Mediation and arbitration: resolving disputes outside court

The great majority of legal disputes are settled without a trial, and a large part of that happens through what lawyers call alternative dispute resolution, or ADR. It is a broad label, but two forms dominate, and they are often confused because both involve a neutral third party. The crucial difference is what that third party is empowered to do. In mediation the outsider helps the parties reach their own agreement; in arbitration the outsider makes the decision for them.

Mediation is a facilitated negotiation. A trained, independent mediator moves between the parties, tests their positions, explores what each really needs and helps them find common ground, but has no power to impose an outcome. Nothing is binding unless and until the parties themselves agree, at which point the settlement can be turned into a legally enforceable contract or, if proceedings are on foot, a consent order. Because it is confidential and without prejudice, mediation lets parties explore compromise without the concessions being used against them if it fails, and it is frequently quicker and cheaper than fighting a case to judgment.

Arbitration is a different animal, closer to a private court. The parties agree, usually in a clause written into their original contract, to submit any dispute to one or more arbitrators whose decision, called an award, is binding. The process is governed by the Arbitration Act 1996, the long-standing framework for arbitration in England and Wales, which was updated by the Arbitration Act 2025 to modernise a number of points, including the law that governs the arbitration agreement and the tribunal’s power to dispose summarily of hopeless claims. An award can be enforced through the courts much like a judgment, and grounds for challenging it are deliberately narrow, which is part of arbitration’s appeal to commercial parties who want finality and privacy.

The courts have grown noticeably less tolerant of parties who refuse to try settlement at all. In Churchill v Merthyr Tydfil County Borough Council in 2023, the Court of Appeal confirmed that a court can lawfully stay proceedings and order the parties to engage in a non-court dispute resolution process, provided doing so does not impair the claimant’s right to a judicial hearing and is a proportionate way of resolving the dispute fairly and at reasonable cost. That marked a shift from the older assumption that mediation could only ever be encouraged, not required, and it sits alongside a long-standing willingness to penalise in costs a party who unreasonably turns down a chance to settle.

For anyone weighing up a dispute, the choice between these routes turns on what they want. Mediation suits parties who would prefer to keep a relationship, retain control of the outcome and avoid the cost of a contest. Arbitration suits those who need a binding, private, enforceable decision but would rather not litigate in open court. Both exist because the courtroom, for all its authority, is a slow and expensive place to end up, and the system increasingly treats a genuine attempt to settle as something litigants are expected to have tried.