What is the difference between mediation, arbitration and litigation?
As a dispute resolution lawyer of more than 26 years, the most common question which I get asked is the difference between negotiation, mediation, arbitration and litigation. I understand why such a question may be important. Knowing the answer, helps my client decide which option to choose. I must admit that there is no easy answer to such a question. Why is this the case?
From my own personal experience, I believe it was partly historical on account of traditional law school training systems. I recall that my training as a barrister in the U.K was mainly to teach me litigation and arbitration skills. Negotiation and mediation skills were mainly taught either in Business Schools or Schools of Social Sciences. Much has now changed. I am glad to see that many law schools, especially here in Singapore, have incorporated mediation into their program. I am confident that in the years to come, negotiation skills will come to be taught as well.
Having the formal training in all the 3 skill sets, I now offer an explanation of the difference. For arbitration and litigation, it is the art of presenting evidence and the law to a judge or decision maker. Whereas negotiation is the art of communicating with the other side so that a mutually acceptable outcome can be achieved. Mediation is when the parties appoint a neutral person to facilitate the negotiation process.
What is Mediation?
What is the mediation process?
I have often been asked whether parties themselves can try and negotiate themselves without a mediator? After all, the ability to negotiate is a natural thing and we are born to negotiate, right? While negotiation skills may seem instinctive; the actual process and skills are not instinctive. A trained mediator, using formal techniques and following a process will likely yield a better result than someone who is doing this instinctively.
Typically, the mediation process involves 4 parts; namely a part to identify the issues, then a part to explore and generate options. At the same time, the mediator will also encourage parties to communicate with each other. Finally, there is a part where the mediator will facilitate parts to voluntarily arrive at a settlement.
What is the Singapore Mediation Act 2017?
This was an Act of Parliament passed on 3 Feb. 2017 to promote, encourage and facilitate the resolution of disputes by mediation.
As such, there are several key provisions of the Act which is worth noting. Section 8 of the act allows any party to “mediation agreement” to apply to Court to stay any proceedings involving a dispute in the mediation agreement, pending the outcome of the mediation.
Section 4 of the Act, states that a mediation agreement may be in a form of a clause in a contract or in the form of a separate agreement. But it must be in writing.
Section 12 further allows a mediated settlement agreement to be recorded as an Order of Court. Such an application can be made to the Courts in Singapore, even though no proceedings have been commenced in a court.
Difference between a mediation service provider vs direct appointment?
Parties have the freedom to choose between appointing a mediator directly, or let a service provider like the Singapore Mediation Centre choose one for them. Section 12 of the Singapore Mediation Act, only allows mediated settlement agreements to be converted to Court Orders, only if the agreement were mediated through an accredited service provider or where the mediator is a certified mediator.
However, any other types of mediated settlement agreements can still be enforced by the normal Court process, except that it will take slightly longer than the Section 12 route.
Cost differences between Mediation, arbitration and litigation
Therefore, and in terms of cost, it would be plain to see that negotiation is the least costly way to resolve a dispute. Moving up the scale will be mediation and then lastly arbitration and litigation. Ironically, in my experience, nearly all of my clients come to me asking for assistance in arbitration or litigation. They make the assumption that the other party (or their lawyers) are “bad people” with “bad motives”, therefore negotiations and mediations are not possible.
Mediate not Litigate
Statistics have shown that normally people are not “bad” or harbour “bad motives”. It is a cognitive bias to think so. More often than not, it is because they themselves are poor negotiators or they have appointed poor mediators.
As the financial crisis deepens, many small businesses will likely face conflicts. Some of these conflicts may even involve people or entities in power positions. It is becoming important that small businesses learn to negotiate and if not learn to consider alternatives like Online Mediation.
It is both a cost-effective and principled manner to end a dispute early, without sacrificing the commercial interests of all parties to the dispute.
The benefits vs disadvantages of online mediation and the Courts
Small business owners often tell us that they try to reach a settlement through informal discussions with the other party, before going to trial as a last resort. However, and as can be seen in the above diagram, mediation is both a cost-effective and principled manner (provided it is done in a formal way) in ending a dispute early, without sacrificing the commercial interests of all parties to the disputes.
You pay much less than you would for bringing the suit to trial. A conservative estimate would be a difference by a factor of at least 5. Of course, this depends on the complexity of your case and the lawyers you chose to hire.
You spend much less time and effort on the dispute on the whole. This also means less stress of having to create a better case for trial by sorting out your documents and finding reliable witnesses, and also waiting to find out whether the judge will rule in your favour. It also frees up time and mental space for you to do what actually matters to you – including running and expanding your business.
You have the opportunity to create an agreement that addresses other issues and concerns, and to create an outcome which the court may not have the power to order. It is more than just compromise or meeting each other in the middle. For example, the court can’t order someone to apologise to you for making defamatory remarks, but mediation gives you the opportunity to raise such concerns and find a way for the other party to recognise that your feelings have been hurt.
WHAT ABOUT COST OF MEDIATION?
And of course, the next thing my clients ask me is “what about the cost?”
Usually, parties will share the cost of a private mediation session, or pay a small fixed fee if the mediation is conducted in the court (about $250.00 at the time of this article). The cost includes the mediator’s fees, as well as rental fees for the meeting room. For private mediation, the cost usually does not exceed $10,000.00 for a single-day session. (Do note that lawyers charge their fees separately for preparation and attendance.)
COMPARE MEDIATION WITH TRIAL
“That sounds expensive for a one-day event!” you might say. But consider the alternative of going to trial:
You have to spend time with your lawyer to help him or her understand the background facts, and dig up the necessary documents, and gather your witnesses. This is going to be an extended effort because your lawyer very likely needs more information from you as your case progresses. If you are the suing party (also known as the plaintiff), then you have to prepare everything first before your claim is filed. When your claim is filed, your lawyer may have to answer to the defence and a possible counterclaim. This process can take at least 3 months, depending on the complexity of your case.
It is then time to exchange relevant documents. If one party wants more documents to be disclosed, then the lawyers may have to argue for and against such disclosure in court. This discovery process can take another 3 months or more, and the cost highly depends on how hotly contested the relevance of the documents is.
Your witnesses then need to submit written and sworn statements (unlike television shows, the Singaporean court system is all about the paperwork). Another 2 months or so pass by while you pay your lawyer again.
Finally it is time to come to trial! But let the judge check his calendar first, since other suits have come before yours and queuing up is a necessity. If you’re lucky, you may get your trial within 6 months. And the cost of the trial is going to be directly proportionate to the number of days it will take.
So if you are lucky enough to have efficient lawyers who know their work and can give you upfront fixed fees, you might finally get to trial about 18 months later, after paying anywhere from the mid-5-digits to the low 6-digits over time (instead of receiving a huge invoice after all that work is done). And all for an equal probability of winning or losing! Therefore we encourage clients to seriously consider mediation and to spend substantial time to prepare to negotiate at mediation because we think it better serves the economic interests of a business (as well as its other stakeholders, such as its managers and employees) compared to going for trial in the majority of cases.
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