Many business owners assume that a serious dispute ends in a courtroom. In practice, the vast majority of civil cases settle before trial, and a growing share of them settle through mediation. The question for a company facing a dispute typically is not whether to resolve it, but when, how, and at what cost. Litigation offers a public forum, formal discovery, and a binding decision from a judge or jury. Mediation offers something different: a confidential, structured negotiation guided by a neutral third party, in which the parties keep control of the outcome.
There is no single approach that is suitable in all cases. Companies which habitually go for litigation often end up spending more than they had anticipated and harm the relationships that they would have liked to keep. Those companies which opt for mediation without making the necessary preparations sometimes agree to settlements that are worth less than their case was. The businesses which deal with disputes effectively are the ones who understand the strengths of each process and make deliberate choices.
How Mediation Works and What It Is Not
It is helpful to know what the mediation process entails before deciding whether it is suitable for a given dispute.
A Neutral Facilitator Rather Than Decision Maker
A mediator is a neutral expert, typically a retired judge or an attorney who has experience in the relevant field, and whose role is to assist the parties in communicating with each other, examining their respective positions, and looking at possible terms that both sides could accept. They do not force upon the parties any outcome. Unlike a judge or an arbitrator, the mediator has no power to decide who is right or wrong, and therefore no settlement can take place unless both parties agree to it.
Confidentiality Encourages Candor
Mediation is usually confidential, so the statements made and the documents prepared for it are generally not allowed to be used in court afterwards. This confidentiality enables the parties to talk about weaknesses in their own positions and to investigate inventive solutions without the fear that the discussions will be used against them. On the other hand, a trial produces a public record which can be read by competitors, customers, and the press.
A Settlement Becomes a Binding Contract
Once an agreement has been reached, the terms are generally memorialized in a settlement agreement which can be enforced just like any other contract. It is important to be careful when drafting the agreement since vague terms, omissions of deadlines, or failures to deal with possible contingencies may cause the parties to once again fall into conflict concerning the meaning of the agreement they have just reached.
Situations Where Mediation Often Makes More Sense
There a certain features of a dispute that suggest an early effort at mediation should be considered.
The Relationship Is Worth Preserving
Arguments that arise among business partners, family members who jointly own a company, long-term suppliers, or important customers usually concern relationships whose value goes beyond the present disagreement. Since litigation is built on an adversarial basis, it generally serves to strengthen the parties’ positions and increase resentment. By contrast, mediation enables the parties to settle the dispute while still leaving the possibility of continuing to work together.
Cost and Time Are Significant Concerns
Litigation may take several years and result in high legal fees, as well as substantial expenses for experts and internal disruption. Mediation, on the other hand, can usually be finished in one or two days at a much lower cost. In cases where the amount in dispute is small compared to the cost of going ahead with a full lawsuit, or where management time is more usefully employed in running the business, mediation represents a more sensible economic option.
Privacy Matters
Arguments concerning trade secrets, financial information, internal governance, or matters which are sensitive in terms of reputation are usually more suitably settled behind closed doors. Since court documents are usually available to the public, even if a case is managed well, it may still result in the disclosure of information that the company would like to keep secret. Mediation ensures that the discussions, and in many cases the outcome, remain confidential.
The Parties Want Flexible Solutions
Usually, a court will either grant monetary damages or an injunction, but it is not able to draw up a special arrangement. By means of mediation, the parties can reach an agreement on terms which a court would never be able to impose, for example new supply conditions, a step-by-step buyout, a licensing agreement, a joint statement, or a reorganized payment schedule. In cases where the most suitable outcome is a business solution rather than a binary legal decision, mediation provides the better opportunity for reaching that solution.
The Facts Are Uncertain, and Both Sides Face Real Risk
A strong case still has the possibility of an adverse decision. If there is real uncertainty regarding liability, damages, or credibility, a settlement can provide greater predictability than a judgment which neither party can confidently anticipate.
Situations Where Court May Be the Better Choice
Notwithstanding its benefits, mediation does not offer a solution in all cases, and there are situations in which going to court is the more suitable or necessary course.
Urgent Relief Is Needed
If a party requires an immediate court order—for example, a temporary restraining order to prevent the misuse of confidential information or the destruction of evidence—mediation cannot offer this type of protection. Companies that are suffering, immediate serious harm might have to file their case first and then proceed with mediation.
A Precedent or Public Ruling Is the Goal
Certain disputes are of importance that goes beyond the parties concerned. A company which wishes to obtain a judicial decision on a recurring legal issue, or which seeks public vindication cannot achieve this through a confidential settlement.
One Side Isn’t Negotiating in Good Faith
Mediation can only be successful if both parties take part honestly; if a party uses the process as a means of delaying, of collecting information, or of shirking accountability then it will result in a waste of time and money. When that happens, the formal procedures available in litigation—such as subpoenas, depositions, and court deadlines may need to be employed to advance the dispute.
A Legal Question Needs an Authoritative Answer
In cases where the issue is merely a question of law or where there is a substantial imbalance of power or a record of improper conduct, a binding ruling by a court may be more advantageous to the client than reaching a compromise.
Making Mediation Work
Choosing mediation is merely the first move; the outcome largely depends on the quality of the preparation.
Choose the Right Mediator
Different mediators have different styles and levels of expertise. Some give evaluated opinions and will provide honest assessments of the strengths and weaknesses of each party, while others take a facilitative approach and concentrate on helping the parties arrive at their own conclusions. The choice of a mediator with relevant industry or subject-matter experience and a style appropriate to the dispute can make a great difference.
Prepare as You Would for Trial
Companies that take mediation lightly usually end up with casual results. To prepare properly one should understand the main facts and documents, assess the realistic range of possible outcomes at trial, and identify the underlying business interests which a settlement must consider. A party that is well prepared negotiates based on fact.
Send Someone with Authority to Settle
A mediation involving a representative who is unable to reach a decision usually comes to a standstill precisely when it is most important to make that decision. Both sides should have representatives present with the authority necessary to conclude the agreement, as well as have a clear understanding of the terms which they are willing to accept.
Review Dispute Resolution Clauses Early
Most commercial contracts currently mandate that mediation or arbitration, or both, be undertaken before a lawsuit can be brought. When a dispute first appears, companies should examine these clauses, as filing a lawsuit in breach of a compulsory mediation requirement may result in delay, extra costs, or the case being dismissed. Furthermore, businesses should also take the step of incorporating properly drafted dispute resolution clauses into new agreements in order that the process may be established before any conflict occurs.
Practical Implications for Business Owners
In all these considerations the decision between mediation and going to court is one that is made strategically. To make this decision properly, companies should examine their contracts with a view to the provisions concerning dispute resolution, assess their own goals and level of risk tolerance at an early stage, and consult with their legal advisers before their positions become firm rather than after.
Before a dispute develops, assess your options. Get in touch with Warner PLLC today.
The following article is for general informational purposes and should not be regarded as legal advice. Since each situation is unique, the most appropriate way of settling a dispute will vary and will depend on the specific facts, the contracts in question, and the relevant law. If you require personalized assistance, you should contact Warner PLLC.
