Mediation and arbitration are known as Alternative Dispute Resolution (ADR) and involve finding a mutually acceptable solution outside of a courtroom.
In most situations, negotiation is always the best way to resolve a business dispute. Even particularly strained business negotiations can result in productive negotiations while close relationships are cultivated. In the legal field, an attorney with excellent negotiating skills is likely to be very successful. However, there are cases when even the best negotiator cannot resolve a situation. If negotiations stall, mediation, arbitration, or litigation can be added to the mix.
Alternative dispute resolution and business disputes
Mediation and arbitration are known as Alternative Dispute Resolution (ADR) and involve finding a mutually acceptable solution outside of a courtroom. Alternative dispute resolution is widely used in business disputes, as well as disputes related to employment, family issues, housing disputes, environmental issues, personal injury, and more. Each method of dissolution has advantages and disadvantages:
Mediation – There is a mediator involved in the mediation – a third party in the dispute who is neutral as to the outcome. The mediator will facilitate the discussions between those involved in the business dispute and will try to resolve the conflict through negotiation. A mediator is not a judge, but a moderator with the aim of helping the parties to reach a mutually acceptable decision.
During mediation, the parties are not required to settle the matter, and even if mediation is ordered by a court, it remains largely a voluntary process.
Mediation is relatively informal. However, if the mediation is unsuccessful, the next step may be arbitration or litigation. Agreements made within the framework of mediation are only binding if they are set out in a written contract signed by both parties.
Disputes between family businesses or between business partners often respond well to mediation, although mediation can also be used successfully to create “a level playing field” in a situation with uneven power dynamics.
On the negative side, mediation is unsuccessful if one party is unwilling to negotiate. In some cases, mediation is not an inexpensive method, and in cases where an agreement would require judicial enforcement, mediation is unlikely to be the best choice.
Arbitration – Arbitration is most commonly used in industries such as construction, labor, and securities, although it can be used in virtually any industry. It is more formal than mediation, with similarities to a process. That being said, the rules of evidence in arbitration are much simpler than in a courtroom. For example, the discovery process is more limited and in some cases hearsay may be allowed.
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The terms of the arbitration are usually set out in an agreement between the parties. These terms and conditions may include the location of the arbitration, the fees incurred by both parties, the number of arbitrators, and any special rules applicable to the arbitration.
One advantage of arbitration over litigation is that the process and decisions do not automatically become public knowledge, as is the case with most legal disputes. While an arbitrator can be an attorney, he or she can come from any field applicable to the dispute.
Arbitration fees are usually higher than mediation fees because the arbitrator is paid hourly. However, the cost of arbitration is often less than the cost of a full trial and appeal. If both parties agree to be bound by the arbitrator’s decision, that decision is lawful and binding – with no appeal.
A major disadvantage of arbitration is that you have to rely on the arbitrator’s skill and experience to sort the evidence. Often there is a lack of formal evidence such as discovery, and in many cases no interrogations or statements are made. If the referee decides the case unfairly or incorrectly, you are likely to stick with the results as the process favors finality over a fair outcome.
Litigation and Business Disputes
If the negotiating and alternative dispute resolution tactics have failed, the ultimate method of settlement is through litigation or taking the case to court to be heard by a judge and jury (or, in some cases, just a judge) become. It’s the most formal, traditional method. If you are involved in a business dispute, it can be extremely helpful to discuss the situation with an experienced Houston business lawyer.
In the event of a dispute, the dispute will be directed by a judge and / or jury and the process will include the full rules of evidence. Litigation is a public trial in which most judges are unwilling to seal the aspects of the litigation without a very compelling reason. Litigation involves the discovery and disclosure of all evidence and the ability to call and question witnesses. Litigation also provides an opportunity to appeal against an unfavorable decision. Litigation costs tend to be higher and the time involved in litigation is almost always longer than mediation or arbitration.