Commercial disputes are brutal.
They’re expensive. Stressful. And if they end up in court, they can take years to reach a conclusion — sometimes longer than the business relationship lasted in the first place.
That’s why businesses and individuals are flocking to Alternative Dispute Resolution, or ADR, whenever possible.
ADR lets people settle their disputes quicker, cheaper, and with a whole lot less animosity.
But here’s the catch…
ADR comes in many shapes and sizes. Not all are suitable for every situation. Choose the wrong path and watch months of your life disappear in fruitless meetings and never-ending paperwork.
You don’t have to waste time finding out how ADR works.
This handy guide tells you everything you need to know — including how to decide between arbitration vs mediation.
Here’s a preview:
- What Is ADR — And Why Should You Care?
- What Is Arbitration?
- What Is Mediation?
- Arbitration vs Mediation: At A Glance
- Which Path Is Right For You?
- Get Legal Advice First
What Is ADR — And Why Should You Care?
Alternative Dispute Resolution is a term used to describe any process that settles disputes outside of court.
You should care because the demand for ADR is skyrocketing.
Last year High Court commercial cases dropped by 10% — the lowest volume seen in six years. People just aren’t going to litigation like they used to.
Instead they’re fighting their disputes via arbitration or mediation.
Estate litigation solicitors know whenever possible these options lead to faster, more productive outcomes than dragging a case through court. Firms such as P.A. Duffy & Co. help their clients settle disputes across the full spectrum — including trust, estate, and wills disputes which often involve commercial contracts as part of the issue.
Broadly speaking there are two categories of ADR:
- Arbitration — A private process where a decision is made for you by a neutral third party.
- Mediation — A collaborative process where you and the other party work towards a mutually acceptable solution.
Both options are quicker and more private than going to court. But they differ significantly in how they achieve that outcome.
What Is Arbitration?
Arbitration is a private courtroom.
One (or a panel of arbitrators) hears evidence from both parties before issuing an award. That award is a legally binding decision both parties must adhere to.
Here’s why businesses love arbitration:
- It’s confidential.
- It’s faster than litigation.
- The final award is legally binding and enforceable — worldwide.
- It works well for technical, high-value disputes.
ADR industry leaders recorded a 10% increase in new cases last year, submitting 21,390 disputes to private resolution. That’s evidence right there of just how hungry businesses and individuals are for an efficient alternative to court proceedings.
What’s the downside?
For one thing, it can be expensive. Plus — this is important — you don’t get to choose the outcome. The arbitrator decides and that’s final. There’s usually no right of appeal, so you need to be certain if you take this route.
What Is Mediation?
Now let’s talk mediation.
Unlike arbitration, there is no decision being handed down by a third party. Instead both parties communicate directly (with the assistance of a trained mediator) in order to reach a mutually acceptable solution.
The key point to understand…
Mediation is totally voluntary. If the parties can’t reach an agreement, they walk away from mediation with no decision being imposed on them. Both sides have complete control.
That might sound bad. But it’s actually what makes mediation so effective. Particularly if there’s an existing relationship you need to protect.
Use mediation when:
- The relationship between the parties is important.
- Cost and speed are your main concerns.
- You’re willing to work with the other side to reach a compromise.
- The dispute has some grey area to it. i.e. where neither party is 100% right or wrong.
The number of disputes filed through AAA mediation hit $12 billion of total claim value last year. Parties were resolved in just 114 days on average. Compare that to most civil litigation cases and it’s no wonder businesses prefer ADR.
Arbitration vs Mediation: At A Glance
Three factors set them apart:
- Who holds the control?
- Is the outcome binding?
- Cost.
| Arbitration | Mediation | |
|---|---|---|
| Legally binding? | Yes | No, unless both parties sign a deal |
| Decision made by… | Arbitrator | Both parties |
| Ideal for… | Complex cases | Maintaining relationships |
| Cost | Moderate to high | Lower |
| Confidential? | Yes | Yes |
Straightforward right?
Both are private. Both avoid court. But depending on your situation one is almost always preferable to the other.
Which Path Is Right For You?
Here’s the truth.
It depends. But there are a handful of tell-tale signs that can point you in the right direction.
Take arbitration if:
- You need a legally-binding outcome.
- There’s a lot of money involved, or the matter crosses international borders.
- You believe the other party will never agree to a compromise.
- Specialist knowledge is required to settle the dispute.
Choose mediation when:
- Preserving the business relationship matters.
- Time and money are your primary concerns.
- You’re willing to meet the other party half way.
- The dispute is based around a grey area or contested interpretation.
Btw — keep your eye out for tiered dispute resolution clauses.
Many commercial contracts now include mandatory mediation clauses as a first step. Get caught out and you might be forced into mediation whether you like it or not. Pay attention to the contracts you sign and seek legal advice where necessary.
Get Legal Advice First
And that brings us to the last point…
Never enter into an ADR process without first understanding your legal position.
Too many businesses see fancy brochures and think they know enough to get started. Don’t be that business.
Speak with a lawyer first. It can help you:
- Understand how strong — or weak — your case really is.
- Identify the best form of ADR to suit your needs.
- Protect your interests during the dispute resolution process.
- Identify issues surrounding trusts, estates, and wills which may be part of the dispute.
You don’t have to sit down for a marathon meeting. Some initial legal advice can streamline your strategy and help you focus on what matters; reaching a resolution as quickly as possible.
Time To Call It A Wrap
ADR is the new normal.
Instead of going to court whenever they can, commercial businesses (and increasingly individuals with estate-related matters) are embracing arbitration and mediation.
Court statistics prove it. Businesses are voting with their feet. The results speak for themselves.
Let’s review:
- Arbitration = A binding award. Suitable for high-value or complex cases.
- Mediation = You hold all the control. Better for maintaining relationships.
- Most commercial contracts have ADR clauses. Read them.
- Speak to a lawyer before committing to ADR.
The fastest way to resolve a dispute is to have a plan from day one. Figure out what course of ADR you want to take as soon as possible and get that ball rolling.
Next steps? Your dispute gets closer to resolution and your business can start focusing on what really matters: growing.
