DISPUTE RESOLUTION - CHOOSING THE RIGHT PROCESS  

In  this June '14 edition of  NEGOTIATION STRATEGIES is a one-minute read in which we introduce you to the different dispute resolution processes and how to decide which is the best one to resolve your particular dispute.

For your reading convenience, we also distill this into a brief lessons learned at the end of the column.

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Raphael Lapin

Mediation is an informal negotiation-based process in which the mediator assists the parties reach agreement through facilitated negotiation. The mediator has no decision-making power whatsoever, and unless all parties agree, there is no agreement or ruling. 

The object of mediation, as in negotiation, is not to win or vanquish the other party, but rather to get your needs met as best as possible. The product of mediation is a mutually agreed upon resolution as opposed to a ruling of justice. Whereas justice is what the law might say, resolution is not bound by the law and may be comprised of creative and innovative solutions that address the needs of both parties more optimally than merely applying the law. (However, to be a binding agreement, it cannot violate the law).

Although mediation can be used in most kinds of disputes, it is best suited to disputes in which an ongoing relationship is desired, and/or both sides have legitimate arguments and culpability is not necessarily a foregone conclusion.

Although even in cases of blatant culpability, mediation can be helpful in negotiating new and creative ways of compensation. For example I once mediated a fee dispute between a contractor and a successful music recording studio. It was very clear that the studio was at fault and owed the disputed fees but had problems with a large upfront payment. We were able to resolve the compensation issue with an agreement that in lieu of an upfront payment, the contractor would share in a percentage of royalties with the studio over a 36 month period - a resolution that the court would never have entertained.  The studio did not have to pay out of pocket and the contractor stood to gain even more than he was rightfully owed if business went well for the studio,  The contractor now became a partner in the success of the recording studio and a good working relationship was able to continue. This is a good example of a mediated resolution as opposed to an arbitrated or litigated  dispensing of justice.

Mediation is efficient, cost effective and can usually be resolved in a day or two in civil matters.

Arbitration is a more formal process than mediation and unlike mediation, is an adjudicated process where the arbitrator acts as a judge and renders a ruling (usually binding).

It is very difficult to get an arbitrated ruling turned over in court and usually will only happen if the ruling was unconscionable or a gross violation of public policy. So by agreeing to arbitration, one is essentially giving up ones rights to appeal.

Because arbitration is an adjudicated process, it can be subject to discovery and depositions although usually more limited than in litigation. 

The object of arbitration is to win the case based on the application of the law, and the product of arbitration is justice. Therefore, arbitration usually results in a winner and a loser.

Arbitration can also be used in most kinds of disputes, but most suited for disputes in which the relationship is not important, or where mediation has failed, or where one believes firmly that he/she has a strong position or in cases where one believes that a frivolous law suit has been brought against them.

Because arbitration is an adjudicated process, it is important that the arbitrator be an expert in the area of law which pertains to the dispute. Often arbitrators are retired judges.

Arbitration is also quick, cost effective and private, but with an often unpredictable outcome involving risk of losing the case.

Litigation is the legal equivalent of war, with armies of lawyers fighting in the battleground of the court room. It should be used only in dire circumstances. It is extremely inefficient, costly, lengthy and usually in the end, no one really wins. 

Even after a court ruling, the case will often spend many more years in appeal. It derails one's focus from things that are more worthy, important and profitable while draining financial resources.

Nevertheless, there are instances where litigation may be the right choice for a dispute resolution process for example where an establishing of precedent is deemed necessary. 

Take for instance, a brand name manufacturer that is bringing a trademark infringement  suit against a small outfit who has been  producing and selling cheap counterfeit items under the brand name. In this case the large manufacturer is not only seeking damages but perhaps also a large punitive award so that this case might serve as a deterrent  to other potential counterfeiters  as well. To achieve this, the public record aspect of litigation as well as the establishing of a precedent is of enormous value to the brand name manufacturer, and  litigation is an appropriate choice and worth the cost.

Another situation where litigation may be inevitable is if the other party rejects an offer to mediate or arbitrate (in the absence of an enforceable contractual dispute resolution clause). However in this instance I recommend using the litigation threat as a means to bring them to mediation or arbitration where possible so that all out litigation is ultimately avoided.

Disputes, depending on the process used to resolve them, can either be destructive or constructive.  Understanding the potentially devastating nature of litigation, it should be avoided wherever possible. 

We strongly recommend using ADR (Alternative Dispute  Resolution) clauses in your contracts so as to ensure that disputes are resolved swiftly, efficiently, quietly and fairly. Think of them as a highly cost effective litigation insurance!

Should you have further interest in ADR clauses in general or on the structure and design of ADR clauses specific to your organization in particular,  please feel free to contact me.