Just as disputes are normal occurrences in our relationships and social lives, business relations are not free from them either. In a bid to achieve your set business goals, you might unknowingly infringe on the rights of other persons or business organizations. This can easily lead to disagreements.
Whenever these disagreements occur, the question is whether you should immediately resort to the courts to try and settle the matter or are there other alternative dispute resolution (ADR) mechanisms that may be a more beneficial way to resolve the dispute, especially in terms of time and money spent?
The fact is that litigation is not always the best option when settling business disputes as it may lead to unplanned expenses and other negative consequences when prosecuting your case. Besides being resource-consuming, it is also time-wasting and can make future beneficial relationships very unlikely.
Additionally, it is worth mentioning that the expectation is that a business owner would not get involved in a business-related dispute under their personal name, as would happen when one operates as a sole proprietor. Rather, it is hoped that the business owner would have created an LLC, or other legal business entity like a corporation, under which they run their business. This entity is what would protect their personal assets, should the result of the chosen ADR method go against them.
Two key methods of resolving business disputes without resorting to the courts are Mediation and Arbitration. This article seeks to give an understanding of each alternative dispute resolution method and provide a guide to choosing which is best for settling business disputes based on prevailing circumstances and considerations.
What is Mediation?
Mediation involves the voluntary negotiation between disputing parties which is facilitated by an unbiased third party—referred to as mediator. The skilled mediator helps the disputing parties to objectively analyze the matter at hand, identify common grounds and generate mutually satisfactory solutions by themselves.
Benefits of Mediation
- Non-coercive: participation in mediation is voluntary and any of the parties can choose to walk away at any time.
- Collaborative: The parties involved get to collaborate in coming up with mutually beneficial solutions. The decisions made are not handed down and forced on the parties but are generated through negotiation and compromises by the parties.
- Confidentiality: Sensitive business information is not exposed to external persons or investigative bodies during mediatorial processes
- Cost-effectiveness: The mediation process is generally less expensive than arbitration as it is less formal and may not require the service of an expert.
- Quicker Resolution: Mediatorial processes are usually less time-consuming than arbitration.
- Preservation of Business Relationship: Since the final outcome of mediation is mutually beneficial and collaboratively developed, the business relationship between the parties is likely to be sustained.
- Non-Binding Outcome: The final resolution reached by the parties is not enforceable by the mediator. Compliance is based on the readiness of both parties to follow through with it.
What is Arbitration?
Arbitration is an alternative dispute resolution process where a neutral third party, called an arbitrator, considers the presented cases and evidence of the disputing parties and then comes up with a verdict that both parties are bound to obey. It is a more formal process than mediation but less formal than litigation.
Benefits of Arbitration
- Confidentiality: Just as in mediation, the privacy of sensitive business information can be maintained. However, if one party fails to implement the binding outcome of arbitration, legal enforcement can be sought which can make public the decisions reached.
- Cost-effectiveness: Arbitration is a cheaper option than litigation
- Quicker and More Predictable Outcome Than Litigation: Arbitration is much less time-consuming than litigation and also gives a more predictable outcome
- Binding Outcome: The decision of the arbitrator is legally enforceable if one party fails to comply.
- Expertise: The arbitrator should be an individual with expert knowledge in the relevant business matter at hand.
Which is the Right Option to Choose
Choosing between mediation and arbitration in the settlement of business disputes requires careful consideration of several factors. This includes the nature of the dispute, relative cost-effectiveness and privacy concerns, desire for a continued relationship in the light of foreseeable future benefits, control over the outcome and time constraints.
When maintaining an existing business relationship and flexibility are the key considerations, mediation is ideal, but if binding resolution is prioritized above a continued business relationship, arbitration will likely be the way to go.
Conclusion
Arbitration and mediation are out-of-court dispute settlement mechanisms that provide business owners the option of saving cost, and time and keeping their matters private. However, a careful evaluation of the merits and demerits of each approach is very vital for making informed decisions. Seeking the expert opinion of a business lawyer can give the needed parameters and insights for proper consideration of the right ADR approach to take. This is even more important as failure to reach a mutually beneficial resolution, especially during mediation could eventually result in litigation, for which you will then need that litigation attorney.
Image Credit: By Gerd Altmann via Pixabay
