If you find yourself and your business facing a legal dispute of any kind, you will want to have it resolved as quickly and as positive as possible. There are different ways a dispute can be resolved. The first one that comes to mind is litigation (bringing a lawsuit in the courts). However, litigation can be a very long, expensive and, sometimes, emotionally draining option. Good alternatives are mediation and/or arbitration. What many business owners don’t realize is that you can and should agree ahead of time which dispute resolution method to be used in the event a dispute does arise. This is done by including a dispute resolution provision in all of your contracts that addresses the method, procedures, timing and whether or not the resolution is binding.
A dispute resolution provision will save everyone time, money, and, often times, lots of grief. Each dispute resolution method has its own advantages and disadvantages, so when deciding which one makes sense for you and your business will depend on the particular circumstances of each transaction. Below is a quick primer on each type of dispute resolution method.
The main purpose of mediation is to find a common ground between the parties and come up with a resolution to avoid court. A neutral mediator will work with both parties to try to keep the peace and find the best solution for everyone. Mediation is generally much quicker and costs a lot less than arbitration or court. It also is less adversarial, meaning that it tries not to pit one party against the other. However, the parties are not obligated to settle a case at mediation, therefore, the parties could meditate and still end up going to arbitration or court.
With arbitration each party will present its case to an independent arbitrator (or panel of arbitrators) who will decide the case, very similar to court. However, arbitration tends to be quicker and more efficient than litigating in court because the rules of discovery (the process by which the parties gather and exchange evidence) are more limited than they are in litigation. Also, some parties prefer arbitration over litigation because arbitration is completely confidential. As the arbitrator’s decision is binding, arbitration can be preferable to mediation because it provides a final resolution for the parties.
On the other hand, potential downsides to consider with arbitration is the additional cost of the arbitrator (or arbitrators). Unlike in litigation where courts are taxpayer funded, the parties will have to pay for the arbitrator(s), whose hourly rates are comparable to that of attorneys. This can greatly diminish the cost savings of the limited discovery. Also, it is extremely difficult to appeal an arbitration decision. In other words, if you are the winning party that’s a positive, but if you are on the losing side, you will have virtually no recourse.
Litigation is the process by which a court of law hears and decides a case. It is a much more expensive and drawn-out process than mediation and also tends to be more expensive and longer than arbitration. Courts are typically busy and overwhelmed with cases, and it can sometimes take months to set a date even for your first hearing. Also, the rules of discovery are very broad, which tends to result in more costs, time, and you turning over more information to the other side.
Although some might see the long process as a disadvantage, it could be the best course of action to protect your business. The broader rules of discovery and slower pace can be an advantage in complicated matters where there is a tremendous amount of potential evidence to discover, review, and analyze, which will help ensure that you have the full picture prior to arguing your case.
No one enters a business transaction expecting to fight with the other party, but it happens. It is best to think about how to resolve a potential dispute before it actually arises. Consulting with an experienced business attorney when negotiating the terms of the transaction will help you evaluate which dispute resolution is best for you and your business in that particular transaction.
Ser & Associates regularly assists businesses in negotiating the terms of contracts. And, our litigation team regularly assists clients in contract disputes, be it mediation, arbitration and/or Litigation. If you are in a dispute or want to prevent one in the future, please don’t hesitate to contact us today at 305-222- 7282!
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