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disputes

Arbitration vs. Mediation: What’s the difference?

Key Takeaway

Mediation and arbitration are alternative dispute resolution methods. Mediation involves a neutral third party facilitating an agreement, which is not binding unless agreed. Arbitration involves a neutral third party making a legally binding decision. Disputes Tribunals offer an informal, low-cost process for specific disputes, aiming for conciliation before making a binding order.

Understanding Dispute Resolution: Arbitration vs. Mediation in New Zealand

Disputes can arise in various aspects of life, from business dealings to personal matters. In New Zealand, several mechanisms exist to resolve these disagreements without resorting to formal court litigation. Two prominent methods are mediation and arbitration, which differ significantly from each other and from the process offered by the Disputes Tribunals.

What is Mediation?

Mediation is a voluntary process where a neutral third party, called a mediator, assists disputing parties in communicating, understanding each other's perspectives, and negotiating to reach a mutually acceptable agreement [Source: Family Dispute Resolution Act 2013, s 4 defines 'family dispute resolution' as a process involving a mediator for resolution]. The mediator does not make a decision but facilitates discussion and helps the parties explore solutions.

The Mediation Process

  1. Initiation: Parties voluntarily agree to mediate, or mediation may be a mandatory step before proceeding to other legal avenues in certain contexts, such as family disputes concerning parenting arrangements [Source: Family Dispute Resolution Act 2013, s 10].
  2. Preparation: Parties prepare their case and identify their interests and desired outcomes.
  3. Joint Sessions: The mediator facilitates discussions, often in joint sessions with all parties present, and sometimes in private caucuses with individual parties.
  4. Negotiation and Agreement: The goal is for the parties to reach a mutually satisfactory settlement agreement. This agreement is not legally binding unless the parties choose to formalise it, for example, by signing a contract or having it made into a court order [Source: This is a general principle of mediation; specific legislation may provide for enforceability if certain conditions are met, e.g., s 12 of the Family Dispute Resolution Act 2013 provides that an agreement may be filed in court].

Costs of Mediation

The costs of mediation can vary. Some government agencies offer subsidised or free mediation services (e.g., Tenancy Services, Employment Relations Authority). For private mediation, fees are typically shared by the parties and depend on the mediator's rates and the complexity/duration of the dispute.

What is Arbitration?

Arbitration is a private dispute resolution process where parties present their case and evidence to one or more neutral third parties, known as arbitrators. The arbitrator then makes a legally binding decision, called an arbitral award, which is enforceable like a court judgment [Source: Arbitration Act 1996, Article 2 and Article 35 of Schedule 1].

The Arbitration Process

  1. Agreement to Arbitrate: Parties typically agree to arbitrate through a clause in a contract or a separate arbitration agreement after a dispute arises [Source: Arbitration Act 1996, Article 7 of Schedule 1].
  2. Appointment of Arbitrator: Parties appoint one or more arbitrators, or an appointing authority may do so if parties cannot agree [Source: Arbitration Act 1996, Article 11 of Schedule 1].
  3. Hearing: Parties present their arguments, evidence, and witnesses to the arbitrator(s) in a process similar to a court hearing, though often less formal.
  4. Arbitral Award: After considering the evidence, the arbitrator issues a written decision, the arbitral award, which is final and binding on the parties [Source: Arbitration Act 1996, Article 31 and Article 35 of Schedule 1].

Costs of Arbitration

Arbitration costs typically include the arbitrator's fees, administrative fees, and legal representation costs. These can be significant, especially in complex commercial disputes, and are usually borne by the parties as agreed or as determined by the arbitrator [Source: Arbitration Act 1996, Article 31(8) of Schedule 1 allows the arbitral tribunal to fix the costs of the arbitration].

Key Differences Between Mediation and Arbitration

Feature Mediation Arbitration
Process Facilitative; parties control the outcome. Adversarial; arbitrator controls the outcome.
Outcome Mutually agreed settlement; not legally binding unless formalised. Legally binding arbitral award.
Role of Neutral Facilitator; helps parties communicate. Decision-maker; hears evidence and makes a ruling.
Formality Less formal and flexible. More formal than mediation; less formal than court.
Confidentiality Typically confidential. Typically confidential.

Disputes Tribunals

The Disputes Tribunal provides an accessible, informal, and low-cost forum for resolving civil disputes involving monetary claims up to certain limits [Source: Disputes Tribunals Act 1988, s 10(1) and s 18]. It is distinct from private mediation and arbitration, operating as a statutory body established by the government.

Jurisdiction and What to Expect

Disputes Tribunals can hear claims for money, goods, services, or work done up to $30,000. This limit can be extended to $50,000 if all parties agree in writing [Source: Disputes Tribunals Act 1988, s 10(1), s 13(1), and s 13A]. Certain types of disputes, such as those concerning title to land, intellectual property rights, or estates, are generally excluded from its jurisdiction [Source: Disputes Tribunals Act 1988, s 11].

The Disputes Tribunal Process

  1. Application: A party files an application with the Tribunal, specifying the nature of the dispute and the relief sought [Source: Disputes Tribunals Act 1988, s 24].
  2. Conciliation Focus: At the hearing, a Referee (a legally qualified and appointed decision-maker) initially attempts to help the parties reach a settlement through conciliation and negotiation [Source: Disputes Tribunals Act 1988, s 27(1)]. This conciliatory phase shares similarities with mediation.
  3. Adjudication: If no agreement is reached, the Referee will hear evidence and arguments from both sides and make a binding decision, known as an order [Source: Disputes Tribunals Act 1988, s 27(2) and s 28]. Parties generally cannot have legal representation in the Tribunal unless specifically allowed by the Referee in exceptional circumstances [Source: Disputes Tribunals Act 1988, s 38].

Costs of Disputes Tribunals

The costs involved are primarily a low application fee [Source: Disputes Tribunals Act 1988, s 56]. Parties usually bear their own costs, such as loss of wages for attending the hearing.

How Disputes Tribunals Relate to Mediation and Arbitration

The Disputes Tribunal process combines elements of both mediation and adjudication. It prioritises conciliation (like mediation) but, if unsuccessful, the Referee makes a binding decision (like an arbitrator or judge). It offers a more formal structure than private mediation but is less formal and costly than court proceedings or private arbitration.

Related Legislation and Applications

  • Residential Tenancies Act 1986: This Act provides for dispute resolution through Tenancy Services, which often involves mediation between landlords and tenants before formal adjudication by the Tenancy Tribunal [Source: Residential Tenancies Act 1986, s 88C sets out the function of mediation services].
  • Employment Relations Act 2000: This Act encourages parties to use mediation services provided by the Ministry of Business, Innovation and Employment (MBIE) to resolve employment relationship problems [Source: Employment Relations Act 2000, s 144].
  • Family Dispute Resolution Act 2013: Mandates attendance at family dispute resolution (mediation) for most parenting disputes before applying to the Family Court for a parenting order [Source: Family Dispute Resolution Act 2013, s 10].
  • Arbitration Act 1996: This Act governs domestic and international commercial arbitrations in New Zealand [Source: Arbitration Act 1996, s 5].

When to Seek Independent Legal Advice

For specific legal concerns related to dispute resolution, understanding the implications of an agreement, or determining the most appropriate dispute resolution pathway, it is advisable for individuals and organisations to seek independent legal advice. Information on legal assistance can be found through organisations such as the New Zealand Law Society or by contacting a local Community Law Centre for free legal advice [https://communitylaw.org.nz/].

Key Resources