Adapted from “Why Aren’t Mediation and Arbitration More Popular?” First published in the Negotiation newsletter.
Many scholars have noted that the business community would greatly benefit from third-party dispute resolution services. The problem is, there isn’t much demand for mediation or arbitration. If the alternative dispute resolution field has in fact built a better mousetrap, why isn’t the market buying it?
J. Maurits Barendrecht and Berend de Vries of the Faculty of Law at Tilburg University (Tilburg, the Netherlands) explain this inconsistency in terms of imperfections in decision making that keep disputants from rationally dealing with their conflict. The authors note that disputants use arbitration and mediation less frequently than their preferences on surveys would predict and than rational parties would. Barendrecht and De Vries also argue that the default option for dispute resolution is “sticky.” In other words, whatever method is promoted in the parties’ contract, whether implicitly or explicitly, will attract the majority of disputes.
The authors attribute this “stickiness” in part to the goodwill that typically exists between parties that have reached agreement. When they draw up their contract, friendly parties fail to seriously consider the possibility of a dispute arising. Without such consideration, the courts end up as the default mechanism for disputes. Even if one side proposes an alternative dispute resolution mechanism, the other side is likely to devalue the offer. In addition, parties are likely to prefer a known, inefficient system—the courts—over a less known, more efficient system such as mediation or arbitration.
What can be done? First, management should replace lawsuits as the default option for a dispute with mediation, followed by arbitration. In addition, anyone who signs a contract should be aware of the natural tendency to underestimate the likelihood of a dispute. When this occurs, the logic of efficient dispute resolution is likely to prevail.
I am as big a proponent of mediation as anyone, and serve regularly as a mediator, but as an attorney advising a party drawing up a contract, I am reluctant to suggest mandatory arbitration or even mediation clauses. For one reason, I believe those processes work better if they are voluntary, not forced on the parties in advance. For another reason, I generally counsel parties not to give up important rights they retain in court.
Just as in international diplomacy, you do not want to dismantle your army just because you believe in trying peace negotiations first, in civil disputes, you do not want to waive your right to jury trial just because you believe in ADR. Lawsuits have important advantages and legal protections for the parties that they should not waive lightly. Number one, the right to jury trial, which may provide tremendous leverage in resolving a dispute, if nothing else. Number two, lower initial costs: filing fees in court are much lower than arbitration for example. Number three, the ability to get the other side’s attention in a dramatic and aggressive way. Nothing tells people you are unhappy with their conduct like suing them. And number four, all of the legal protections of the trial and appellate system, which provide much more assurance that your dispute is going to be resolved according to the law than in arbitration or mediation. So it’s not just that business people haven’t thought enough about ADR provisions when they draw up contracts. It is also that they should not lightly give up important advantages that exist in the court system.
In certain circumstances, such as long term business relationships, it would make sense to treat mediation as an evolving process owned by both parties.
Instead of a simple clause in a contract, the creation of the dispute resolution process could become an ongoing method of improving communications.