For many years, arbitration was considered the preferred method to resolve business disputes, such as those arising from construction and real estate contracts. Now, mediation is generally considered to be more adapted to resolving complex business disputes in less time, at a lower cost.

A. Examples of Successful Arbitration

What if there is a dispute between a seller and a buyer of paint over the quality of paint delivered on a construction site? The disputants send for an expert in paint who arrives that day and resolves the dispute. The expert is asked to decide because he is an expert in paint and he is a respected member of the industry in which both buyer and seller are members. The parties follow the expert's decision, ending the dispute. Here we see a simple technical dispute resolved by a technical expert in whom the disputants have confidence.

Another ideal arbitration setting occurs in the context of a collective bargaining dispute. The union presents a grievance of a worker who claims he has been wrongfully demoted. The grievance cannot be resolved by the union and employer, so they call in the permanent arbitrator, a person who is respected in the industry and who is aware of the needs of the employer and is in touch with the legitimate expectations of the workers. The arbitrator comes to the plant, hears each side's witnesses, and makes a decision that day or within a short time. The arbitrator's decision is followed by both parties.

In these illustrations, arbitration works well because it is quick and inexpensive and the disputes are not exceedingly complex. The parties accept the decision even though they are not happy with it; no one goes to court. But many disputes, such as those involving construction projects, do not fall into similar patterns. Most judges and attorneys now realize that mediation has many benefits compared to arbitration.

B. How is Mediation Different?

Mediation is a voluntary process, where the parties retain control over the process. The parties select a third party, often an attorney or retired judge, to act as a neutral third party to work with those with a dispute to resolve it. The parties are free to structure the mediation as they wish. The usual format is that the mediator meets in a joint session with all parties (and their attorneys, if the parties are represented). The mediator then separates the parties into individual groups, and meets with them confidentially to discuss their respective positions, and to try to convince them to arrive at a solution to the dispute.

Mediation is best selected as a dispute resolution process prior to a lawsuit being filed, or early on in the lawsuit process. If the parties have invested a large sum of money in legal fees in a lawsuit, they are less likely to consider a business-like compromise to use to put the dispute behind them. Because the parties retain control over the mediation process, they are more likely to be satisfied with the result, as compared to a trial or arbitration, where there is usually a winner and a loser.

Mediation is generally much more successful at resolving complex disputes than is arbitration. Statistics show that 85% of commercial matters submitted to mediation end in written settlement agreements.

Most attorneys, particularly in construction and real estate agree that mediation is worth exploring to resolve disputes in those areas. Call us to discuss how mediation could apply to a dispute with which you are faced, or which you believe may arise.

Disclaimer: The foregoing is not intended as legal advice. The facts and circumstances of any case requires the review of an attorney familiar with real estate and/or construction law. Before taking any action, please consult with your counsel.