Litigation is expensive, time consuming and energy draining. However, legal disputes can escalate quickly for businesses when contracts are not complied with. However, there are options available which can avoid the need to become involved in costly litigation. In this article, we will discuss some alternative dispute resolution methods for business owners, as well as the pros and cons of using them.
1. Negotiation
At times, simply starting conversations with the party you are in dispute with can probably resolve the issue. This is an important step and should not be neglected as it may have been a simple misunderstanding or an innocent mistake that has caused the dispute. By negotiating yourselves you have full control of the discussion and can ensure that your needs are not forgotten. If the 2 parties are able to reach an agreement it saves time, money and stress.
Advantages:
- Cost effective.
- Resolved in your own time.
- Private communications between you and the other party.
Disadvantages:
- No binding decisions.
- Reliance on the other party to uphold their part of the agreement.
2. Mediation
Mediation entails a neutral 3rd party who will act as the middleman between the parties in dispute. Their goal is to listen to all sides and help the parties reach a mutually agreed agreement. It’s the least formal of all alternative dispute resolution options, also proving to be the most efficient and cheapest. However, the mediator cannot enforce any decisions in the same way a judge can.
Advantages:
- All mediation cases are usually resolved within a matter of days.
- Parties have more control. They can agree on the mediator and decline to accept any solutions presented by the mediator if they wish.
- Cheapest option.
- The mediator is a neutral 3rd party without bias.
Disadvantages:
- No guarantee of outcome to occur.
- Agreements are not legally binding.
Despite the disadvantages mentioned above, in general it is a highly effective option. Therefore, prior to entering into any contract, read through the dispute resolution clause carefully. If the other parties contract does not have one or does not seem well-rounded, don’t be afraid to ask for a review and changes to be made. If you need help writing up your own you can seek legal help from a negotiation and dispute lawyer.
3. Arbitration
Similar to mediation, arbitration is also usually specified as an alternative dispute resolution method in contracts. It is the next step if mediation has not been successful. While it fixes some areas where mediation fails, it also has its own drawbacks.
Advantages
- In general the cost of arbitration is much cheaper than mediation, but higher than mediation.
- There is tighter deadline for arbitrators to reach a decision compared to judges.
- Just like mediation, the arbitrator is a neutral 3rd party. Parties also have the option to agree on the arbitrator.
- Decisions made by the arbitrator is binding for all parties.
- Arbitration does not require as much formal paperwork as litigation. Again, proving to be a comfortable middle ground between the informality of mediation and the formality of litigation.
- Arbitration is not conducted in open courts, so nothing is public record.
Disadvantages
- As some companies may use arbitration multiple times, if they have an arbitrator who previously have them a favourable decision they are able to request the same arbitrator. As there are no public records there is no way to confirm if said arbitrator has previously worked on the other parties case before.
- Arbitrator decisions are binding and final, making it very difficult to reverse by a court even if they have made clear mistakes. This does not happen very often, but should be a point to remember.
Conclusion
To conclude, it is ideal to have something set out clearly in your contract that determines certain alternative dispute resolution ideas to avoid costly litigation. The usual sequence of events starts from negotiation, mediation, arbitration and litigation as a last resort. To have a lawyer draft a contract for you, or to review an existing contract to see how well you are protected click here.
