Business relationships involve people and companies from various commercial fields, including construction, information technology, finance, tourism, and numerous other sectors.
Disputes arising from complex commercial relationships can compromise high-profile projects, causing multi-billion damages to investors and other stakeholders. Resolving complex commercial conflicts is crucial for preserving business relationships and preventing financial losses. But not all dispute resolution processes result in positive outcomes. Unlike costly and time-consuming litigation, alternative dispute resolution methods offer a fresh and innovative approach to dealing with these conflicts.
In this article, you will learn about the types of complex commercial disputes, the downsides of litigating commercial disputes, and the advantages of innovative approaches to resolving complex commercial disputes, such as mediation and arbitration.
Complex commercial disputes disrupt regular business activities, often causing delays, project cancellations, and enormous financial losses. Depending on the business sector, individuals and companies involved in commercial relationships can get into conflicts such as contracts, intellectual property, partnerships, fiduciary duty, and non-compete/non-disclosure disputes.
Commercial relationships require quick adaptations and day-to-day decision-making. Managing long-term projects demands consistency and predictability.
Commercial disputes have a devastating effect on current projects and business strategies. Unlike civil disputes, resolving complex commercial disputes in litigation requires far more time and resources. Conflicts between international business partners involve different jurisdictions and procedural rules. Class actions are also not rare due to numerous stakeholders being interested in the outcome. Resolving a business dispute can be costly and time-consuming. Litigation involves complex discovery procedures, countless pre-trial motions, exhausting witness hearings, and expert testimonies. The costs of litigating commercial disputes can reach astronomical figures due to hefty attorney and court filing fees. The process can drag on for years.
The worst part is that litigation is ineffective, despite high costs and years of deliberation. As an adversarial process, litigation ruins relationships between partners and other stakeholders. Disputed parties use all available means to defeat their opponents with little or no regard for future relationships. Additionally, the court process is public, meaning trade secrets and business strategies will become available to the competition, harming your reputation and potential profits.
The dynamic business environment is sensitive to delays, years-long legal processes, and rigid procedural rules. Companies involved in complex commercial disputes seek quick and effective ways to resolve conflicts and continue doing business.
Alternative methods are emerging instead of costly, time-consuming, and ineffective litigation to meet more effective conflict resolution demands. Mediation and arbitration are the most common alternative dispute resolution (ADR) methods. Read on to learn more about each.
As an out-of-court process, mediation is an innovative approach to commercial dispute resolution. Remote from government decision-making centers, mediation allows disputed parties to negotiate contested issues in a neutral and friendly environment.
Free from rigid procedural rules, mediation lasts several weeks or even days. The costs are significantly lower since there are no time-consuming discovery procedures, witness testimonies, and complex admissibility rules.
However, depending on the complexity, the mediator can leave out some phases. For example, instead of private sessions, the parties can go directly to the negotiating table in a joint session.
In contrast to litigation, mediation is confidential. Nothing shared during the process can become part of publicly available records. Confidentiality is essential for commercial relationships, in which preserving trade secrets is critical. The parties cannot reveal mediation-related details even in potential future litigation (if mediation efforts fail).
In addition to confidentiality and flexibility, mediation offers the possibility of reconciliation and a sense of control over the process. The mediator (a former judge, attorney, or another business professional) seeks to facilitate negotiations and reconcile the parties, helping them resume successful business cooperation. Instead of succumbing to rigid procedural rules (like in litigation), parties are behind the steering wheel in mediation. They decide whether or not to continue mediation or change the mediator. Parties – not state-appointed judges – control the process.
Successful negotiations result in an agreement that, if signed, is legally binding.
Arbitration is another way disputed parties can resolve complex commercial disputes out of court. It resembles litigation in many ways, but the crucial aspect of the arbitration process is its non-state nature. Arbitration is a private way of dealing with commercial (and other disputes), meaning no state-appointed judge or jury decides the case.
Parties can initiate arbitration by submitting a claim to an existing arbitration body (for example, the International Commercial Arbitration, a body within United Nations) or select arbitrators on an ad hoc basis.
The arbitrator is a neutral professional (often a former judge) parties choose voluntarily from a list of arbitrators. Most business contracts have an arbitration clause defining arbitration as a way of resolving disputes arising from their relationship.
The arbitration process has several stages. The parties start the arbitration process by submitting the initial pleadings (in which they outline their arguments). The second stage is panel selection – the parties select an arbitrator or a panel of arbitrators. Next, they schedule sessions in consultations with the arbitrators. In the discovery procedure, parties exchange material information, building the factual and evidential basis for a decision. Trial preparation precedes final hearings in which parties and their representatives prove their claims by presenting the evidence before the arbitrators. Finally, arbitrators issue a mandatory decision (arbitration ruling).
Not all arbitration types are the same. The most common are the following:
Government or international institutions have institutional arbitrations (like the International Commercial Arbitration within United Nations) with arbitrators’ lists, procedural rules, and other elements resembling litigation. The purpose of institutional arbitration is to resolve commercial disputes regularly. In contrast to institutional arbitration, ad hoc arbitration resolves disputes on a case-by-case basis (when they occur). Arbitrators set up procedural rules for each case individually.
Binding arbitration issues mandatory decisions with the same effect as court judgments. Conversely, non-binding arbitration has an advisory role.
Parties establish voluntary arbitration through special clauses in their business contract. They voluntarily submit their case to an arbitrator or panel of arbitrators if the dispute arises. In some jurisdictions, arbitration is mandatory, meaning parties must resolve all their disputes out-of-court (for example, insurance disputes).
Instead of following strict litigation rules, arbitrators freely decide which evidence is admissible and credible, even resolving the dispute relying on their sense of fairness, regardless of the procedure.
Langbein & Langbein, P.A. is a Florida-based law firm focusing on resolving complex commercial disputes through mediation and arbitration.
Our top-notch experts have years of experience facilitating commercial dispute negotiations and are motivated to go the extra mile in helping you settle your dispute, no matter how complex. As arbitrators, we are committed to resolving disputes by issuing impartial and evidence-based decisions.
Please reach out today to schedule your appointment.
