March 20, 2013
Disputes are an inevitable part of doing business, and incurring the associated costs and uncertainties is just as inevitable. However, there are ways to approach the dispute resolution process that can minimize those costs and uncertainties, sometimes dramatically, which every business stakeholder should consider.
Not every dispute needs to be resolved with a court-filed lawsuit. The same outcomes can be achieved through arbitration, for example, with significant potential advantages. In an arbitration, the parties agree in advance to a set of rules to govern the process. They choose an arbitrator or panel of arbitrators – sometimes lawyers or former judges, sometimes non-lawyers with experience in the relevant industry – to hear their presentations. They can impose limits on the number of witnesses allowed, or on the total amount of time each side can take to present its case.
Though arbitration will not always be a cheaper alternative to litigation, parties to arbitration can decrease their expenses by reducing or even eliminating the type of pre-hearing “discovery” that in regular civil litigation can quickly lead to skyrocketing costs (e.g., document productions and witness depositions). They can also set their own schedule rather than depending on the schedule of a court. For example, parties can stipulate that the arbitrator will render a decision within a given number of days after the end of the hearing, or by the end of a quarter or fiscal year.
Another significant feature of arbitration is that the parties can agree to keep the matter confidential. This can be immensely valuable for many businesses, including those that repeatedly see the same types of cases, as well as those with reputational concerns.
An arbitrator’s decision is typically binding and will be enforced by a court if the agreed-upon rules are followed. However, parties can also agree in advance to non-binding arbitration, which, at a minimum, can serve as a “reality check” for both sides by showing them what a neutral arbitrator thinks of the underlying facts, often providing a basis for settlement.
Mediation is another popular form of non-binding dispute resolution. Unlike an arbitrator, who typically hears a presentation of evidence from each side and then renders a decision, the mediator’s role is to facilitate a negotiation between the parties with the goal of moving them towards settlement. At a mediation, the parties often spend little time with each other. Instead, the mediator shuttles back and forth between them, relaying offers and counteroffers, along with his or her impression of the merits of each side’s position and sense of where the parties might be able to meet in the middle.
The bottom line for businesses is control. If both sides to a dispute agree to pursue arbitration or mediation, they can move forward on their own schedule and according to their own agreed guidelines. Businesses can also proactively exert control over future disputes by including dispute resolution provisions in their contracts – with suppliers, vendors, etc. These types of provisions can require that anyone with a potential claim against your business pursue arbitration or mediation, with all of the attendant advantages, before filing a lawsuit in court.
