In business, disputes happen. Few people enter into a contract, partnership or other commercial relationship with the expectation that things will go sideways. But, they can, and litigation is often the result.
This does not, however, automatically mean parties are headed to a courtroom. In fact, the majority of disputes are settled out of court, often by using processes known as alternative dispute resolution (ADR).
Arbitration and mediation are the most commonly used ADR techniques. They have significant differences and are each suited to certain types of cases.
Of the two ADR techniques, arbitration is the most similar to having a dispute heard in a court. Often, parties are even sent to arbitration by a judge as a first step, to see if a trial can be avoided. Some contracts and agreements may also require parties to settle disputes through arbitration.
The dispute is heard by an arbitrator, a respected, neutral lawyer or former judge, who is either appointed by a court or chosen by the parties. Just as in a courtroom, parties, through their lawyers, call witnesses, provide evidence and state the merits of their case to the arbitrator. Once he or she has heard both sides, the arbitrator makes a decision, based on the applicable law. Generally, an arbitrator’s decision is considered final and can’t be appealed.
Arbitration is best suited to disputes where the parties need a neutral third party to decide their case but want to avoid going to trial. They have to be willing to accept that they are giving up control of the outcome of their case to the arbitrator, and that the decision will likely be final. As with a trial, arbitration may deepen the divide between parties, with one side losing and the other winning. This can make it hard to salvage a damaged relationship.
As opposed to a trial or arbitration, the goal of mediation is to arrive at a resolution both sides in the dispute can accept. The neutral mediator, again either a lawyer or a former judge, works to bring the parties closer together. The mediator does not decide the case, but guides the parties in coming to an agreement. He or she may even start out meeting with parties separately, shuttling back and forth, and then bring them together when divisions are narrowed. The process is based on give-and-take, with both sides having to make concessions in order to arrive at a resolution.
Mediation is often best for settling emotional disputes because it allows both sides to express their position – both to the mediator and the other party – and be heard. Because the goal of mediation is to bridge the divide that led to the dispute, it is often used when parties want the business relationship to survive after a settlement is reached. Unlike arbitration, mediation also offers a greater chance of a win-win resolution.
Parties involved in litigation do not have to head to court to resolve a dispute. ADR processes such as arbitration and mediation, though different, offer an effective way to settle conflicts. They should be considered as part of an overall litigation strategy, as appropriate.