To say that resolving business disputes in court is expensive and time-consuming would be a gross understatement. Fortunately, a few alternatives to the costly headache of litigation have developed over the years. Two such options are mediation and arbitration. Each has its own benefits and drawbacks. In this article I will explain some of the advantages and disadvantages of each and how they are different.
Both mediation and arbitration are based on the premise that resolving disputes outside of court is often a far better option than putting one’s fate in the hands of a judge or jury. Generally, with mediation and arbitration, the costs are lower, the time involved is less, and the parties can move on faster and in some cases with less animosity than if they had engaged in protracted litigation. Here are some of the main differences between these two options.
Mediation:
Mediation is the more informal of the two options. The parties usually meet with a mediator and a “mediated settlement conference” is held. The conference usually begins with all parties in the same room. After the mediator has introduced herself and stated the rules for the mediation, each party is given an opportunity to (either themselves or through their attorneys) make an opening statement. After that, the parties typically go to separate rooms where they can discuss their positions, desires, and goals with the mediator. The mediator generally goes back and forth between the two parties and using certain dispute resolution and negotiation techniques, tries to encourage the parties to resolve the dispute.
The goal of mediation is not to find a winner, but to find a solution that is mutually acceptable to both parties. Moreover, mediation is typically the parties’ last chance to craft the terms of their own settlement rather than having a third party (like a judge or arbitrator) make the final decision. It is important to note that the mediator is a neutral party who serves the purpose of trying to facilitate negotiation and settlement between the parties, however the mediator does not decide the case. It is possible that a mediation will not produce a settlement, in which case the parties must move on to arbitration or litigation to resolve their dispute.
Arbitration:
Mediation often involves negotiation and give and take back and forth to reach a compromise. Arbitration, on the other hand, is closer to a judicial proceeding in that the arbitrator considers evidence and testimony and reaches a decision based upon what she is presented. In many jurisdictions, the decision of the arbitrator is legally binding on the parties and enforceable through a court proceeding. In this sense, arbitration can be viewed like litigation but with less formal rules, a shorter timetable, and lower costs.
The decision of whether to pursue mediation or arbitration is multifaceted and should be based on numerous factors, including cost and desired outcome. With respect to cost, arbitration may be more costly in the short term as it may incur greater legal fees since attorneys are allowed to question witnesses and the hearings may be prolonged. Mediation, on the other hand, may not be as expensive since attorneys may not be involved (or their involvement may be limited), and the parties will likely split the mediator’s fee. In the long term, however, arbitration may be more cost effective as the decision of the arbitrator is enforceable in court, thus giving the prevailing party some leverage against the other party.
In some situations, mediation or arbitration is mandated by the contract between the parties. Many consumer contracts now contain alternative dispute resolution clauses in part to avoid the cost of litigation. There has been some controversy as to whether this negates the “voluntary” nature of arbitration, but for the meantime, it appears to be the standard.
Mediation is considered the more holistic and friendly approach to dispute resolution in that the parties may not necessarily remain adversaries after a successful mediation. Indeed, the parties can renew and reinforce their relationship after mediation to continue to work successfully together. The settlement agreement that is typically the result of a mediated settlement conference does not have the same legal force as an arbitration award that can be entered as a judgment in court.
If you are involved in a business dispute, consider contacting me at chris@chrisclark.law. I am well-versed in negotiation and various forms of alternative dispute resolution and can help guide you to the method that is most appropriate for your situation and needs.
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