Business owners should prepare for contract-related disputes. At some point, either party to a contract may cause a breach.
During a disagreement, the opposing parties have two options in addition to commercial litigation: mediation and arbitration. These are the things you should know about these options.
Many commercial litigation courts require that the parties participate in mediation prior to bringing their case before a judge. The mediation process is typically a voluntary, informal process where a third-party mediator helps both sides negotiate a resolution.
The mediator’s job is to create an environment for open, clear communication between the parties. These meetings help the individuals involved share their feelings and thoughts about the contract. The discussions are private and confidential.
The goal of mediation is to maintain the relationship while renegotiating the deal so it is beneficial for both sides. Although this is the quickest, least expensive option, this process is not binding.
If the lawsuit participants want a more formal, binding process, they may choose arbitration. This process is similar to a court proceeding in that extensive discovery, testimony under oath and the presentation of evidence occur.
Most arbitrations involve three arbitrators, one selected by each party and a third chosen by these two arbitrators. Instead of a negotiation, the arbitrators make a final, binding outcome based on evidence, facts and any relevant law. Both parties are bound legally by the final decision of the majority vote of the arbitrators.
The goal of arbitration is justice and fairness, not negotiation. Although this option has a quicker resolution and is less expensive than litigation, it is more costly and takes longer than mediation.
To prevent business disputes, business owners should take time to ensure clear communication among the parties and carefully write the contract so it reflects the parties’ responsibilities.