Dispute resolution options - Characteristics of arbitration,...

Learning Outcomes

After reading this article, you will be able to compare and contrast the essential features of arbitration, mediation, and litigation as means of resolving civil disputes. You will be able to identify key procedural, legal, and practical characteristics for each process, including enforceability, costs, confidentiality, and suitability. This knowledge will enable you to efficiently advise clients and accurately address related SQE2 FLK1 exam questions.

SQE2 Syllabus

For SQE2, you are required to understand dispute resolution processes beyond the courts. You may be required to select or discuss the most appropriate method in a scenario, or to identify relevant legal consequences and strategic risks. Key points for this article include:

• The defining procedural and practical features of arbitration, mediation, and litigation
• How and when each method is chosen or compelled
• Key legal principles linked to enforceability, finality, and costs
• Advising on selection between processes in light of exam-style scenarios

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 one of the following processes involves appointing a third party to make a final and binding decision outside the courts?
   1. Mediation
   2. Arbitration
   3. Litigation
   4. Ombudsman review

2. List two principal advantages of mediation compared to formal court proceedings.

3. Name one situation in which arbitration is not an appropriate forum for resolving a civil dispute.

4. True or false? An arbitral award can never be appealed in the courts of England and Wales.

Introduction

Civil disputes can be resolved by various methods—arbitration, mediation, and litigation are the most commonly encountered in legal practice. Each process has unique procedural rules, costs implications, and practical consequences that may suit one scenario but not another. For SQE2, it is essential to know how to distinguish these processes (and their legal effects), when each is likely to be suitable or unsuitable, and the main factors affecting the choice between them.

Key Characteristics of Dispute Resolution Methods

Arbitration

Arbitration is a private adjudicative process where parties agree to refer their dispute to one or more arbitrators for a final and binding decision known as an arbitral award.

Key Term: Arbitration
Arbitration is a process where parties submit a dispute to a chosen neutral arbitrator who gives a decision that is binding on the parties.

The parties can choose the procedure, location, and even the arbitrator. Arbitration is often used in commercial contracts, especially where technical specialist knowledge is required or where confidentiality is important.

Key Term: Arbitral Award
An arbitral award is the final written decision of the arbitrator(s), enforceable as a judgment of the court (with limited appeal routes).

Arbitration is governed by statute, notably the Arbitration Act 1996, and the process is contractual in origin—participation derives from a consensual agreement, often incorporated by reference to standard terms in contracts.

Advantages of Arbitration

• Proceedings are private and usually confidential
• Parties may select a technically knowledgeable arbitrator
• Greater flexibility of process and location
• Quicker and can be cheaper than litigation for complex matters
• International enforcement of awards is generally easier due to conventions

Disadvantages of Arbitration

• Arbitrator’s fees and administration costs are paid by the parties
• Limited avenues to appeal or challenge an award
• No power for the tribunal to enforce wider remedies (such as freezing orders)
• Inability to join third parties unless all consent
• Risk of inconsistent decisions due to lack of precedent

Mediation

Mediation is a voluntary, confidential process where a neutral third party (the mediator) facilitates negotiation between the parties to help them reach a mutually acceptable settlement.

Key Term: Mediation
Mediation is structured negotiation aided by a neutral mediator, with control of the outcome retained by the parties.

The mediator does not decide the case or impose a solution. Mediation can occur before or during litigation and is actively promoted by courts for many civil disputes.

Advantages of Mediation

• Typically swift and lower cost
• Parties retain control of the outcome (self-determination)
• Highly flexible and creative solutions possible
• Preserves commercial or personal relationships
• Process and outcome are confidential (and “without prejudice”)
• Does not preclude later litigation if settlement fails

Disadvantages of Mediation

• Requires mutual willingness to compromise
• No guaranteed settlement—any party can walk away
• Cannot compel third parties to participate
• Not usually suitable where urgent court orders (e.g., injunctions) are needed

Litigation

Litigation refers to resolving disputes through the state courts. The courts follow fixed rules (CPR), providing for fair and public hearings, with binding and enforceable judgments.

Key Term: Litigation
Litigation is the formal process of resolving disputes in court, subject to civil procedure rules and judicial oversight.

The courts have wide powers, including granting interim relief, compelling disclosure, and, if appropriate, awarding costs against a party.

Advantages of Litigation

• Court judgments are publicly enforceable
• Binding and final except for appeals
• Precedent may clarify or develop law
• Courts have coercive power over evidence, witnesses, and third parties
• Judicial powers to make or compel interim orders (e.g., injunctions, asset freezes)

Disadvantages of Litigation

• Adversarial, potentially damaging to relationships
• Often costly and slow
• Proceedings are generally public (reduced confidentiality)
• Process is rigid with little flexibility
• Outcome is binary (win/lose), with limited remedies imposed

Choosing Between Arbitration, Mediation, and Litigation

When choosing between these processes, primary considerations include: cost, speed, enforceability, confidentiality, complexity, relationship between the parties, and need for precedent or urgent remedies. Some matters (e.g., urgent injunctions, child law, insolvency) may only be resolved in the courts. Arbitration is often pre-selected in commercial contracts through arbitration clauses.

Key Term: Alternative Dispute Resolution (ADR)
ADR refers to procedures such as mediation or arbitration, used instead of or alongside litigation to resolve disputes.

Legal Implications and Professional Duties

Solicitors are required, under professional regulations and the CPR, to advise clients of appropriate dispute resolution options and when ADR may be suitable. The courts may penalise parties in costs for unreasonably refusing to attempt ADR. The choice of process should always be tailored to the client’s aims and circumstances.

Worked Example 1.1

Scenario:
Company Alpha and Company Beta have a contract containing an arbitration clause. A technical dispute arises over whether imported machinery meets contractual specifications. Which forum is likely to resolve the dispute, and what characterises the outcome?

Answer:
The dispute will likely be determined through arbitration, as dictated by the contract. The parties will appoint a technically qualified arbitrator. The arbitrator’s award will be final and binding, with narrow grounds for challenge in court.

Worked Example 1.2

Scenario:
P and Q are neighbours in dispute over a fence boundary. They value their relationship and seek a solution that works for both but do not want to risk public allegations or significant expenses.

Answer:
Mediation is most suitable. It allows both parties to explore options with the help of a neutral mediator and reach a private, voluntary settlement. If no agreement is reached, litigation remains available.

Exam Warning

The court can impose adverse costs consequences where a party unreasonably refuses to mediate or consider ADR, even if they ultimately ‘win’ the case. Always advise clients as to these risks.

Key Point Checklist

This article has covered the following key knowledge points:

• The key distinct features and processes for arbitration, mediation, and litigation
• Principal advantages and disadvantages of each method for civil disputes
• Mediation is voluntary, flexible, and confidential but not binding unless settlement is reached
• Arbitration leads to a binding and enforceable private decision with limited appeal rights
• Litigation is public, procedurally rigid, costly, and produces judicially enforceable outcomes
• Advising clients on appropriate dispute resolution options is a professional and procedural duty
• Unreasonable refusal to attempt ADR (especially mediation) may lead to costs penalties

Key Terms and Concepts

• Arbitration
• Arbitral Award
• Mediation
• Litigation
• Alternative Dispute Resolution (ADR)