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Controlling your risk by keeping your commercial dispute out of court

| Apr 6, 2020 | Corporate Finance, Credit & Bankruptcy |

Court litigation is set up as an adversarial process, which requires both sides to pursue their case as aggressively as possible, with the hope that a decision will be made by a Judge in their favor. Notice we use the term “a decision” but not necessarily “justice.” In theory, everyone wants to get to the truth, as each side believes they are in the right, but even though this may seem a very sound way to approach a dispute, it is rarely a practical way for the parties involved.

What is Alternative Dispute Resolution?

Alternative Dispute Resolution, or ADR, refers to an ever-growing methodology for resolving legal claims and disputes outside of a civil trial. Because statistics generally show that more than 90 percent of lawsuits are resolved ultimately through settlement before trial, considering and ADR usually makes the most sense to avoid the lengthy and expensive traditional court process designed towards the finality of liability and not the resolution of a dispute.

Although ADR will typically involve aspects such as mediation, arbitration, neutral evaluation, negotiations and conciliation (or a combination) we focus our attention here on two of the most common, mediation and arbitration.

Mediation

Mediation is a form of non-binding alternative dispute resolution that helps parties resolve their own dispute in a more controlled setting through a facilitating neutral. A neutral mediator will be involved to help keep the resolution process on a reasoned track and ensure each party’s concerns are heard by the other.

Mediation however is not a passive process for a party.  Strong advocacy on behalf of each party is a crucial component to most business disputes being able to be effectively and completely resolved through a mediation process.

Whereas a civil trial judge may rule that some evidence or arguments are inadmissible in the case due to evidence rules and protections, an independent mediator won’t be bound in the same way. They will also help to create an agenda, push everyone to adhere to it, and recommend ways to move forward. If parties request an “evaluative” mediation, the mediator will also explain their personal opinion about what a court or arbitrator may or may not accept if the dispute were to proceed to arbitration or civil trial.

The mediation process is designed to help parties come to an agreement together. Once an agreement is reached, only then will the parties decide to what extent the agreement is to be made binding, if at all.

Arbitration

Increasingly, arbitration is written into contracts as a mandatory contractual means of settling disputes between the parties. Like a simplified civil trial, arbitration is also considered adversarial in nature because it involves presenting each party’s case in front of an independent arbitrator, but no jury.  Arbitration is often preferred for its presumed cost-effectiveness and expediency. The process will involve one or more arbitrators, who are neutral in the dispute. The arbitrators have the specific role to guide the proceedings, weigh the evidence, and come to a decision after hearing all sides of the case.

The results of these proceedings are not always a binary win/lose but – depending upon the arbitration agreement – may include hybrid decisions of success and mitigation among the parties. That is to say, the arbitrator’s decision may be to split the decision between the two parties, awarding an outcome that may be partially favorable to each.  Usually an arbitration is binding because it is a more extensive process than a mediation, but whether the decision will be binding will be subject to the arbitration agreement itself.

No matter which alternative method you choose for resolving a dispute, it is crucial to have proper legal representation to guide you through the process to ensure your case is properly presented and provide you with the strongest chance for the best possible outcome.