Many negotiation researchers debating the merits of mediation vs arbitration wonder why alternative dispute resolution mechanisms are not more popular than they currently are.
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 disputants’ decisions that keep disputants from rationally dealing with their conflict.
Mediation vs Arbitration vs the Courts: Disputant Preferences for the Alternative Dispute Resolution Processes
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 (ADR) 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.
Did we miss any crucial information on alternative dispute resolution? Let us know what you think in the comments.
Originally published in 2012.
This article’s authors seem to miss that contract/corporate lawyers are involved with many contracts, particularly the most complex, and in-house lawyers often provide clients with templates for the most common type of contract. So it is not only business people, but corporate lawyers, who don’t know about the advantages of ADR provisions in business contracts (and employment agreements).
Strong comments Mary, on which I agree. Corporate lawyers, thought certainly have heard, read or even seen the advantages of ADR but that’s not their comfort zone. I also believe corporate lawyers are expected to be sledgehammers and thus fulfill that role.
Thank you for this analysis.
Although the two recommendations – ADR as default dispute resolution mechanisms and awareness of dispute likelihood – are fully relevant in general, I believe they might not be the prioritary rationale for businesses’ insufficient demand for mediation and arbitration.
We might have to consider that contracts are written by legal departments or law firms from more or less generic templates on one hand, while disputes are in numerous circumstances managed by management without involvement of legal counseling until late in the dispute process. When legal counseling gets involved, the situation is already entrenched, relationships are damaged, interests and egos are salient, the business sides demand a clear-cut solution, and the legal department/counseling is challenged to prove its expertise and value as a last resort savior able to get the best out of an intricate situation gone wild. For those reasons, official courts seem the best, most reassuring, and most effective – although not most efficient – solution.
To avoid such a scenario, training the business side might be a solution:
– Training managers on ADR procedures, for managers to know when and how to start one.
– Getting business experts acquainted with ADR mechanisms and community, for business experts to believe that ADR community’s business knowledge is relevant and ADR’s methods are fair to let them understand objectively the issues and dilemmas businesses face.
A periodic peer review by managers of their business issues could be also desirable, before those issues possibly transform into serious disputes. Appropriate facilitation by a professional member of the ADR community would be helpful.
I think it’s a mistake to lump mediation in with arbitration. They are, in my view, completely different animals. As an attorney, I love mediation, particularly in a business case, and particularly before each side has bled money they need not bleed. If everyone comes in in good faith, and each set of counsel is required to give the client or general counsel a budget for litigation, it can be extremely effective. Arbitration, on the other hand (at least in California) can be, and often is, a disaster. The arbitrator(s) is not required to follow the law, you have no opportunity to appeal the decision if you feel it’s wrong, and the court will enter judgment on the award, no matter how harebrained or flat out wrong the decision might be, unless you can prove actual bias or the failure to disclose potential bias. Arbitration is a wonderful system to resolve finite issues — “Do the plans and specifications require the engineer to do x or y?” — but it pales badly to a trial by court or jury to an appealable verdict.
Mediation followed by arbitration is not the only contractual alternator litigation. In some instances, as one commentator noted, arbitration can lead to disaster. Businesses and their counsel should also consider Collaborative Law, particularly for parties which will benefit from an ongoing relationship.