When there is a dispute between two parties there are several legal ways to
resolve this dispute. A lawsuit is one response to a dispute that involves the
court system and can be costly and difficult. Due to the cost and difficulty of
bringing a lawsuit, there have been alternative ways for these disputes to be
resolved called alternative dispute resolutions (ADR).
They include mediation, arbitration, and neutral evaluation to name a few. With
any business decision, there needs to be a cost-benefit analysis, and this
especially holds true to deciding whether or not to bring a lawsuit or settle
out of court. When deciding whether or not to bring or defend a lawsuit it needs
to be analyzed like any other business decision.
There needs to be a cost-benefit analysis done when considering whether or not
to take a dispute to court or to try and settle it outside of court. The things
that need to be considered are the probability of winning or losing, the amount
of money to be won or lost, lawyer fees and other litigation costs, the time
lost by personnel, the impact to the relationship long term between the parties,
the amount of prejudgment interest provided by the law, the aggravation and
psychological costs associated with a lawsuit, the unpredictability of the legal
system and the possibility of error, and any other factors pertinent to the
Once this analysis has been done and it is clear that bringing the lawsuit to
court has the highest probability of being the most cost-effective course of
action it can be decided to move forward with the lawsuit. A lawsuit in a lot of
situations is not the most cost-effective way to handle a dispute.
Once going through the cost-benefit analysis, it can be easy to see how
expensive a trial can be and the need for another option. This is when the
parties involved should consider an alternative dispute resolution.
The options available to Solar Co. if they choose not to bring this lawsuit to
trial would be mediation, arbitration, and neutral evaluation. Mediation is a
good option when there is a well-established relationship that they don't want
to be damaged if possible. With this type of resolution, there is a neutral
party that is the "mediator" and they help the two parties communicate and reach
a mutually agreed upon resolution [Cal18].
The problem with this is that if there isn't a way to reach a mutually agreed
upon resolution, the mediator can't make the decision. This is why arbitration
is a great way to go when there may be problems coming to that mutually
agreed-upon resolution. With arbitration, there is a neutral party that hears
the evidence and arguments from both sides and afterward decides the outcome of
the dispute [Cal18]. This is less formal than a trial and also a lot less
costly. Arbitration can be binding or non-binding, binding means that the
parties waive their right to take this dispute to trial. Non-binding arbitration
means that if one of the parties doesn't like the resolution they still have the
right to take the dispute to trial.
For disputes that have a lot of technical aspects, neutral evaluation may be a
good option. Settlement conferences are great in any case where there might be
the possibility of a settlement. They are usually held just before a case goes
to trial. This is when the parties involved with their attorneys meet with the
judge or settlement officer to discuss the possibility of a settlement [Hen16].
In this situation due to the lack of a prior longstanding relationship and the
need for a decision without the cost of a trial, arbitration would be the best
way to resolve this dispute. In 1925 congress enacted the Federal Arbitration
Act to promote the arbitration of disputes. With this being the case it would be
a wise decision for Solar Co to use arbitration agreements in the future with
anyone that they do business with [Hen16].
An arbitration agreement will establish the arbitration procedures that must
follow if there was a dispute that required arbitration. This can save a lot of
time and headache if a dispute is to arise and requires that arbitration is to
take place first before bringing a lawsuit. With non-binding arbitration, if the
parties involved don't agree with the resolution they have the right to take the
case to court.
If it is established in the arbitration agreement that the arbitration is
binding this right is forfeited and whatever resolution the arbitrator decides
will have to be upheld. With the cost of lawsuits being so high the arbitration
option is one that most companies should consider.
For Solar Co, the decision to use arbitration agreements in the future is one
that will save them money and time if they ever have a situation come up again
that requires possible litigation. When settling a dispute, a lawsuit does not
have to be the only option. Often a lawsuit should be the last option
considered. There are alternative dispute resolutions that can be used to keep
the cost and time spent on this dispute to a minimum.
Arbitration is one of these methods to resolve a dispute and is even promoted by
the Federal Government. A great way for a company to ensure that a dispute goes
to arbitration is to establish an arbitration agreement before conducting
business with anyone. Doing so it can dramatically reduce the legal costs
inflicted in the case of a dispute.
Written By: Ms.Rasveen Kaur Kapoor
- California Courts. (2018). ADR types and benefits. Retrieved from
California Courts The Judicial Branch of California: http://www.courts.ca.gov/3074.htm
- Cheeseman, H. (2016). Legal Environment of Business: Online Commerce,
Business Ethics, and Global Issues. Pearson Education, Inc.