Reading time: 4 minutes

Commercial contracts often include clauses outlining the process to resolve disputes between parties. Typically, this involves a requirement to negotiate with the other party before commencing any court proceedings. However, there may also be provisions that allow the parties to appoint an arbitrator or mediator to resolve a dispute. In this article, we will explain how two contracting parties might use mediation and arbitration to resolve a commercial dispute.

What is the Difference Between Mediation and Arbitration?

Independent third parties are present in both mediation and arbitration to assist with dispute resolution.

In a mediation, a mediator encourages disputing parties to achieve a commercial resolution in an informal setting. If the parties reach a decision, they have the option to sign a legal agreement outlining the resolution.

Arbitration involves the appointment of an independent third party (the arbitrator) to make a decision on the dispute. This method requires each party to present their evidence and testimony in an arbitration proceeding. Typically, the parties will also agree to treat the arbitrator’s final decision as binding.

Why Would a Party Choose to Mediate

Mediation is a fast, business-friendly and cost-efficient alternative to try to reach an agreement. A person might choose to mediate because of its:

Cost The mediation normally concludes within a day and the parties will only have to pay for their own costs, plus the fee for the mediator.

If you take a matter to court, you could face delays. You may need to wait months before receiving a court date, and once decided, there is little flexibility. This is impractical for time-sensitive disputes that need a quick resolution.

A mediation meeting is generally quick to organise and hold. Usually mediation concludes in less than a day and requires minimal preparation.

Autonomy The parties compromise and reach an agreement themselves. Unlike court or arbitration, there is no third party making decisions which lead to one winner and one loser. Both parties collaborate to reach the most satisfactory outcome.
International Applicability As the mediator focuses on finding a resolution that is acceptable to all involved, the parties can quickly return to business as usual if an agreement can be reached. Given the collaborative nature of mediation, the parties do not have to sacrifice their business relationship to find a solution.

Why Would a Party Choose to Arbitrate?

There are many advantages to choosing arbitration over commencing to court. Some of these are similar to mediation, while others are unique to arbitration. Overall, the benefits include its:

Cost Arbitration is often a cost-effective method of resolving disputes, although you do have the additional burden of paying the arbitrator an expense not paid in court proceedings.
Efficiency An arbitration occurs soon after you appoint an arbitrator, according to your availability.
Privacy The decision reached and the names of the parties involved are kept private in arbitration. This provides both parties with privacy as to their commercial affairs and the dispute in question.
International Applicability

Matters in Australia resolved through arbitration will be recognised by over 150 countries.

Similarly, Australia will recognise any arbitration decided in those countries. This makes arbitration a useful and efficient method for international dispute resolution.

Can Arbitration Help with International Disputes?

Arbitration can also be a useful tool in ensuring that the outcome of a dispute receives global recognition.

The Australian Centre for International Commercial Arbitration (ACICA) is a dispute resolution body that offers arbitration and mediation services. A commercial contract can specify that ACICA will administer a mediation or arbitration session, meaning the relevant ACICA Rules will apply to the proceedings.

ACICA is also the only institution appointed as an arbitrator according to the International Arbitration Act. Further, this law allows Australia to enforce international arbitration outcomes. 

Key Takeaways

Arbitration and mediation are alternative dispute resolution methods that may have several advantages for commercial parties entering into a contract. Prior to entering into a contract, businesses should consider the best ways to resolve potential disputes, especially if the parties are located in different countries.

When you are drafting a dispute resolution clause, you should also consider:

  • the potential risks of the dispute;
  • the possible outcomes; and
  • their likelihood of enforcement. 

If you’re facing a commercial dispute or need advice drafting a dispute resolution clause, get in touch with LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards