When is litigation the most appropriate option for resolving a dispute?

Litigation is not the only way to resolve disputes. In fact, it is often the least preferred dispute resolution mechanism because of the high cost and need for more confidentiality. Also, litigation can usually be highly confrontational and strain relationships.

Negotiations are your best bet if you want to resolve disputes amicably. You can ask a mediator to smooth things over if communications have broken down. If you need a third party to provide binding solutions, you can approach an arbitrator before taking matters to court.

This article will explore how to resolve disputes through ADR mechanisms such as mediation, arbitrations, and negotiations and when you should opt for litigation. Read on to know more!

Kinds of dispute resolution mechanisms

There is a hierarchy of dispute resolution mechanisms. The effort to resolve disputes begins with negotiations and if agreeable resolutions are not found, we escalate to mediations, arbitrations, and finally, litigations.

Negotiation

A direct and informal method where parties attempt to reach a mutually acceptable agreement without third-party intervention. Maintains control, encourages open communication, and is cost-effective. It requires a willingness to compromise; it may lead to an impasse if no deal is reached.

Meditation

Involves a neutral third party (mediator) facilitating dialogue between disputing parties to help them resolve. It encourages collaboration and creativity, preserves relationships, and is less formal and costly than litigation. Because outcomes are not legally binding unless formalized, success depends on the parties’ willingness to negotiate.

Arbitration

A formal process where a neutral third party (arbitrator) makes a binding decision after hearing arguments from both sides. Decisions are confidential, allowing for the selection of arbitrators with relevant expertise.

Litigation

Litigation is the traditional court-based method where a judge or jury resolves disputes. This is a structured process with rights to appeal; however, this is lengthy and expensive.

Each mechanism has its strengths and weaknesses, making it crucial for parties to select the most appropriate method based on their circumstances.

Reasons to start dispute resolution through negotiations

Negotiations involve directly meeting with the opposing party and trying to find a mutually agreeable resolution in an informal setting. Negotiations are typically conducted without the intervention of external parties such as mediators, arbitrators, and courts. However, if the situation demands it, the involved parties can bring in an independent party to facilitate a smooth negotiation.

Some of the reasons to start dispute resolution through negotiations:

• Flexibility – In negotiations, the involved parties can freely decide upon negotiation agendas, venues, timelines, and processes. This flexibility allows all parties to work collaboratively and explore creative solutions. A negotiation process can be molded to suit the needs of all parties.
• Economical – Often, the only investment required for negotiations is time. Since there’s no dependency on external parties, you can save on court fees and fees for mediation and arbitration. That being said, to ensure that your rights are not violated, you must not pinch pennies on legal counsel.
• Preserving relationships – Negotiations are less confrontational than arbitrations and litigations. They provide an opportunity to resolve disputes while maintaining a valuable relationship, especially when the connection holds emotional significance or offers the potential for mutual financial benefit.

When should you escalate a dispute to mediation?

This should be escalated when an early resolution is achievable, relationships need to be preserved, confidentiality is necessary, cost-effectiveness is important, and when addressing complex or systemic issues. Escalating a dispute to mediation can be a strategic decision that helps resolve conflicts effectively and efficiently.

Early stages

The success of a negotiation depends on free-flowing communications between the involved parties. Hence, when communications break down, it is an apt moment to introduce a mediator. Typically, communications break down when parties get emotional or neither party is willing to compromise.

Inability to solve issues

Bringing in a mediator is warranted when the parties cannot agree upon the facts pertaining to the dispute.In such situations, an independent mediator can act as a bridge between the parties. Since the mediator has no stake in the dispute, they can listen to arguments made by each party and pass them on to the other side without any emotionally provocative statements.

Maintain relationships

The role of the mediator is not to come up with or impose solutions. Instead, they must facilitate smooth communications between the involved parties so that a resolution can be found organically.

Complexity of Disputes

You can think of mediators as emulsifiers that help combine two non-soluble substances. Even if two parties are like oil and water, mediators can act as soap to help them mix. The presence of a mediator can be instrumental in a dispute resolution process as it allows both parties to vent their frustrations without further straining the relationship by vilifying the other party.

When should you escalate a dispute to arbitration?

Escalating a dispute to arbitration is advisable when prior resolution attempts have failed, when there is a formal agreement mandating arbitration, when confidentiality or speed is crucial, and when parties seek a binding resolution to complex issues.

Failure to prior dispute resolution steps

If a dispute cannot be resolved through discussions between the two parties, even with the involvement of a mediator, the involved parties may need a third-party arbitrator to listen to each party’s claims and arguments, gather evidence, and impose a solution. Unlike a mediator who only tries to facilitate smooth discussions, an arbitrator has the responsibility to present a binding resolution.

Confidentiality requirements

The binding resolutions imposed by arbitrators cannot be appealed through another arbitration. Arbitration is the last stage of dispute resolution that ensures confidentiality. If a dispute is escalated beyond this point to litigation, information that both parties would want to keep confidential may become public knowledge.

Since confidentiality and quality of binding resolutions are of grave importance in arbitration, choosing the right arbitrator is important. Hence, usually, legal professionals, financial experts, industry specialists, corporate governance experts, academicians, or professional arbitrators take on the mantle of an arbitrator.

Time Sensitivity

If the situation demands, instead of having a single arbitrator, there can be an arbitration panel or team. Typically, the independent arbitrator takes the lead of a panel that includes one arbitrator from each party and experts from relevant fields. The selection of the arbitration panel and the arbitration process may be prescribed in past agreements between the parties or decided through negotiations.

When should you escalate a dispute to litigation?

Many agreements in the US like the shareholders’ agreement require parties to waive their right to trial by jury. These agreements compel parties to reach resolutions through negotiations, mediation, and arbitrations. In such cases, to ensure that your case doesn’t get dismissed, you must prove that the arbitration process was unfair, partial, or not conducted as per the agreed terms.

There are two things you must consider before you resort to litigations and they are:

Importance of confidentiality

All testimonies, evidence, and cross-examinations in litigation enter the public record. So, if the benefit of confidentiality outweighs the expected gains from litigation, you should decide against it. An example of this would be when the ownership of trade secrets, patents, trademarks, and other intellectual properties is disputed. Taking this dispute to litigation carries the risk of divulging competitive advantages to competitors. Also, if the details of the dispute becoming public may expose you to public accountability, the damage to your reputation should also be considered.

We must note that, even in litigation, there are ways such as protective orders which offer a certain degree of confidentiality.

Expense

Of all the dispute resolution mechanisms discussed here, litigations tend to be the most expensive. In addition to legal representation fees paid to lawyers, you may have to pay investigators to gather evidence, and expert witnesses to provide supporting testimonies. Other costs involved include initial filing fees, fees for serving summons, complaints and subpoenas, and transcription fees.

The outcomes of litigation can be challenged through appeals at higher courts. However, this is a right provided to all parties. Hence, this can further inflate the cost of litigation.

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Negotiations, mediations, arbitrations, and litigations are the commonly used dispute resolution mechanisms. Negotiations offer a high degree of flexibility that opens the door to free-flowing discussions and creative solutions. If communications break down in negotiations, you can ask a mediator to provide dispute resolution. This allows both parties to work towards a solution.

If mediation doesn’t work, the involved parties may need an arbitrator to come up with a fair and binding solution. Arbitrations are the last stage at which solutions can be found without risking a breach of confidential information to the general public.

Litigation is often the last escalation in dispute resolution since it has high costs and all information presented in courts becomes a part of public record. That being said, there are various ways to ensure confidentiality even in litigation.

If you are involved in a dispute over asset values, consider hiring the services of an independent and credible valuation expert like Eqvista. We can provide unbiased valuation insights that help bring all parties onto the same page regarding asset values. Contact us to know more!