Business disputes happen. When they do, it can be disruptive, expensive and costly in ways that may be unimaginable at the outset. A lengthy dispute can cause a company’s leaders to lose focus on the competitive environment or opportunities for growth.
To resolve disputes efficiently and cost-effectively, many business leaders opt for arbitration or mediation rather than litigation. Commonly referred to as alternative dispute resolution (ADR), these processes provide advantages to parties that litigation does not. It is important, however, to understand how arbitration and mediation work and what the differences are between them so you can make an informed decision on whether to employ either process when a commercial dispute occurs.
Understanding mediation and arbitration
Mediation and arbitration help parties resolve disputes in a manner that is typically less confrontational than litigation. In theory, these two processes provide both parties more control over the outcome of a dispute than litigation does. Generally, mediation is a non-binding process whereas arbitration is binding and replaces a trial.
Mediation typically involves a single mediator whose role is to facilitate the discussion between the parties while remaining neutral. A mediator is not a decision-maker. The mediator may provide an assessment of a dispute and offer possible solutions. The parties will decide whether to accept or reject any proposed settlement.
In arbitration, the adjudicating panel can be a single arbitrator or two or three people who serve as judges. Parties may be provided a list of prospective arbitrators or they may each select one person for the panel and those two select a third panel member.
Arbitration is often agreed to ahead of time
The decision to arbitrate rather than litigate is often written into a contract before a dispute occurs, whereas parties commonly agree to mediation after the dispute has arisen. Both arbitration and mediation can remain confidential. It is possible to mediate a portion of a dispute and arbitrate or litigate another portion of the same dispute.
In business, you are often only as strong as the partnerships you form. Arbitration and mediation allow both parties in a dispute to work together to resolve their differences, thus allowing for a continued partnership once the issue is resolved. This may be tougher to do when two parties litigate.