The resolution of civil disputes by alternative dispute resolution processes (ADR) rather than by traditional judicial process has become increasingly popular in recent years in response to the rising costs and/or delays of litigation. In 1962, 5802 or 11.2% of all civil cases filed in federal courts were resolved by trial. In 2009, despite a significant increase in the number of civil case filings, only 3342 or 1.2% were resolved at trial. All types of civil disputes – those involving business, construction, commercial, employment and insurance contracts and claims for personal injuries – are now being resolved through ADR such as mediation or arbitration more often than traditional litigation processes. Familiarity with the basics of ADR has become essential in the modern world.
Mediation and arbitration are less formal, while more confidential and private, processes than traditional civil litigation. Each requires the agreement of the parties to engage in ADR and on the selection of the neutral or third-party to serve as mediator or arbitrator. Nevertheless, each offers a different approach and procedure.
Mediation: Mediation is the least formal ADR process in which a neutral or mediator assists the parties in negotiating a settlement of their dispute. It is by agreement typically private, confidential and non-binding unless the parties enter into a settlement as a result of the mediation. Typically, the mediator’s role is facilitative – he or she merely facilitates communication to assist the parties in presenting their respective proposals for settlement. In some cases, however, at the parties’ request the mediator offers his or her opinion on their respective positions – or becomes evaluative rather than merely facilitative. In either instance, successful mediation depends on the parties’ good faith intentions and efforts to seek a mutually agreeable resolution of the dispute. Generally, mediations take place in a private setting and are scheduled and concluded within a short timeframe.
Arbitration: Arbitration is a more formal process than mediation, although typically less formal than civil litigation. Again, the parties agree on the selection of a single arbitrator or panel of arbitrators. In arbitration, however, the parties authorize the arbitrator(s) to render a binding decision called an award. Arbitration involves a hearing, similar to a trial, at which the parties present evidence, with witnesses appearing for examination and cross-examination, and argument. The arbitrator’s award is usually rendered within a short time after the hearing which may be appealed to a court only on limited grounds such as fraud, partiality or misconduct on the part of the arbitrator. Like mediation, arbitration hearings are usually held in private settings and may be scheduled and concluded within a shorter time frame than traditional civil litigation.
Retired judges or attorneys with litigation experience or specialized training in ADR often serve as mediators and arbitrators. The parties involved in the mediation or arbitration share the fees and costs of the mediator or arbitrator. Mediation, in particular, continues to grow in popularity because it allows the parties to take a more active role in determining the outcome of their dispute and reduces the risk of an unfavorable result being imposed by a judge or jury. Many types of contracts now include an ADR clause requiring the parties to utilize mediation followed by arbitration, instead of litigation, to resolve any disputes that arise from or relate to the contract. Standard contracts used for architectural, engineering and construction services have included ADR clauses for years. More recently, other business or commercial contracts – such as employment, partnership, loan and joint venture agreements – now include provisions mandating ADR rather than litigation of disputes under the contract.
Proper planning of any business venture should include anticipation of potential disputes and the cost and time involved in resolving such disputes. Anyone negotiating a business contract should consider including a provision requiring mediation prior to instituting either arbitration or litigation for any dispute that may arise from the contract. Such planning may reduce the costs of resolving disputes and avoid litigation and irreparable damage to their business relationship.