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    Back to Category » Alternatives to Lawsuits

    In our previous article on the litigation system in the United States, we commented that Chinese prefer to resolve legal disputes through harmonious and peaceful means without the intervention of third parties and the court system. While it may appear that only Chinese prefer non-court means, most and perhaps all ethnic groups also prefer to avoid litigation, which helps to explain, at least in part, the rise of the use the mechanisms of Alternative Dispute Resolution (ADR). ADR comes in two major forms – arbitration and mediation. Before delving into the details of each, it is useful to mention that ADR mechanisms share certain common features, which differ from litigation. They are often less time-consuming and thus, generally speaking, more cost-effective. Both mediation and arbitration are usually procedurally less cumbersome and thus more flexible and informal than litigation. A very important feature in ADR, whether arbitration or mediation, is that information supplied in ADR proceedings remains confidential, whereas, in litigation, any information used in a court proceeding almost always becomes accessible to the public. This potential for ADR confidentiality is particularly important when issues of finance or trade secrets are involved. This article will explain how both the mediation and arbitration systems are used in this country and, when appropriate, contrast them with litigation.

     

    1. Arbitration and Mediation Compared

    To begin with, both arbitration and mediation involve the use of a neutral third person or persons. However, that is where the similarity ends. The critical difference between the two is that in arbitration the neutral third party or parties typically are required to render a decision which is often, but not always, binding on the disputing parties. Where a decision is binding, the end result of an arbitration proceeding is little different from a decision made by a court with a judge and a jury. Indeed, an arbitration award can be enforced through court procedures. For instance, if you file an arbitration claim against someone for monies owed to you, the arbitrator must decide whether or not to award you anything and, if an award is made, how much you are entitled to receive. In contrast, a mediation proceeding gives the third party neutral no power to bind the disputing parties. The mediator’s role serves more like a peace-maker, who functions as a go-between for the two sides, examining each party’s position and sometimes suggesting possible alternatives to resolve the impasse, in hopes that either the parties adopt one of the alternatives or fashion a solution of their own. Unlike an arbitrator, a mediator has no power to force a resolution on the parties. Continuing with the example of monies owed to you, a mediator may assist in suggesting different payment time schedules, but has no power to give an award forcing the debtor to pay you. The parties must agree and, if they do, a proper agreement must be drafted to make sure the agreement, if necessary, can be enforced by the courts.

     

    1. Arbitration

    How does arbitration come about? There are two major ways. The first is by written contract. As an example, very frequently, knowingly or not, you may have signed an agreement which states that if a legal dispute should arise in the future, the matter shall be submitted to arbitration. That type of a clause is found frequently in stock brokerage account agreements, employment agreements, or health care provider agreements. As an illustration, if you signed a brokerage account, and you believe later on that your broker did something wrong, you may choose to seek legal redress. If there was no arbitration clause, you will file a lawsuit in court. When (as is common) a mandatory arbitration clause exists, you will have no choice but to use an arbitrator and your option to resort to the courts is foreclosed.

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