Dispute Resolution Methods: What Recourse Do You Have to Protect Your Interests?
There is a dispute resolution provision in every contract. You’ve probably read one. But did you really understand the options, how they differ, and what’s best for your company?
When it comes to resolving disputes, having the right approach is key. Knowing the right dispute resolution approach for your company and circumstances can make a major difference in the outcome and cost of the process. Identifying which dispute resolution method is best for any particular circumstance requires careful consideration and research.
There are three methods for dispute resolution, and you need to know the pros and cons of each of them (from your company’s perspective) before you negotiate the contract:
Let’s explore each method in greater detail:
Mediation is one way to resolve disputes without going to court. This method involves a settlement conference facilitated by a qualified third party. Mediators do not have the power to make decisions for both parties – instead they work with them collaboratively to help find a solution that works for everyone involved. It’s non-binding, and parties talk in good faith and try to resolve with a compromise.
Mediation provides an opportunity for both sides to communicate directly and openly about their concerns. Discussions in mediation are protected if no agreement is reached, meaning they can’t be used against you down the road if the issue goes to court. You can get creative with settlement terms in mediation as long as they are agreed upon.
The focus in this type of dispute resolution is on restoring relationships by helping parties find common ground and reach an agreement through mutual understanding. Mediation can be particularly beneficial for ongoing business relationships that need to be preserved during negotiations.
Arbitration is another avenue that can be used when parties don’t want to go through the court system. In arbitration, an independent third-party hears evidence and arguments from both sides before making a final decision. This method of dispute resolution may be faster than going through traditional legal proceedings, but it can also be expensive due to filing fees and other associated costs.
Arbitration is legally binding. A qualified arbitrator weighs arguments and evidence from both sides and issues a ruling. In arbitration, the parties are able to select an arbitrator familiar with the issues at hand (unlike in litigation where you may be assigned a judge with little or no knowledge about your industry). It’s a less formal proceeding than a trial, but the arbitrator’s ruling can carry the same power as a judge’s ruling. In fact, it can be considered even more powerful, because it is much more difficult to appeal.
If a contract states that disputes will be handled via litigation (or if a dispute method is not defined), they are filed and argued in court to seek damages or specific performance actions from the other party. Litigation is usually longer and more expensive than arbitration. It requires both sides to present their case in front of a judge or jury who will ultimately decide how the dispute should be resolved, and there are multiple steps involved before any potential outcome is reached. Despite these obstacles, litigation may carry some advantages depending upon your position. Admissible evidence is much more limited than what is allowed in arbitration, and the court’s decision is easier to appeal. However, the assigned judge and schedule of proceedings is out of your control.
Don’t overlook Informal Discussions
A few off-the-record conversations between decision-makers is an option that should never be overlooked. Here, both parties work together in good faith before anyone starts to spend too much money on lawyers or even mediators. When done properly, negotiation can help move things forward quickly while preserving relationships between those involved as well as saving time and money in the long run.
Each method of dispute resolution carries its own pros and cons, depending on your position. Knowing where you would stand in each instance can keep you ahead of the game and prepared. Taking into account all potential outcomes beforehand will ensure that you have chosen the best path forward for your company’s individual circumstances before taking action. Make sure you understand each option thoroughly before committing yourself or your business down any particular path and be proactive in advocating for your preferred method in negotiations.
What comes first?
Whichever “formal” dispute resolution process works best for you, we always recommend that the contract require both sides to come together for a good faith discussion of the issues before filing for a more formal proceeding. You never know what can get resolved, quickly and amicably, if both sides communicate before getting the lawyers involved.