Originally from International Arbitration Checklists - 3rd Edition

Essentially there are three formal mechanisms for dispute resolution in most jurisdictions:  litigation, arbitration, and mediation.  Litigation is based on the sovereign state’s interest in providing a forum for the peaceful settlement of disputes, preserving the sanctity of contracts, and protecting individuals and other entities from tortious acts.  However, in attempting to protect the rights of litigants, and because court dockets are crowded and judge availability is limited, court procedures in many jurisdictions can be slow and cumbersome, and in many instances quite expensive.  

In the international business context, parties may prefer to agree in advance to have disputes resolved by arbitration before a neutral tribunal in a neutral forum, rather than run the risk of having to litigate in each other's home courts.  Parties have the freedom to select in advance, inter alia, the applicable procedural rules, the number, method of selection and qualifications of the arbitrators, the venue, the applicable law and the language.  As will be discussed below, a further major advantage of arbitration is the international enforcement of arbitral awards under the New York Convention. 

Mediation is becoming increasingly popular as a cost-effective means of resolving disputes.  Since mediation is the least adversarial method of dispute resolution, a successful mediation can actually strengthen an on-going commercial relationship.  Mediation can be used either on its own or in conjunction with litigation or arbitration.  Some dispute resolution clauses call for the parties to attempt to resolve disputes through mediation before proceeding to either arbitration or litigation.  A professional mediator stakes his reputation on his ability to procure compromise through blandishment, threat or artifice.  The success of such mediation, however, ultimately depends upon the parties’ willingness to make concessions.