Introduction to dispute resolution - Characteristics of arbitration, mediation, and litigation as appropriate mechanisms

Learning Outcomes

After reading this article, you will be able to identify and compare the main dispute resolution mechanisms—litigation, mediation, and arbitration. You will understand their defining features, advantages, disadvantages, and when each is appropriate. This will enable you to select and justify the most suitable method for a given scenario, as required for SQE1 single best answer questions.

SQE1 Syllabus

For SQE1, you are required to understand the practical application and consequences of choosing between different dispute resolution methods. As you revise this article, focus on:

• the distinguishing characteristics of litigation, mediation, and arbitration;
• the advantages and disadvantages of each mechanism;
• the circumstances in which each process is most suitable;
• the court’s approach to encouraging ADR and the possible costs consequences of unreasonable refusal.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which dispute resolution process results in a binding decision made by a neutral third party chosen by the parties?
2. What is a key feature of mediation compared to litigation?
3. If a party unreasonably refuses to mediate, what costs consequence might the court impose even if they win at trial?
4. In what situation is arbitration generally more appropriate than litigation or mediation?

Introduction

When advising clients involved in a civil dispute, you must be able to explain the main options for resolving the matter. The three principal mechanisms are litigation, mediation, and arbitration. Mediation and arbitration are often referred to as Alternative Dispute Resolution (ADR), as they are alternatives to the formal court process. Understanding the features, benefits, and drawbacks of each is essential for SQE1 and for effective client advice.

Key Term: Alternative Dispute Resolution (ADR)
Methods of resolving disputes outside the formal court process, including mediation and arbitration.

Litigation

Litigation is the formal process of resolving disputes through the courts. It is governed by strict procedural rules and results in a binding judgment.

Key Term: Litigation
The process of resolving disputes through the civil courts, resulting in a binding and enforceable judgment.

Features

• Formal, structured, and public process.
• Governed by the Civil Procedure Rules (CPR).
• Adversarial: parties present opposing cases to a judge.
• Binding decision (judgment) enforceable by the state.
• Judgments may set legal precedent.
• Right of appeal (with permission).
• Costs are usually awarded to the successful party, but the court has discretion.

Advantages

• Provides a binding, enforceable outcome.
• Clarifies legal rights and may set precedent.
• Compels disclosure of evidence.
• Suitable for urgent remedies (e.g., injunctions).

Disadvantages

• Expensive and time-consuming.
• Public process—lack of confidentiality.
• Can damage relationships.
• Parties have little control over the process or outcome.

Key Term: Civil Procedure Rules (CPR)
The procedural code governing civil litigation in the County Court, High Court, and Court of Appeal.

Key Term: Judgment
The binding decision of a court at the conclusion of litigation.

Mediation

Mediation is a voluntary, confidential process where a neutral third party (the mediator) helps parties negotiate a settlement.

Key Term: Mediation
A non-binding ADR process where a neutral mediator facilitates negotiation between parties to help them reach a mutually acceptable agreement.

Key Term: Without Prejudice
Communications made in a genuine attempt to settle a dispute that cannot be used as evidence in court if settlement is not reached.

Mediation Features

• Voluntary—parties can withdraw at any time.
• Mediator facilitates but does not decide the outcome.
• Confidential and “without prejudice”—discussions cannot be used in court if mediation fails.
• Flexible process—can be tailored to the parties’ needs.
• Focuses on interests and practical solutions, not just legal rights.

Mediation Advantages

• Preserves or improves relationships.
• Faster and less expensive than litigation or arbitration.
• Parties retain control over the outcome.
• Creative, flexible settlements possible.
• Confidential—protects sensitive information.

Mediation Disadvantages

• No guaranteed resolution—settlement requires agreement.
• Non-binding unless a written agreement is reached.
• May not be suitable if there is a significant power imbalance or unwillingness to compromise.
• Limited disclosure—parties may settle without full information.

Worked Example 1.1

Two business partners have a dispute over profit sharing. They wish to continue working together if possible. What is the most appropriate dispute resolution method to try first?

Answer: Mediation is the most appropriate initial step, as it is collaborative, preserves relationships, and allows the parties to reach a mutually acceptable solution.

Arbitration

Arbitration is a private process where parties agree to submit their dispute to one or more arbitrators for a binding decision (an award).

Key Term: Arbitration
A formal ADR process where parties agree to submit a dispute to a neutral arbitrator (or panel) whose decision (the award) is final and binding.

Key Term: Arbitration Act 1996
The main statute governing arbitration in England and Wales, setting out the framework for fair and efficient arbitral proceedings.

Key Term: Award
The final, binding decision of an arbitrator or arbitral tribunal resolving the dispute.

Arbitration Features

• Based on agreement—usually an arbitration clause in a contract.
• Governed by the Arbitration Act 1996 in England and Wales.
• Parties choose the arbitrator(s), often with relevant specialist knowledge.
• Proceedings and award are usually confidential.
• The arbitrator’s award is binding and enforceable, with limited rights of appeal.
• Flexible procedure—parties can agree on rules, seat, and language.

Arbitration Advantages

• Confidentiality—protects commercial or sensitive information.
• Parties can select arbitrators with specialist knowledge.
• Binding, final decision with limited grounds for challenge.
• Awards are enforceable internationally under the New York Convention.
• Flexible procedure—can be tailored to the dispute.

Arbitration Disadvantages

• Can be as expensive as litigation, as parties pay for the arbitrator(s) and venue.
• Limited powers to compel evidence from third parties.
• Limited rights of appeal—even if the arbitrator makes a mistake.
• May be slow if the dispute is complex or arbitrators are unavailable.

Worked Example 1.2

A UK company and a US company have a contract with an arbitration clause specifying London as the seat. A dispute arises over delivery terms. The UK company wants a confidential, binding decision enforceable in the US. What is the best process?

Answer: Arbitration is appropriate. The parties are bound by the arbitration clause, and the award will be confidential, binding, and enforceable in both the UK and US.

The Court’s Approach to ADR and Costs Consequences

The CPR require parties to consider ADR before and during litigation. Courts may stay proceedings to allow ADR and can impose costs sanctions for unreasonable refusal to engage in ADR.

Key Term: Costs Sanction
A court order requiring a party to pay some or all of the other party’s legal costs as a penalty for unreasonable conduct, such as refusing ADR.

Exam Warning

If a party ignores or unreasonably refuses an offer to mediate, the court may penalise them in costs—even if they win at trial. The court will consider factors such as the merits of the case, previous settlement attempts, costs of ADR, delay, and prospects of success (see Halsey v Milton Keynes General NHS Trust).

Choosing the Appropriate Mechanism

The best dispute resolution method depends on the dispute’s nature, the parties’ relationship, the need for confidentiality, cost, speed, and whether a binding decision is required.

• Litigation is suitable for urgent remedies, precedent, or where court powers are needed.
• Mediation is ideal for preserving relationships and flexible settlements.
• Arbitration is appropriate for commercial disputes needing confidentiality, technical knowledge, or international enforceability.

Worked Example 1.3

A supplier and retailer have a long-standing relationship but disagree over a delivery schedule. Both want to resolve the issue quickly and continue working together. What is the best initial step?

Answer: Mediation should be attempted first, as it is collaborative, quick, and helps preserve the business relationship.

Summary

Table 1.1: Comparison of Litigation, Mediation, and Arbitration

Key Point Checklist

This article has covered the following key knowledge points:

• Litigation is the formal court process, resulting in a binding and enforceable judgment.
• Mediation is a voluntary, confidential process where a neutral mediator helps parties reach a settlement.
• Arbitration is a private, binding process where parties agree to submit their dispute to an arbitrator.
• The CPR require parties to consider ADR and allow costs sanctions for unreasonable refusal.
• The choice of mechanism depends on the dispute’s nature, the parties’ objectives, and practical considerations.

Key Terms and Concepts

• Alternative Dispute Resolution (ADR)
• Litigation
• Civil Procedure Rules (CPR)
• Judgment
• Mediation
• Without Prejudice
• Arbitration
• Arbitration Act 1996
• Award
• Costs Sanction