Litigation can be enormously expensive, involve a great deal of time and energy, and ruin existing relationships. Because commercial litigation is often highly complex, which means that the litigation takes longer to complete and is more expensive to pursue, businesses have typically been at the forefront in looking for cheaper, quicker, and easier solutions to litigation.
The most popular choice at this point in the commercial real estate, environmental, and construction law areas is alternative dispute resolution, or ADR, which involves using mediation, arbitration, or a combination of the two to resolve a dispute. ADR has proved to able to expedite dispute resolutions, reduce costs, preserve business relationships where possible, and eliminate litigation risk.
Mediation involves a neutral third party (the mediator) who tries to bring opposing sides to a mutually acceptable solution. Unlike a judge, a mediator has no authority to make rulings or render decisions in favor of one or the other party. The mediator listens to both sides and tries to help the parties reach an amicable solution. Mediation differs from other available options because the parties remain in control; they are free to accept or reject solutions offered by the mediator.
Mediation obviously doesn't always work. It is only as effective as the parties involved. In fact, unless all parties are committed to making it work, it generally won't work. But where it does work, it has saved costs and sped up the resolution.
Arbitration, on the other hand, involves a private decision-maker (the arbitrator), who hears evidence informally and makes a decision. Some arbitrator's decisions are final, some are not. It depends upon whether the contractual provision giving rise to the arbitration called for binding arbitration or non-binding arbitration. Arbitration, particularly binding arbitration, provides more control than mediation over how disputes are resolved, but it also removes decision-making control from the parties.
Choosing ADR. Disputes can be resolved through ADR in any of several ways. The most common way is to provide an ADR clause in a contract. In fact, any business interested in ADR should include an ADR clause in all their contracts, including employment agreements, partnership agreements, and sales agreement. A contractual provision allows the parties to maintain the most control over the process, such as which ADR process is used, when it is triggered, and whether decisions are binding.
Another way to end up in ADR is to have a court order the parties to pursue ADR before going to trial. Some courts, hoping for a quicker and easier resolution, will force the parties in ADR where it believes that ADR could help resolve the issues. A federal law, the Alternative Dispute Resolution Act of 1998, authorizes each United States district court to require litigants in all civil cases to consider the use of the ADR process.
Yet another way is to agree mutually to ADR after the dispute arises. This approach is far less certain than a contractual provision because no party can be forced into ADR absent a court order or a contractual provision.
Rules and regulations. ADR organizations, such as the American Arbitration Association, have established rules to govern ADR processes. The organizations typically provide certification processes for those interested in becoming arbitrators and mediators.
Several states, including Illinois, also have ADR rules. Illinois has the Mandatory Arbitration System, which authorizes the use of arbitration in civil actions; explains the procedures for qualifications, appointments, and compensation of arbitrators; and sets up rules for judgments, expenses, evaluations, and filing fees.
A federal law, the Civil Justice Reform Act of 1990, greatly expanded the use of ADR in federal court cases. When the law expired in 1997, Congress passed the previously mentioned Alternative Dispute Resolution Act of 1998, which encouraged ADR by requiring litigants to consider ADR and ordering each federal district to develop its own ADR rules. The law defined ADR broadly, so that it would include not only mediation and arbitration, but also any other ADR approach that might subsequently find favor.