In recent years, large companies have embraced arbitration as their preferred method of dispute resolution, particularly in international disputes with suppliers, customers and business partners. In fact, 90 percent of respondents to the 2015 International Arbitration Survey reported that they turned to international arbitration to resolve disputes.
But while many global corporations rely on arbitration and other ADR procedures for everything from intellectual property to employment disputes, business executives at mid-sized companies may still be unfamiliar with ADR and its benefits, particularly when it comes to international conflicts. In fact, many business executives enter cross-border agreements simply hoping for the best. But companies need to plan ahead for inevitable disputes, and securing an ADR procedure in advance can not only save companies time and money, but will also keep disputes private and perhaps even preserve the business relationship and the underlying deal.
Arbitration and mediation can provide confidentiality and the procedures can be specifically crafted to the parties’ needs, which can result in creative resolutions that are unavailable in traditional litigation. In addition, parties can select decision-makers who have expertise in the substantive legal area.
Although related, arbitration and mediation are distinct procedures. An arbitration is akin to a private court decision but with no public precedent set by the resolution. In arbitration, the parties determine whether the case will be heard by a single neutral or a panel, and together determine where meetings and hearings happen, which is particularly beneficial in cross-border disputes. To streamline an arbitration, the parties can design its rules, such as whether evidence will be presented, whether facts or damages will be stipulated to or whether briefs and experts will be limited.
The primary goal of mediation, on the other hand, is for the parties to settle a dispute. In mediation, a neutral third-party facilitates discussions and helps craft settlement options. Like arbitration, mediation is flexible, and creative remedies – including non-monetary terms – can often result.
When I was an executive at a vitamin company, we had a dispute with a raw materials supplier in China that shipped non-conforming goods. Although the matter could have been mediated in very quickly, our agreement didn’t have an ADR clause. So we spent precious time in discovery and litigation. And even though we won in court, the supplier’s U.S. division went bankrupt as a result so we were still left without recourse.
To avoid that kind of result, business executives should insist that dispute resolution language be part of all standard agreements. Incorporating a multistep process into all agreements – for example, requiring mediation before arbitration – can be particularly effective.