Alternative Dispute Resolution:

About Mediation and Arbitration

By Michael R. Scott

As our courts have grown more congested and litigation has become more expensive, there has been increasing interest in the business community in alternative forms of dispute resolution. Alternative dispute resolution (sometimes known as "ADR") may be faster, less expensive, and more private than going to court. However, alternative dispute resolution may also have some drawbacks when compared with a trial in the court system.

The primary methods of alternative dispute resolution are mediation and arbitration. Mediation is non-binding—the mediator assists the parties in reaching a settlement of their dispute, but has no authority to impose a resolution upon them. Arbitration, on the other hand, is binding—after hearing both sides of the controversy, the arbitrator reaches a decision that is typically final and enforceable.

Submission of a dispute to mediation or arbitration must be by agreement. The parties may provide for alternative dispute resolution at the beginning of their relationship, by including in their contract a provision requiring mediation or arbitration of all disputes relating to their agreement. If the contract contains no such provision, the parties may still agree to mediate or arbitrate after a dispute arises.

An agreement to submit a dispute to an alternative forum for resolution should provide for selection of the mediator or arbitrator. The American Arbitration Association, a nonprofit organization with offices in most major cities, has experienced arbitrators and mediators, as well as rules to guide the resolution process. Experienced lawyers also commonly serve as mediators and arbitrators.

The main advantages of alternative dispute resolution are speed and economy. While a lawsuit usually takes one to five years to reach a conclusion, an arbitration is usually completed within several months. Mediations are even faster. The swiftness and relative simplicity of these processes typically result in significantly lower legal fees and costs.

However, there are also disadvantages to mediation and arbitration. Mediation can be a waste of time and money if the parties are not ready (either in terms of their knowledge of the facts surrounding the controversy, or in terms of attitude) to reach a settlement. Since mediation is not binding, this is really the only potential drawback.

Arbitration, which is binding, deserves more careful consideration. Arbitration of a dispute may be undesirable where the facts relating to the dispute are within the control of the other side. There are many methods available to discover facts during the pre-trial phase of a lawsuit filed in court, but pretrial discovery is much more restricted in arbitration. Another potential disadvantage of arbitration is the tendency of arbitrators to reach compromise decisions—an arbitrator is more likely than a judge or a jury to "split the baby." Finally, business people considering arbitration need to be aware that an arbitrator's decision, though fully binding and enforceable through the courts, is almost never subject to judicial review. Since there is usually no way to appeal an arbitration decision, there is a greater possibility of an erroneous outcome.

Because there are pros and cons to alternative dispute resolution, it is wise to consult a lawyer before agreeing to submit to mediation or arbitration. You should also seek assistance from a lawyer in going through the process of mediation or arbitration. A skilled litigator will help present your side of the dispute in the most clear and compelling manner.