Disputes arise in business for many reasons: customers may not carry out their promises; goods may be defective; government regulators may be unreasonable. The courts are the most visible and familiar vehicle for dispute settlement but most disputes are, and should be, settled by negotiation.
In an earlier day most business people shunned lawyers and the courts. Typically, a lawsuit was filed only as a last resort after the parties had decided not to do business with each other again. Avoidance of lawyers and the courts is certainly not the rule today. Indeed, we are now a more litigious society: many of us are quick to go to court. There are many more lawyers, and, business people call upon them frequently.
The cost of bringing or defending a lawsuit has been increasing rapidly. The fees of lawyers have increased; however, the big increases in costs have come because discovery procedures and the trials themselves have become much more time-consuming. This involves the time of both business people and lawyers.
Settlement of disputes through negotiation is, therefore, even more attractive than it was earlier. If this can be done by the business people themselves, good! However, many attorneys are skilled negotiators, and having a competent advocate speak as an intermediary is often more effective than speaking for oneself.
Negotiations should begin before a lawsuit is tiled and continue after the filing. Many cases are not settled until the parties are at the courthouse door or, in a few instances, even later. In complex suit that would typically involve a long and expensive trial, some companies are trying a new way to avoid the uncertainty and additional expense of a full trial before a judge. They hold a "minitrial" in which attorneys make abbreviated presentations of the case to the chief executives of the companies involved in the dispute. With this fuller understanding of the issues and the relative strengths and weaknesses of the legal positions of their two companies, the parties then try to negotiate a settlement.
So, negotiation is the process whereby interested parties resolve disputes, agree upon courses of action, bargain for individual or collective advantage, and/or attempt to craft outcomes which serve their mutual interests. It is usually regarded as a form of alternative dispute resolution.
Arbitration is another widely used alternative to settling disputes in court. Arbitration differs from mediation in that the third party to whom the dispute is submitted decides the outcome. Most union-management contracts contain an arbitration clause, and contracts involving securities and commodity trading, international business transactions, casualty insurance, and other kinds of commercial contracts often have them. While arbitration is often provided for in a contract, parties who have not so provided can also choose to have their dispute arbitrated after it has arisen. Many consumer-related disputes now go to arbitration.
Advantages claimed for arbitration over a court trial include the following:
1. An arbitrator who is familiar with the technical or social setting of the dispute may be chosen. (This may be particularly important in an international trade dispute or a labour dispute.)
2. There is less delay in disposing of the dispute. (It may take several years to get to trial in some state courts.)
3. Less time is required of executives involved in the hearing. (It may be a few hours or days instead of weeks or even months in court.)
4. Since procedure is more informal than in court, the parties may choose not to be represented by lawyers. (They often are, however.)
5. Privacy can be maintained in both the arbitration hearing and the award.
So, arbitration is a form of mediation or conciliation, where the mediating party is given power by the disputant parties to settle the dispute by making a finding. In practice arbitration is generally used as a substitute for judicial systems, particularly when the judicial processes are viewed as too slow, expensive or biased.