Choosing the correct dispute resolution method for your business

05 Jan 2023

Introduction 

Electing the most appropriate dispute resolution method may be the difference between your business surviving this challenge or failing. In many instances, business owners are not aware of the options at their disposal when resolving disputes. As such, they do not contract correctly.

In other instances, there is awareness, but a complete understanding of the implications of pre-selecting a specific dispute resolution alternative is needed. As such, business owners must understand the options and contract appropriately from the outset.

Court-based dispute resolution (litigation) 

In most instances, people know the implications of referring disputes to court. We often find that business owners are negatively affected by the entire experience, sometimes to the extent that the business suffers. In simple terms, you are spending a lot of money and time, not only consulting with your representative or attending court, but also pondering it on your own. This means that you become distracted from your business.

However, it must be said at this point that some disputes, such as those involving legal status and complex legal problems or questions, are better determined by a court.

As such, despite its challenges, the following consequences arise:

• The dispute forms part of a public record, which may or may not set a precedent for the determination of future disputes.
• The process is very formal and may even require the involvement of both an attorney and an advocate.

Mediation 

In recent years, the Court Annexed Mediation Rules were introduced to allow for a mechanism to refer to mediation amidst a litigious process that has already commenced. Mediation can also be agreed outside of this mechanism between the parties. The main aim is to streamline disputes to save time or to resolve conflicts that could be resolved without having to approach the court.

The main difference between mediation and any other alternative dispute resolution mechanism is that it is confidential and without prejudice. No public record or record that may prejudice the matter in the future is created.

It is far more cost-effective than approaching court and also much quicker. In many instances, it is also more cost-effective than any other form of alternative dispute resolution.

As such, despite the above, the following consequences arise:

• Mediation is the most informal of the alternative dispute resolution mechanisms. Therefore, it is less intimidating than going to court or arbitration.
• Mediation is without prejudice and, as such, “off the record”. The reason is to try and facilitate a settlement between the parties involved.
• Mediation is the most cost-effective of all the alternative dispute resolution mechanisms. Still, regardless of whether one of the parties is successful, costs are generally borne equally between them. If it fails, you are usually out of pocket.

Arbitration 

Unlike mediation, arbitration is a less recently introduced mechanism. It is regulated by the Arbitration Act 42 of 1965 as amended.

Arbitration has, over the years, proven very useful, particularly in commercial or cross-border transactions. It is much speedier than going to court.

It is also less formal and less public when compared to court proceedings. Particularly, arbitration records never become public records that could set precedents for determining similar disputes.

Problems arise, however, where these clauses need to be better drafted. In addition, parties only sometimes understand the repercussions of determining disputes finally by arbitration. This means the arbitrator’s decision cannot be appealed.

Legal costs are also an issue. In most instances, like other alternative dispute resolution mechanisms, each party pays their own costs and 50% of the costs of the actual arbitration. This is, however, dependent on the arbitrator’s award.

As such, despite the above, the following consequences arise:

• Arbitration is more informal than going to court.
• Arbitration may be more cost-effective and a quicker resolution in many instances than going to court.
• Costs are awarded by the arbitrator and are awarded in a different manner than court costs.

Conclusion 

Parties must list the type of disputes to be determined at alternative dispute resolution forums. Furthermore, parties must determine which type of mechanism will be used for which type of dispute. It is crucial to agree on how the mediator or arbitrator is to be appointed, the steps that need to be taken where the parties need to decide on the appointment, the payment of costs and whether an arbitrator’s decision shall be final.

This should ideally be done under the guidance of an attorney and incorporated into the agreement with your business partner/shareholder, a fellow trustee(s), supplier, or landlord.

Article sourced from SchoemanLaw Inc.

See also:

• How parties should conduct themselves during mediation
• Litigation versus arbitration: which to use in a civil dispute?
• Adjudicating a dispute on the validity of an arbitration clause
• Initiation of arbitration proceedings

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)