Contracts often call for mediation or arbitration prior to litigation. Mediations and arbitrations are forms of alternative dispute resolution (ADR) which can help parties resolve their differences in a cost effective manner. There is often confusion among lay people as to the difference between mediation and arbitration.
Mediation. Mediation is basically a negotiation between parties that is facilitated by a neutral mediator. Mediations can occur before, during, and even after litigation. Mediations can be voluntary or mandatory. Mediations are mandatory when they are either required by contract or ordered by a court (such as in the case of a mandatory settlement conference.) The parties appear at the mediation accompanied by their attorneys. If a party is insured a representative from the insurance company should also attend the mediation equipped with settlement authority. Mandatory mediations arise either because of contractual provisions or because a judge has ordered the parties to mediate their dispute. Prior to the mediation, your attorney will provide the mediator with a "Mediation Brief" that will assist the mediator in understanding the factual and legal issues surrounding a particular dispute as well as the settlement positions of their client. A mediator will listen to the positions of each side and offer their opinion on the best way to resolve the issues involved. A mediator's opinion is not binding and if the parties do not agree to settle the case, it will remain unsettled. A skilled mediator can often help resolve disputes between even the most inflexible adversaries but the parties involved in the process must have (a) full settlement authority, and (b) the time and patience to let the process work.
Arbitration. Arbitration is a process by which either a single arbitrator or a panel of arbitrators hear a case and make a decision. Arbitration, like mediation, can be either voluntary or mandatory. Additionally, arbitrations can be binding or non-binding depending on whether the parties agreed, in advance, to binding arbitration. While binding arbitration is generally less expensive than litigation, it still requires extensive preparation and the gathering of evidence. Additionally, arbitrators generally charge by the hour for their services and this can be expensive depending on the size and complexity of the issue. Binding arbitrations can only be appealed on very limited grounds and can later be turned into enforceable judgments.