Why Is Mediation Better Than Arbitration?
In Pakistan arbitration receives its legal backing from The Arbitration Act 1940 whereas mediation gains support from Section 89-A of the Civil Procedure Code subject to agreement of all parties to mediate. Compared to arbitration, mediation is a relatively new mechanism in Pakistan and formal services for mediation were made available in 2007 with the establishment of Karachi Centre for Dispute Resolution (now known as National Centre for Dispute Resolution).
Arbitration can be closely compared to litigation but with certain differences e.g. Qanoon-e-Shahadat Order 1984 does not apply in arbitration. Mediation and arbitration, however, have a lot of differences and only a few similarities. Both alternative dispute resolution processes require the presence of a third person who is impartial, neutral and has no conflict of interest in the case at hand.
With arbitration the third party imposes its decision on the disputants which is known as an ‘award’. When a third party decides upon a matter, the impact can be that one party, in whose favour the award is, is pleased while the other feels justice was not served. It can also be that the former feels that it did not receive that which it deserved. Hence the overall satisfaction is low and when a win-lose situation arises, relationship between the parties suffer. Such souring of relationship is not conducive for a healthy business environment in Pakistan. In addition to this, Pakistani law with regards to arbitration requires the arbitrator to give reasons for his award and then once the award is filed in the court, if the court confirms the award, the losing party may file an appeal – conversely if the court rejects the award; the other party in whose favor the award was, may file an appeal. The parties therefore end up back in the time consuming and cumbersome litigation system. Moreover, arbitration is a costly process whereby a lot of resources are spent with arbitrators, lawyers, witnesses and experts being utilized and therefore it cannot be afforded by everyone. So what good is such a mechanism if its time consuming, costly and possibility of eventually ending up in the cumbersome litigation process?
Mediation on the other hand is a much favored mechanism in the world. While some countries have made it mandatory, others are on the way to make it mandatory in some form or the other. In April 2002, the European Commission issued a Green Paper on ADR (alternate dispute resolution) in Civil and Commercial disputes for the promotion of mediation. Later on in 2008 the European Union issued a directive (2008/52/EC) with regards to implementation of mediation in cross border disputes but categorically mentioned that the Member States may apply such provisions in local disputes as well. The Directive describes mediation as a means which can:
“…provide a cost-effective and quick extra-judicial resolution of disputes in civil and commercial matters through processes tailored to the needs of the parties. Agreements resulting from mediation are more likely to be complied with voluntarily and are more likely to preserve an amicable and sustainable relationship between the parties. These benefits become even more pronounced in situations displaying cross-border elements.” – (emphasis added)
While arbitration is fixated on who is right or wrong, mediation aims to address the interests of all parties involved in a dispute. It leaves everyone satisfied and content while strengthening the relationship between the parties. Mediation is a cost-effective ADR mechanism and in Pakistan it only costs peanuts. You can get your dispute resolved in as low as Rs.7,500 or a maximum of Rs.50,000 depending on the claim value of the case. These figures include the expenses of the Mediation Centre (National Centre for Dispute Resolution) as well as the fees of the mediator. Compare this with the cost incurred when one opts for arbitration. While speaking about cost saving it is pertinent to mention Georgia-Pacific which was one of the first Fortune 500 companies to have started an ADR program in which mediation was mostly used for dispute resolution and arbitration a distant second. In a public statement they disclosed that because of the implementation of the ADR program, in ten years from 1995 to 2004, they saved $32.78 million. If companies in Pakistan opt for mediation to resolve disputes, they will save a lot in terms of money and time.
Further, mediation is without prejudice i.e. anything which is said during a mediation process is inadmissible in a court of law. The parties are given the opportunity to vent and participate in the mediation process whereas in arbitration the parties’ participation is at a minimum and most of the participation is by the lawyers. Mediation gives you the opportunity to share confidential information with the mediator in a private caucus but arbitration gives no such opportunity and sometimes sharing of certain type of information in arbitration may weaken your case albeit you may be on the right. Such is not the case in mediation and parties can freely talk and discuss the issues – any information shared in private with the mediator is not disclosed to the other party unless the mediator receives explicit permission of the party to disclose it.
One of the appealing aspects of mediation is that as a mediator cannot coerce a party to either enter into a settlement agreement or agree to any particular terms offered by the other party, there is a zero percent chance for corruption. In some countries even some members of the judiciary are considered to be corrupt but as mediators cannot impose a decision on the parties, there is no question of corruption. It is the parties who ultimately decide the outcome – not the mediator. Moreover if a party files an application to change the mediator even when the mediation process has been initiated, it takes the Mediation Centre two days to change the mediator thus saving time. Such a time-efficient process is unparalleled in Pakistan.
Mediation surely has its benefits over arbitration and litigation. Organizations as well as individuals should make more use of this service in Pakistan. It promotes a collaborative culture and produces a healthy business climate.
The views expressed in this article are those of the author and do not necessarily represent the views of any organization with which he might be associated.