Mediation or arbitration for a lease dispute? Factors to weigh up beyond cost

In our previous article, we introduced government-funded mediation and arbitration services for commercial lease disputes. Building on that, today we examine the similarities and differences between these ways of resolving disputes in more detail.

 Mediation

• What is mediation?

Mediation is a way for parties in a dispute to try to negotiate outside court. An independent third party, the mediator, helps both sides identify the main issues and attempts to suggest ways to resolve them.

Mediation may be voluntary, ordered by a court or required under a lease's dispute resolution clause. For commercial lease disputes arising from COVID-19, both parties need to agree to mediation.

The mediator's role is to assist communication between the parties. This includes explaining how mediation works, asking questions to identify the actual issues in dispute and helping develop solutions.

As an independent third party, the mediator may suggest solutions to the parties but cannot provide legal advice, take a position or make any decisions.

In commercial disputes, mediators are usually retired judges or other senior lawyers with knowledge or experience of the industry.

Mediation usually takes place within a day. However, it may take longer if everyone agrees.

• Mediation has the following advantages:
• It is less formal and much less expensive than arbitration or going to court;
• The mediation process and outcome are confidential;
• The parties can propose and agree on creative solutions beyond monetary settlements;
• Mediation helps both parties protect their commercial interests and achieve a mutually beneficial outcome;
• The process is faster than other approaches.

Even if mediation cannot resolve the dispute, the process can clarify the issues. This can still help reduce costs if the matter subsequently goes to court.

Please note: mediation requires both parties to be willing to engage in a sincere dialogue. Otherwise, it is unsuitable. Without trust and a genuine willingness on both sides to resolve the issues flexibly, negotiations will not be effective. If either or both parties are firmly set in their positions, arbitration is worth considering.

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Arbitration

• What is arbitration?

Arbitration is a process outside court in which an independent arbitrator can make binding decisions on disputed issues. The arbitrator considers evidence from both sides and has the authority to make a decision for them.

Arbitration is somewhat like going to court, but is faster and much less expensive than formal court proceedings.

Usually, the parties jointly select an arbitrator after consulting each other. For commercial lease disputes arising from COVID-19, both parties must agree to be bound by the arbitration decision.

• The arbitration process is more formal:
• There is a hearing at which both parties can argue their cases;
• There is paperwork covering claims, evidence and any written witness statements;
• The parties can question each other's witnesses;
• The arbitrator issues a detailed written decision, explaining how it was reached.

Although arbitration closely resembles a court trial, it is more flexible and usually much faster than going to court.

• Arbitration has the following advantages:
• Unlike mediation, arbitration provides a definite answer, and its decision is binding;
• It is more flexible and faster than formal court proceedings;
• Arbitration is confidential, whereas court decisions are not;
• The overall process is more flexible and can be changed by agreement between the parties.

Please note: arbitration is an effective way to resolve a dispute when mediation or negotiation has failed, particularly where both parties want confidentiality.

About the author:

Kai Ling Chiu (Zhou Kailin)

Admitted to practise in the High Court of New Zealand and the Supreme Court of New South Wales, Australia, she currently works as a litigation lawyer at Forest Harrison Lawyers. She has extensive experience in debt recovery, contract disputes and property disputes, with particular strength in civil litigation and High Court proceedings. She is fluent in Mandarin, Cantonese and English. Contact: Kailing@forestharrison.co.nz