Commercial Disputes – Arbitration, Mediation or Litigation?

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What are your options should you find yourself in a dispute with:

  1. your landlord or body corporate over the conditions of your office suite or real property; or
  2. a customer or contractor about the meaning and implications of ambiguous terms in a contract; or
  3. a business partner over distribution efforts and rewards; or
  4. a former employee who has filed an unfair dismissal application against you for wrongful termination; or
  5. your insurance company in relation to a claim.

Do you go to court or do you attempt to resolve the matter in a way which saves time and minimises costs? The answer is: it depends on the circumstances and nature of your dispute.

At times, the only appropriate measure is to resolve a matter via the courts (litigate) – for example, criminal matters (fraud, financial crimes, forgery etc.) must go to court. However commercial disputes, being civil in nature, can be resolved through Alternative Dispute Resolution (ADR) mechanisms such as arbitration, mediation or both.

What is Arbitration?

Arbitration clauses are becoming more prevalent in commercial contracts, and you may be surprised to learn that you have agreed to be bound this method. Arbitration is similar to that of a courtroom trial; however it is outside the normal judicial process and are generally kept private (as opposed to litigation which is within the public domain). Parties to a dispute present evidence and arguments before an arbitrator, or panel of arbitrators, who then consider the case and render a binding decision. Although the rules of evidence are more relaxed and legal briefs are not always necessary, legal representation is strongly recommended given the decisive/binding nature of the process.

Arbitration is less expensive than litigation, but not necessarily inexpensive, and the outcome may not be as ‘controllable’ as the process might suggest. The process may also be subject to delays due to scheduling conflicts with other cases, rendering the arbitrator unavailable, or a party’s inability to gather evidence in a timely manner.

When should you consider arbitration?

Arbitration is appropriate where:

  • the circumstances are indicative of a win-lose situation;
  • parties agree to be bound by the arbitrator’s decision;
  • parties do not require the State’s intervention to enforce the decision; and
  • parties are not attempting to set legal precedent.

At the end of the day, one party wins and the other loses.

What is Mediation?

Unlike arbitration, mediation does not involve a third party to make a final binding decision. Mediators are appointed to facilitate an environment where the parties mutually agree on a resolution. Mediators do not make any decisions with respect to the parties’ obligations or actions but will present any proposals from either party to the other and suggest likely outcomes. Often mediators will talk to each party in confidence and exchange only such information or proposals as allowed by the relative parties.

Mediation is less expensive than arbitration or litigation, albeit that there is generally a need for legal counsel due to the nature of disputes. Delays are minimal as the process usually continues until the dispute is settled or a stalemate. If parties are unsuccessful at mediation, other options such as arbitration and litigation are still available. Generally, courts are a last resort.

When should you consider mediation?

Mediation is appropriate where:

  1. parties intend to continue working together for the survival of their respective businesses;
  2. parties do not fully understand the other party’s position;
  3. parties want to resolve matters in an affordable and amicable way.

Where arbitration has a definite winner and loser, mediation allows both parties to walk away with something.

What is Litigation?

In short, litigation resolve matters via the courts before a judge or jury. The type of court is determined by the type of dispute. For further information about Queensland Courts and Tribunals, visit their website here.

Commercial disputes are often dealt with by the following Queensland Courts/Tribunals:

  1. Magistrates Court ($150,000.00 or less);
  2. District Court (between $150,000.00 and $750,000.00);
  3. Supreme Court (greater than $750,000.00);
  4. Queensland Civil and Administrative Appeals Tribunal; and
  5. Queensland Industrial Relations Commission.

Matters under federal jurisdiction are usually dealt with by the Australian Administrative Tribunal (AAT) or the Federal Court of Australia (FCA).

Unlike arbitration and mediation, litigation is conducted in a public court room and can be a lengthy process. The expediency of resolving a dispute is dependent on the relevant Court/Tribunal’s availability to hear the case. It may take weeks, months or years.

Litigation is also a costly exercise, which involves court fees, solicitors’ fees, barristers’ fees (if required) in addition to any costs already spent on negotiation or mediation, and you may be subject of a costs order, whereby the Court orders you to pay the other side’s reasonable legal costs.

When should you consider litigation?

Litigation should be considered as a last resort, and is appropriate where:

  1. parties have been unsuccessful at mediation;
  2. the defendant or respondent to a dispute has been uncooperative or non-responsive to attempts to resolve the matter by negotiation or mediation; or
  3. a question of fact needs to be tried (where strongly contested) before a judge or jury.

Like arbitration, there is a winner and a loser. However, the ramifications of either outcomes are significant given the associated costs.

If you are involved in a dispute or have concerns with respect to your legal rights under an agreement and you are not sure how to approach your situation, please do not hesitate to contact me.