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Mediation and Arbitration: Effective Alternatives for Resolving Contract Disputes 

3 Mins read

Although everyone hopes for smooth-sailing business relationships, it’s natural for contract disputes to crop up now and again. In fact, 31% of businesses say they’ve experienced an increase in contract disputes in the past year, a recent report by the Association of Corporate Council reveals. Yet, solving disputes via litigation is costly and time-consuming. 21% of businesses say contract dispute litigation has cost them under $50,000 on average, while 27% say it’s cost them between $50,000-$100,000. 

Fortunately, mediation and arbitration are simpler, faster, and cheaper ways to resolve contract disputes. Ideally, mediation allows both parties to work together to find a solution, whereas arbitration involves a third-party decision maker. Either way, it’s important to understand the pros and cons of each method in order to decide which is the right choice for your situation.  

What is mediation? 

Mediation involves the two parties working to come to an agreement together, with the help of a neutral third-party mediator. Mediators are usually retired lawyers or judges, or even therapists who can help facilitate open and healthy lines of communication. Rather than actually suggesting solutions themselves, mediators are there to moderate the discussion, so it remains respectful and productive. These sessions are fairly quick and straightforward, sometimes just requiring one day to complete in best case scenarios. 

It’s important to note that mediation isn’t legally-binding. So that means neither parties are under any obligation to implement the solutions agreed upon. However, once a solution’s reached, there’s always the option to get the agreement approved by a judge in order to then make it legally binding.   

What is arbitration?

With arbitration, a third-party arbitrator (typically a retired lawyer or judge) resolves the contract dispute on behalf of the disputants. So, if the two of you just can’t reach an agreement on your own, this is likely the way to go. Unlike with mediation, the decision made by the arbitrator is legally-binding and can’t be appealed. During this process, both parties present their side of the story and relevant evidence to the arbiter (they’re also able to negotiate what counts as an acceptable standard of evidence beforehand). Like meditation, this process is typically cheaper than litigation, and less formal. Parties can also usually select the arbitrator they want to use. So, for contract disputes, there’s a good chance an effective solution will be reached if you choose an arbitrator with relevant industry experience.  

In some cases, business contracts may even contain an arbitration clause that states that arbitration will be the method used to solve disputes. So, if both parties have agreed to arbitration, they’re usually then not permitted to bring the case to court, even if that’s the route they’d rather go down. They have to present their case to the abrator and abide by their final decision. That makes it all the more important for you to read any contract carefully before signing on the dotted line, so as not to end up agreeing with something you’re not happy with. Shockingly, over two-thirds of people admit to not reading the contracts they sign. Reading contracts over in detail, which includes any changes and revisions made along the way, is the only way you can be sure you’re getting the best deal for your business’s integrity and financial health. 

Mediation vs. arbitration: which is best?

When a contract dispute arises, mediation should ideally be considered as your first pathway to finding a solution. It’s fast, affordable, and gets both parties in a room together where they can talk openly and collaborate amicably to resolve the situation. As such, mediation can help keep business relationships intact. So, if this partnership is a bridge you’d rather not burn, mediation may be your best way forward. That said, mediation only works if both parties are happy to come together in good faith and resolve the matter together on their own.  

Arbitration, on the other hand, may be the better option when both parties involved can’t come to an agreement alone, and would prefer a qualified, neutral-third party to take care of the issue for them. As it’s an adversarial process, it’s usually harder to salvage business relationships after arbitration has occurred. Yet, if mediation simply isn’t an option, arbitration can still be an effective resolution method without having to go to court. 

Bottom line

If you have a contract dispute, meditation and arbitration are effective alternatives to litigation. Meditation is the most straightforward and peaceful option that relies on both disputants reaching an agreement together through discussion. Conversely, arbitration is best for more complicated disputes that require a neutral third-party to solve. Whichever resolution method you go for, both mediation and arbitration are simpler, faster, and more affordable alternatives to costly and drawn-out litigation. 

Nina C. Sumner is a freelance writer with a talent for transforming complex concepts into engaging and accessible content. Her passion for making the complicated easy to grasp makes her the ideal person for unraveling even the most challenging subjects. But Nina’s expertise doesn’t stop at writing – she’s also an expert gardener, known for cultivating a variety of vibrant and flourishing plants. When she’s not weaving compelling stories or tending to her lush garden, you’ll find her exploring the great outdoors on invigorating hikes.

Contract dispute image by CrizzyStudio/Shutterstock

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