Dispute Resolution Mechanisms for Small Business Owners
When running a small business, it is inevitable that you will encounter disputes no matter how much you try and prevent it. These disputes can be with employees, shareholders, customers and any other party involved with your business. What matters is how you navigate these disputes to ensure they have the smallest effect on your business as possible.
Alternative Dispute Resolution (ADR) is an umbrella term covering a range of mechanisms that can be used to resolve disputes outside of court, including mediation, conciliation and arbitration. Each of these mechanisms is put in place when negotiation between the two parties does not work. You may think that these mechanisms are the same thing, but they actually have unique methods and goals. In this blog post, I will go over each of them and explain what they are and how you can use them.
ADR #1: Mediation
Mediation is when a third party comes in to mediate the dispute. As a neutral third party, they are able to balance each party’s interests in finding a solution. Their job is to listen to each party and take note of their interests and concerns, pinpoint areas of agreement and disagreement, draft solutions and negotiate those solutions with both parties. A mediator can be anyone with no vested interests in the dispute, though in practice it is common to engage an accredited mediator, particularly where the dispute is complex or a court mediation programme is involved.
If mediation does not help you reach an agreement, you can move on to the next step.
ADR #2: Conciliation
While a mediator helps parties reach their own agreement, a conciliator takes a more active role by offering expert advice. Conciliation may be required when the dispute involves complex legal issues that a mediator does not have the expertise to give opinions on. They are common in business matters that concern specific legal regulations like the Fair Work Act and Australian Consumer Law. If conciliation does not work, then you can move to arbitration.
ADR #3: Arbitration
When all else fails, each party presents their arguments and evidence to an independent arbitrator, who makes a decision for them as to how the dispute is resolved. Prior to arbitration commencing, both parties must have agreed – whether through a clause in their contract or a separate agreement – that the arbitrator’s award will be binding, though there are some limited options for appeal. Arbitration is quicker and cheaper than going to court, though parties often choose to engage lawyers given the formal nature of the process.
Arbitration is the most formal ADR method. It is typically conducted by an independent arbitrator appointed by agreement between the parties, often through a body such as the Resolution Institute or the Australian Centre for International Commercial Arbitration (ACICA), or by an experienced commercial lawyer acting as arbitrator.
Being in a business dispute is an unfortunate state to be in. You may feel helpless, but there are ways to resolve the matter. Start with a third party mediator, progress to conciliation if needed, and the matter can move to arbitration if all else fails. If you have any questions about dispute resolution mechanisms for your business, please do not hesitate to contact me. I am here to help.
DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.