If you have a business, you will have business disputes. Whether it be with a supplier, vendor, contractor, customer, or competitor, disagreements over rights and obligations will inevitably arise, even with a well drafted contract. How these disputes are resolved can impact ongoing business relationships as well as your bottom line.
Business owners who are looking to salvage relationships, minimize expenses, and maintain a greater degree of control and confidentiality during such conflicts often find that the courthouse may not be the best forum for accomplishing these goals. Instead, arbitration and mediation can offer an appealing alternatives to traditional litigation.
These two primary methods of alternative dispute resolution (ADR) won’t guarantee that the parties will be singing “Kumbaya” at the end of the day, but business owners should have an understanding of what these proceedings are so that they can consider utilizing them when they are drafting dispute resolution provisions in their contracts and when they find themselves embroiled in an actual conflict.
In a mediation, the parties collectively select a third-party to act as a mediator who will attempt to facilitate a resolution of their dispute. In Arkansas, as in most states, there are private ADR organizations who have rosters of third-party neutrals with diverse backgrounds, expertise and training in specific areas of law or industries, many of whom are retired judges.
One of the advantages of both mediation and arbitration is that it allows the parties to have their dispute heard before a neutral who will likely have a greater understanding of the specific and unique issues involved in the dispute than would a jury or a judge who has no particular expertise.
In mediation, all parties will meet and explain their position before meeting individually with the mediator. The mediator will then try to thoroughly understand each position and will point out flaws in your case. The mediator’s goal is to convince parties to settle by showing how difficult, costly, and risky the litigation process could be.
The mediator then shares the terms offered by a party and will go back and forth between the parties until an agreement is reached. All parties will then sign an agreement, which is treated like a contract. If no settlement is reached, or if the contract is breached, then you will go to trial.
Arbitration has much more in common with a trial than does mediation. In an arbitration, the third-party neutral selected by the parties will review evidence and hear testimony, and the parties may engage in discovery prior to the hearing if that has been agreed to. The rules of evidence and procedure are typically more relaxed than in litigation, though that hardly means it is a free-for-all. Arbitration can be either binding or non-binding. In binding arbitration, the parties agree to abide by the decision of the arbitrator as if it was a court’s ruling, while in non-binding arbitration a party may choose to reject the findings of the arbitrator.
A common characteristic of both mediation and arbitration is that the parties involved must agree to participate in the process. Sometimes, this agreement is contained in the contract that is at issue in the dispute, particularly with regard to arbitration. Arbitration clauses can require that the parties attempt to resolve their dispute through that either binding or non-binding arbitration, and can set forth such things as the manner in which the arbitration is to be conducted, as well as the location of the proceedings and the controlling law to be used in adjudicating the dispute.
The Arkansas Uniform Arbitration Act, much like the Federal Arbitration Act on which it is largely modeled, is designed to encourage arbitration and contains provisions as to the enforceability of arbitration clauses in contracts, how arbitrators are to be selected in the event that the parties can’t agree, limitations on discovery, and when arbitrators’ decisions may be modified, rejected or reviewed.
In subsequent posts, we’ll discuss the relative pros and cons of mediation and arbitration as compared to traditional litigation. Cost, speed, confidentiality, control, and flexibility are often cited as advantages of ADR, but sometimes, the nature of the parties or the subject matter of the dispute involved may minimize or eliminate these advantages.