• Dispute Resolutions: Know Your Options
  • February 27, 2012 | Author: Ronald H. Pollock
  • Law Firm: Barley Snyder - Lancaster Office
  • It is a fact of life that disputes will occur in any business relationship.  The disputes can range from small to large.  While disputes are a part of doing business, a party can control how disputes are resolved through contractual agreements.  Issues such as who decides, where does a dispute get heard and how quickly does it get resolved can be addressed in a contract.

    Traditionally, parties involved in a contract dispute have the ability to sue each other in court.  The trend today is away from the court system toward different alternative dispute resolution techniques.  Confusion arises due to the multiplicity of options available through the alternative dispute resolution arena. 

    Before discussing the alternatives, it is worth taking a moment to examine our traditional civil litigation system.  An advantage of the litigation system is that it operates strictly according to law - Judges are lawyers who learn to analyze problems through legal precedent and statute. 

    There are also various appeal options available to the parties which will enable them to have any incorrect legal rulings overturned.  As such, if a party will rely on strong legal arguments to win it’s case, the court system is often a good option.
    Court systems also tend to be more black and white - there are winners and losers.  A jury or a judge, whichever is utilized, will often take less of a “split the baby” compromise approach to a verdict.  This is both an advantage and a disadvantage, of course, depending on which side of the dispute or the verdict one occupies. 

    What is certain is that the discovery process in our civil litigation system can be quite time consuming and expensive.  Often, discovery costs far exceed that of the trial and other aspects of the case.  This does prompt an eventual wearing down of the parties and a settlement of the dispute through negotiation, not trial and verdict. 

    Arbitration, on the other hand, offers some advantages of speed and informality.  Generally, the discovery process is less protracted, although filing fees with certain arbitration organizations coupled with a tendency to proceed with some form of discovery process similar to the court system have tended to drive up the cost of arbitration.  If an arbitration provision is desirable, and the parties truly wish to save costs as the primary goal, provisions regarding the limitation of discovery and the like should be written into the contractual ADR provision.

    This ability to modify and customize the dispute resolution mechanism is a hallmark of ADR.  Specifically, the parties can determine who hears the dispute (e.g., a particular industry specialist such as a panel of engineers).  There is typically no appeal, which gives an advantage of finality (small consolation to a losing party however).

    The parties are really limited only by their desires and imagination, although agreements that clearly overreach against one party or the other, or if one party has much greater bargaining power than the other, may not be enforced.  The overwhelming tendency however is to enforce the alternative dispute resolution provisions agreed to by the parties.

    ADR is not always perfect.  If the parties wish to limit the provisions of the ADR process in order to save costs, they should be prepared to reap the consequences of proceeding to a hearing without a full understanding of each party’s evidence.  This can at times result in somewhat arbitrary results.  Further, in contrast to the court system, arbitrations often can result in compromise decisions as a result of an arbitrator’s attempt to be “fair,” often born of their desire to operate in good faith to both parties.

    Finally, a contractually mandated mediation/settlement conference can also be employed.  A settlement conference is just that - the parties sit down with an unbiased mediator, skilled in facilitating compromise, in an effort to resolve the dispute without further litigation.  This is often a good idea, although the timing may not be effective.  For example, if it is mandated that the parties immediately have a mediation prior to any form of litigation, the mediation may in fact be premature.  The parties are in a dispute - they obviously have not been able to come to terms based upon the information available to them at that time.  It may require some period of litigation before the parties are able to materially change their position or modify it in order to arrive at a compromise.  As such, parties should think carefully about requiring a mediation too early in the process, before the parties are prepared to compromise.

    In short, ADR and trial through the judicial court system present two parallel, and at times contrasting, forums in which parties can resolve their disputes.  The dispute resolution mechanism of the parties can be prestructured so that it meets the party’s needs - a business can take control over the way in which disputes are resolved.  There are a number of issues to consider when making decisions on the dispute resolution process.  This article is far from exhaustive as to all the issues, but rather begins to provide a very basic outline of some of the factors.  In later articles, we will flesh out a variety of scenarios in order to improve the understanding of this important issue, to assist you in making  the right choice for your business.