Deliver Credibility, Accuracy, Practical Value
Building the Business Case
Solution Matrix Ltd®

Arbitration, Mediation as Alternative Dispute Resolution ADR
ADR Purpose and Role Resolving Disputes, Examples


Settling disputes through the court systems can be a time consuming and costly process. Alternative dispute resolution methods offer disputing parties a faster, less expensive approach to settlement.

Sometimes it is better to resolve disputes outside of the court system.

What is Alternative Dispute Resolution?

Alternative dispute resolution (ADR) (including arbitration and mediation) refers to legal methods for resolving disputes outside the court systems. This article defines and explains ADR and related terms, "mediation," "mediator," "arbitration," and "arbitrator."

Why Use Alternative Dispute Resolution?

Compared to using the courts and lawsuits to settle disputes or conflicts, ADR methods can offer the disputing parties—and those impacted by the —advantages including faster resolution and lower legal fees. Under these methods, for instance, decisions are typically reached more quickly and, if any party is unsatisfied with the result, there is much less chance to prolong the legal process through appeals. These methods may also offer the advantage of allowing parties to specify a mediator or arbitrator with expertise in the area of dispute, in contrast with a legal trial in which the judge may not have specialized knowledge in the subject.

The most commonly used ADR methods are:

  • Arbitration,an adversarial process, resulting in an arbitrator's decision that is binding.
  • Mediation, a more cooperative process, under the guidance of a mediator, with an outcome that is binding only if is mutually acceptable to all parties.



What is Arbitration?
Explaining the Role of Arbitrator

Arbitration is typically the chosen legal method for dispute resolution when one or both parties to an agreement believe the other has not performed as agreed, or when parties cannot agree on terms for a new contract. Under arbitration:

  • The disputing parties submit their cases to a third party arbitrator (or panel of arbitrators).
  • Arbitrators review the evidence, the applicable law, and the original contract or agreement.
  • After this review, arbitrators then render a decision for the parties.

Contracting parties may specify arbitration as the method of dispute resolution when they agree and sign the original contract between them.

Under most forms of arbitration, the arbitrator's decision will rule in favor of one party and against the other (i.e., will not necessarily attempt to satisfy all sides) and the decision is legally binding. In this way, arbitration is thus fundamentally an adversarial process, as contrasted with mediation (below) which can be a more cooperative process.

Arbitration decisions are binding because parties to the dispute have already agreed (contracted) to abide by the arbitrator's decision. Arbitrator decisions are subject to appeal or reversal only under rare and extreme circumstances, as when there is compelling evidence that the arbitrator was biased.

Who Uses Arbitration?

Businesses often resort to arbitration when there are consumer disputes or labor/management disputes.

Customer contracts with investment and brokerage firms, for instance, typically specify that arbitration will settle any disputes.

  • In the United States, especially, collective bargaining agreements between labor and management typically require that arbitration is used to settle disputes.
  • For addressing disputes that are not international, most countries have their arbitration bodies and associations (sometimes including both arbitration and mediation).

Arbitration for International Business Disputes

Firms with International business disputes frequently submit them for adjudication to bodies such as the International Court of Arbitration (part of the International Chamber of Commerce). For international conflicts, the use of an international arbitrator helps avoid problematic jurisdictional issues (questions over which party's laws or procedures should prevail). The requirement that disputing parties use arbitration, the steps in the arbitration procedure, and the international body to use, may all be specified in the original contract itself.

What is Mediation?
Explaining the Role of Mediator

Businesspeople define "Mediation" as a "cooperative form of alternative dispute resolution." Under mediation, disputing parties present their cases to an impartial mediator, who then attempts to open communication between them and bring them to a mutually acceptable resolution. The mediator is not in a position to impose a binding solution, however, and any resolution agreement reached must be mutually agreeable to the disputing parties.

Mediation may be the ADR method of choice in an extensive range of dispute categories, involving commercial business contracts, but also labor contracts (e.g., between professional athletes and their employers), family disputes (e.g., divorce), and disputes between communities or other government organizations.