Businesses often resolve commercial disputes in one of two primary ways: through litigation in the court system or through alternative dispute resolution methods like mediation or arbitration. Many business leaders assume that ADR is inherently faster and cheaper than litigation. While it can be in certain situations, that is not universally the case. Whether ADR or commercial litigation is the right option for you will depend on the unique circumstances at play.
What Is Litigation?
Litigation is the way disputes are resolved through the civil court system. Each party to a dispute has the opportunity to present evidence, question witnesses, and make arguments before a judge and jury (in a jury trial) or before a judge alone (in a bench trial). The court serves as the finder of fact. The process is governed by a public system of established legal standards, and court decisions are a matter of public record, which promotes accountability. Moreover, because a court’s ruling in commercial litigation can result in legal precedent that governs cases that follow, it can shape future business practices. Judges are bound by strict procedures, and parties can appeal if they believe a ruling is wrongly decided.
That said, there are circumstances under which disputants might prioritize flexibility or privacy over the publicity and binding outcomes that litigation may entail. These parties may prefer an alternative way of resolving their disputes.
What Is Alternative Dispute Resolution?
Alternative dispute resolution, or ADR, is exactly what its name implies: a way of resolving a dispute through means other than litigation. Perhaps the two most common types of ADR are mediation and arbitration.
Mediation involves a neutral third party called a mediator who facilitates communication between disputing parties to help them reach a mutually acceptable agreement. The mediator does not impose a decision but instead guides the discussion and clarifies issues, with a focus on finding compromise. Comparatively informal and cooperative, mediation can preserve relationships by promoting understanding.
In arbitration, on the other hand, the neutral third party is known as an arbitrator. The arbitrator listens to both sides of the dispute and then makes a binding or non-binding decision, depending on the terms the disputing parties agreed upon beforehand. Unlike mediation, arbitration resembles a private court proceeding—more formal and structured, with rules of evidence and procedure. The key distinction between the two is that mediation seeks a collaborative resolution through dialogue, while arbitration results in a decision imposed by the arbitrator.
Arbitration might seem efficient and cost-effective, but the costs can add up quickly. Arbitrators charge by the hour, and administrative fees can be steep. Many arbitration cases require multiple hearings, expert witnesses, and document reviews that make arbitration just as lengthy as court proceedings, sometimes longer. Unlike court filing fees, arbitration fees start high and increase as the case progresses.
Arbitrators’ schedules can also delay hearings for months. Businesses that expect a quick resolution through arbitration often find themselves waiting longer and paying more than they would in court. In complex commercial disputes, arbitration can drain time and money without offering much efficiency.
Which Option Is Right for You?
Whether litigation or ADR is the right option for your business will depend on the nature of the dispute, your relationship with the other party, and your priorities. You may prefer ADR over litigation to resolve a commercial dispute when:
- Your contract requires you to submit the dispute to ADR
- You want to preserve your business relationship with the opposing party
- You want to keep the dispute out of the public record to avoid negative publicity
- You have concerns about resolving a dispute as quickly and cost-efficiently as possible, in which case mediation might be the right option
- You prefer having a subject matter expert resolve your dispute due to the technical nature of the issues involved, in which case you might consider arbitration
On the other hand, you may prefer litigation if:
- The case involves issues without a clear legal precedent
- The other side refuses to participate in ADR
- You need formal discovery to obtain evidence to support your claims or defenses
- The case involves high business stakes or significant sums of money
Contact a Commercial Disputes Lawyer for Help
Do you need help resolving a commercial dispute in Michigan or Florida? Contact August Law, PLLC now for an initial consultation with a lawyer who can advise you on your options and help you pursue your goals, whether that’s through ADR or litigation.