Businesses are always looking for ways to cut costs, and one of the first areas for this inquiry is reducing the cost of litigation. Not only are legal fees high but a complex lawsuit requires the hiring of one or more experts, the conduct of expensive tests and analyses, and document production. Over the last thirty years, corporations have been turning more and more to procedures such as arbitration or mediation. Unfortunately, many executives do not fully understand how each process and the important differences between them.
Arbitration is a scaled down version of a conventional lawsuit. The parties exchange written statements of their positions, serve and respond to discovery, and if the matter is not settled, participate in a hearing before one or more arbitrators. The arbitrators will render a decision on the dispute (or on all issues that have been submitted to the arbitration panel). Some arbitration decisions can be appealed to either a state or a federal district court.
Mediation is a settlement negotiation supervised by a neutral third party called the “mediator.” The mediator has no power to render a decision (unlike arbitrators); his function is listening carefully to each party and to present alternatives for resolving the dispute. The only binding decision that can emerge from a mediation is one that the parties have reached by mutual agreement.
The nature of the proceedings
Perhaps the single biggest difference between mediation and arbitration, apart from the function of the arbitrator or mediator, is the nature of the proceedings. As noted, an arbitration hearing can be much like an ordinary civil trial, while a mediation session involves only the parties, their attorneys, and the mediator. Mediation sessions ordinarily do not include witnesses or the presentation of exhibits. Mediation, if successful, will produce a contract between the parties that may require subsequent court intervention to secure complete enforcement. Arbitration awards are often described as unappealable, meaning that the award cannot be questioned in a court proceeding.
The cost of either mediation or arbitration is usually much less than a full-scale trial of the same issues. Many corporations include mandatory arbitration or mediation clauses in their standard contracts to ensure that either or both remedy will be available.
Any executive interested in using either mediation or arbitration to resolve business disputes may wish to consult an experienced business litigator for an overview of the procedures, an evaluation of the evidence, and an opinion on whether either mediation or arbitration would result in significant cost savings.