Dispute Resolution 101: Difference Between Litigation, Mediation, and Arbitration
Hawaii, as a state, actively encourages proactively settling disputes. In 2007, approximately two percent (2%) of civil cases reached a trial verdict, whether by a jury or from the bench. Barkai, John and Elizabeth Kent, Let’s Stop Spreading Rumors About Settlement and Litigation: A Comparative Study of Settlement and Litigation in Hawaii Courts, 29 Ohio St. J. on Disp. Resol. 85 (2014). That means, of the 3,582 civil actions filed in Hawaii in 2007, approximately seventy (70) reached a verdict; the remaining 3500 were settled. Id. Perhaps it is all part of the aloha spirit, or perhaps it is the efficacy with which alternative dispute resolution, when appropriately utilized, can benefit individuals, companies, and their interests.
There are several ways a dispute can be resolved. This article addresses the three (3) most common mechanisms.
Litigation is when the court becomes directly involved in resolving a business dispute. It begins when a complaint is filed in court (small claims, district, circuit, all the way up to federal court), and proceeds through discovery, motion practice, and ends with a judgment. There are two benefits to litigation. First, the discovery process allows both parties access to information they may not otherwise have access to. With this freedom, the reality of the situation can come to light and the merit of the dispute can be ascertained. Second, once a court makes its ruling, it is binding on both parties; in other words, a final decision is reached in litigation. True, that judgment can be appealed, but even the appellate process results in a final determination, based on the merits of the dispute. The two downsides to litigation are the cost and time involved, both of which can weigh on a business and/or business owner.
Arbitration is when the parties agree to have an arbiter (who acts much the way a judge would) decide the matter for them. This agreement can come in the form of an arbitration clause in a contract or through some other written provision binding the parties to arbitration.
Most, if not all, construction contracts include a mandatory arbitration provision. This method of dispute resolution keeps the benefit of courtroom litigation’s final disposition of claims, but at a much cheaper cost to the parties than litigation. However, discovery is limited, so access to information is not as free-flowing as with litigation. Although this may seem like a minor issue, when the truth is important to resolving a dispute, the power of discovery can make or break resolution. Another drawback is the limited right of appeal. Whereas in litigation, an unfavorable judgment can be appealed without consequence; in arbitration, an unfavorable judgment can only be appealed with certain penalties attached to the award if the appeal is lost.
For certain claims, Hawaii courts will direct litigation to enter into mandatory arbitration, by and through the Court Annexed Arbitration Program (CAAP). Hawaii courts find CAAP effective at disposing of small claims disputes and clearing the court docket.
Mediation is involuntary and nonbinding. Unlike an arbiter, a mediator simply helps the parties come together and open a dialogue to negotiate and/or settle their dispute. Some mediators advise the parties of strengths or weaknesses in their claims, although it is not a necessary part of the mediation process.
There a multitude of factors to consider when one wants to resolve a dispute through one of the above methods, including, but not limited to: the cost of resolving the matter; the time involved in the dispute and if a quick and efficient resolution is desirable; the level of stress that will come to bear throughout the process; whether confidentiality is an important aspect; and whether the parties are involved in an ongoing business relationship that should or could be salvaged. Each of these concerns should be balanced to determine whether litigation, arbitration, or mediation is the best means of resolving your particular business dispute.
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