Litigation, whether it is regarding a real estate matter or another business dispute, can be expensive, drawn-out and stressful. Mediation and arbitration are useful options to litigation for resolving business and real estate disputes, but it is important to know ahead of time the difference between the two.

A key point to keep in mind when facing a business dispute is that the relationship with party you disagree with may be significantly more important over the long term than the outcome of a single dispute. It is never advisable to win a battle if it means risking the overall health of your business. When faced with any business dispute, try to step back and unemotionally assess the importance of the outcome of the dispute versus the potential impact of the business relationship and the long-term health of your company.

The benefits of ADR

Mediation and arbitration are two methods of alternative dispute resolution (ADR) that can help parties reach a solution while not destroying an important business partnership. It can work for two different companies or partners within the same business. Small and medium-sized businesses opt for ADR for a number of reasons, including cost savings and quicker resolutions.

Both mediation and arbitration are significantly less formal and often less adversarial than litigation. In mediation, two parties meet with a neutral mediator who facilitates discussions between the parties in attempt to air grievances and reach a mutually acceptable resolution. The mediator should be a trained specialist with extensive knowledge in the area of dispute. He or she can suggest possible solutions, but a mediator does not have authority to impose a settlement. Both parties can be represented by an attorney during mediation, but often are not.

Arbitration is usually (but not always) binding. In binding arbitration, the parties enter the hearing process knowing ahead of time that they are subjecting themselves to the ruling of the arbitrator and cannot opt for litigation. An arbitrator is a trained specialist (often an attorney) who will hear both sides of the dispute and review all pertinent documents before issuing a ruling.

Agreed to ahead of time

Arbitration and mediation are sometimes written into contracts between parties before a dispute occurs. That is, the parties agree ahead of time that if a dispute occurs, it will be resolved through one of these processes.

Non-binding arbitration is a step above mediation. It is more formal than mediation and includes discovery, but the parties are not required to live with the arbitrator’s ruling. This may seem inefficient if the parties merely proceed to litigation afterward. However, both arbitration and mediation can provide effective talking points to help parties reach resolution. It also gives both parties an indication of how fact-finding would proceed in trial and what a possible outcome might be.

Many business or real estate disputes that are on course to litigate are resolved before a trial through a negotiated settlement. Mediation and arbitration aim to reach that result in a more efficient and cost-effective manner.