When a commercial or corporate dispute arises, many people fear a protracted and costly litigation is the only option. However, taking the issue to a courtroom isn’t the only path to resolution.
Alternative dispute resolution strategies – known colloquially as ‘ADR’ – use mediation and arbitration to settle commercial and corporate disputes either in part or in full without the need for further litigation. These strategies are often both simpler and cheaper ways to resolve conflicts.
In this article, we will look at mediation, arbitration and litigation, and explore the commercial considerations relevant to choosing the right approach.
Mediation involves enlisting a neutral third party to encourage and facilitate the negotiation of a voluntary solution between the disputing parties.
If a dispute is successfully negotiated, then an agreement is signed to make the solution legally binding. However, if the parties cannot come to an understanding – or can only reach a partial agreement – the dispute may then progress to arbitration or litigation to find resolution for unsolved and outstanding issues.
The mediator will review both parties’ pleaded positions before beginning the process of negotiation. They then will hear from each party in turn, going to-and-fro between them to discuss the matter. Ideally, the mediator will be able to guide them gradually towards an agreement, at which point the solution can be put in writing and made legally binding.
If agreement is reached on some, but not all, of the issues, it will be up to the disputing parties to decide how to proceed. They can either sign an agreement for the parts on which they were able to agree and seek separate resolutions for the other issues, or they may decide to take an all-or-nothing approach and seek a unified solution for all of the issues at once in court.
Mediation is often the cheapest and simplest way to resolve many business disagreements, although it isn’t suitable as a solution in all cases. Because it depends on the voluntary agreement of both parties, it’s not guaranteed that mediation will produce a result – and the use of a mediator may not help in cases where one party is deliberately making things difficult for the other. In other words, a mediator cannot force the disputing parties to reach an agreement.
Even if the issues don’t ultimately get resolved via the mediation process, and the dispute continues to court, the time spent negotiating and discussing in the presence of a mediator may enable the court proceedings to continue with greater speed and efficiency.
As with mediation, arbitration also involves the use of an impartial third party to help resolve a business dispute. However, an arbitrator differs from a mediator in that a mediator is only able to make recommendations that the parties can choose to accept or not – whereas an arbitrator is able to make a legally binding decision to definitively resolve the dispute.
Arbitration is entered into voluntarily – both parties agree to enter an arbitration agreement and that they will accept whatever decision is ultimately made. The arbitration agreement sets out the fundamentals of the process, covering how the arbitrator will be selected, where the proceedings will take place, and other key matters.
The arbitrator – who is often a retired judge, experienced barrister or other legal or technical expert – will review evidence and conduct hearings, during which both parties will make their case and answer the arbitrator’s questions. The arbitrator is able to adjourn the hearings if necessary.
Unlike court proceedings, arbitration hearings don’t involve formal cross-examinations or the swearing of oaths. This makes for a simpler and less expensive way to conclusively resolve a dispute. Furthermore, arbitration is generally private and, unlike court cases, the position of the parties, evidence and arguments are kept private. The arbitrator’s decision is also often private.
Decisions and awards can occasionally be appealed and challenged, but this is generally only an option if it can be shown that the arbitrator acted with improper conduct during the process or made a significant and material oversight in their decision. In the vast majority of cases, the arbitrator’s verdict is final.
Litigation is the process of seeking resolution for the dispute in a court of law, where the case is ultimately decided by a judge.
This is often the most expensive and time-consuming way to resolve a disagreement. Some disputes go on for years. Unlike mediation or arbitration, the parties lack control over the progress of the dispute and the courts effectively control every aspect of the timeline and conduct of the case.
At the conclusion of a court case, it’s common for the judge to instruct the losing party to pay the legal costs of their opponent – effectively making litigation potentially cheaper for the winner than hiring a mediator or arbitrator. However, this is by no means a guaranteed outcome. Even if a litigant wins costs, they won’t see their fees paid if the losing party is unable to cover the costs.
Depending on the situation, in many cases it may make sense to seek a resolution through the use of a mediator or arbitrator before turning to full litigation. For both parties, it is often faster, cheaper, more private and less stressful to find a solution via alternative dispute resolution than it is to do battle in the courts.
The right course of action ultimately depends on a number of relevant commercial and legal factors. By seeking legal advice you can find the best strategy for resolving a dispute.
About the Author
This post was contributed by Girlings Solicitors – expert business law solicitors based in Canterbury, Ashford and Herne Bay. With nearly 140 years of experience providing personal, business and not-for-profit legal services, Girlings is one of the largest and oldest law firms in Kent.
You may also like: Litigation: Everything You Need To Know About Insolvency Proceedings