professionals in arbitration or litigation. Most are ordinary men and women who work as experienced professionals. So they tend to allow the solicitors to walk all over them. Some solicitors take it as a matter of course that the documentary procedures followed in a court process should also apply to arbitration.

Of course, a lawyer has the same obligation to pursue the interest of her client as she has in the handling of a claim in court. As a result, processes like interim orders, requests for documents, witnesses, questions, reasons, can go on forever - and so can the time passing.

Ultimately, if your non-lawyer arbitrator is out of his/her depth in legal matters he/she will simply divide the case down the middle. That’s not the solution that either party expected from their arbitrator.

Mediation as an alternative

As a better alternative, use business mediation, clear the decks and continue to manage your business with a considerably lower level of personal stress - and no six-figure bill.

Mediation has been around at least since the time of King Solomon (Bible: 1 Kings 3:16-28) and probably earlier. Nowadays, family law takes a gentler view than Solomon did, and many more people use mediation.

Although it usually takes place face to face between two people, it can also take place in other ways: at distance (online or via teleconference) and between many parties.

I strongly recommend that you consider very carefully the advantages of mediation. Some mediations today are carried out partially or entirely online.

Mediation doesn't just focus on who is right in law

A frequent contributor to a conflict stems from parties feeling they are not being heard, not appreciated, or misunderstood. In other words there is a substantial emotional element.

The mediator is a neutral observer who is not emotionally invested and can get through to the heart of the matter in order to open up discussions as to how to resolve the dispute. In mediation, the parties are voluntarily participating in the process and, as a result, fear and anxiety are greatly reduced.

The neutral and safe environment that the mediator provides opens up the door to effective communication between the parties. Often, a simple apology or slight change in company policy is a contributor to a happy outcome.

Confidential outcome

Court proceedings are on public record. A civil trial may be attended by anyone.

A mediation is confidential. Only the parties to it know anything about it. Reputations are saved, shareholders are happy. There are no nasty qualifications to your accounts that could affect your capacity to borrow.

Whatever inner workings of their business are disclosed during the course of the mediation, do not end up a matter of public record as they do in litigation. The protection of the parties’ right to privacy for their personal and business affairs makes mediation an attractive choice.

Lower costs and faster resolution

Mediation saves not only money but time too.

Legal battles are time-consuming as well as expensive. Small businesses are particularly hard-hit when senior management is tied up in litigation.

On the other hand, the mediation process is usually completed within two or three weeks or, in an emergency, a few days. You can then get back to your real life very quickly without the long distraction of litigation.

Legally and emotionally binding

The final agreement reached is usually recorded in a memorandum of understanding or a heads of terms.

Either document can be treated as binding or not, as the parties wish. A binding final agreement is always to be preferred, even though, in most cases the parties or their solicitors may wish to fine-tune it at a later date.

As well as being legally binding, the agreements reached in mediation are emotionally binding since the parties had a clear voice in the process, put effort and work into the agreement, are happy with the outcome and are therefore less likely to renege on its terms.

Low stress

Compared with litigation or arbitration, mediation is stress free. Most mediators will try to set everyone at ease and will be quick to spot any undue pressure on one party by the other. A day in a hotel or office is a far cry from maybe several attendances before a judge.

Further, neither side necessarily becomes aware of the financial strength of the other of you, so there is less strategic bullying.

Better solutions

Court procedures are strict and formal. You cannot ask for a judgement that is outside the court’s power to make.

Mediation permits more imaginative solutions that may be more appropriate or helpful. You can consider settlements that might involve not only money but questions of timing, quality, changes to established procedures, confidentiality, Internet silence and other matters that are outside the power of a court to impose.

Because you are face to face with your opponent and you both put your cards on the table, there is more trust right away, so apparently intractable problems get solved. That cannot be arranged in a court.

Mediation must be considered before litigation

In court proceedings, it is the duty of a judge to consider alternative means of dispute resolution to taking it to trial.

What is more, the European Parliament endorsed a directive on 23 April 2008 primarily to facilitate cross border mediation. However, this law applies (in the UK since 23 April 2011) to all disputes and not only those with an international element.

So judges increasingly send the parties away to seek their own solution. It follows that if a party either refuses mediation, then it is likely that the judge will assume a lack of cooperation by that party.

So mediation has now come in from the darkness to star status. It provides no magic bullet, but it works. That is why it is regarded as the best bet on the table.

How to start your mediation