Dispute resolving. Almost all the day-to-day activities of a business create potential for

Almost all the day-to-day activities of a business create potential for

a civil dispute: a supplier may fail to deliver goods under a contract; a

customer may refuse to pay a bill; one of the business’s products may in-

jure a consumer; an employee may be injured in a manufacturing plant;

a marketing plan may involve restraint of trade. Although good business

managers attempt to minimize the potential for dispute through careful

planning, even the best-run businesses cannot avoid them.

Litigation. A business that becomes engaged in a legal dispute may

resort to litigation, contesting the claim in court, to resolve it. Because

litigation has become increasingly time-consuming and costly, however,

it often is not the best method for resolving a business dispute. The for-

mal procedures of litigation can require a business and its employees to

devote valuable time to collecting and reviewing evidence, meeting with

attorneys, and attending court hearings. Further costs are incurred to re-

tain attorneys who must draft documents, attend court hearings, review

evidence and legal precedent, interview witnesses, and otherwise plan for

trial. Litigation rarely resolves a dispute quickly. Complex business issues

may further protract proceedings because the judge or jury is not familiar

with economic, scientific, or other specialized information. Even after

trial, the case may be prolonged by appeal. Litigation also often cre-

ates hostility between the parties, a result that is especially detrimental

if the parties must maintain a business relationship such as a long-term

contract or employer-employee relationship. Moreover, because court

proceedings and documents generally are open to the public, a litigated

case may produce adverse publicity for a business or the opportunity for

its competitors to obtain valuable information. In addition, a successful

plaintiff does not have the benefit of the damage award until the case is

resolved and the judgment collected. Finally, even a strong case can be

lost, and uncertainty regarding the outcome of a case often adversely af-

fects both parties’ ability to plan operations.

Because of the expense, delay, and uncertainty of litigation, most

civil disputes involving businesses are resolved using alternative dispute

resolution (ADR), processes. ADR encompasses a variety of procedures

including time-tested techniques such as negotiation, mediation, and

arbitration, as well as recent innovations such as minitrials and private

trials. Although ADR is available to resolve any legal controversy, many

ADR techniques are particularly suitable for resolving business disputes.

Almost all ADR techniques emphasize quick resolution of disputes

using informal procedures and allow the parties to avoid crowded court

dockets and the protracted appellate process. The appropriate method

for resolving a specific dispute depends on a number of factors including

the nature of the dispute and the relationship of the parties.

Negotiation. The vast majority of business disputes are resolved

through negotiation, a process by which two parties with differing de-

mands reach an agreement generally through compromise and conces-

sion. Whether negotiation is informal (for instance, one or more tele-

phone conversations between two business people), or formally struc-

tured (such as a meeting or meetings scheduled solely to resolve the dis-

pute), the negotiation process generally follows a similar format. After

defining their positions and communicating them to one another, the

parties usually engage in a period of discussion, oral or in writing, in

which they analyze the strengths and weaknesses of the other. Finally,

one or both of the parties propose solutions usually requiring conces-

sions by each. If the parties can mutually agree on appropriate conces-

sions, the dispute will be resolved. Without agreement, the parties even-

tually become deadlocked, and resort to more formal dispute resolution

techniques.

Negotiation is the simplest and most efficient method of dispute

resolution, provided the parties truly desire to resolve their differences.

Although effective negotiating skills and strategies can be learned in

business schools and other programs, negotiating parties also should be

knowledgeable about the legal principles underlying their dispute. Many

businesses, therefore, either consult with their attorneys throughout the

negotiation process or refer the matter to their attorneys who then nego-

tiate the dispute on behalf of their clients.

Mediation. If disputing parties reach a deadlock, they may seek the

assistance of a third party to resolve the controversy. Mediation is a rela-

tively informal process in which a neutral third party, the mediator, helps

resolve a dispute. A mediator generally has no power to impose a resolu-

tion. In many respects, therefore, mediation can be considered as struc-

tured negotiation in which the mediator facilitates the process. Although

mediators use different techniques and strategies, the mediator usually

initiates the process by meeting with the disputing parties, either indi-

vidually or jointly, to explain the mediation process and to gather infor-

mation about the parties and their dispute. The mediator then attempts

to define the issues, establish an agenda for mediation, and preserve an

atmosphere conducive to communication. Through meetings with the

parties, the mediator assists them in generating options for settlement

and assessing the options. Finally, the mediator helps the parties reach

concessions and compromises that will lead to a final settlement. If a

resolution is reached, the mediator may help reduce the agreement to

writing and work with the parties to implement the agreement.

A good mediator knows strategies and techniques to facilitate com-

munication, minimize distrust and help develop alternatives when the

parties are unable to achieve these goals without guidance. If the media-

tor also has expertise in the subject area of the dispute, the mediation

process can expedite a fair resolution. The primary disadvantage of me-

diation is the mediator’s lack of power to impose a binding resolution.

Arbitration. Like mediation, arbitration uses a neutral third party to

resolve a dispute. Unlike the mediator, however, an arbitrator generally

is empowered to impose a binding decision that resolves the dispute and

that may be enforced by a court if the parties fail to comply. Unlike the

court, which is a branch of government, the arbitrator derives its power

to impose a binding decision from an express contract, the arbitration

agreement, between the parties. Most frequently, parties to a contract

include a provision requiring any disputes arising under the contract to

be resolved through arbitration. Alternatively, parties may enter into an

arbitration agreement, sometimes called an Ad Hoc agreement, after a

dispute arises. Many arbitration agreements provide for a panel of three

arbitrators, who reach a decision by majority vote.

The arbitration contract may establish all of the rules for the arbitra-

tion process, including selection of the arbitrator, designation of the site

for the arbitration, procedures for presentation of evidence, and dead-

lines for hearings and the decision.

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