Arbitration, litigation, negotiation – what is the difference? Arbitration and litigation both follow standardised courses of procedure compulsorily imposed by directions or rules – a procedure formulated with the object of enabling both sides of the dispute to be placed fairly and adequately before the arbitrator or the judge for binding determination. The parties control neither the process nor the outcome.
Arbitration originates in an agreement between the parties to refer the dispute for the binding decision of an appointed third party, the arbitrator. Litigation occurs in the court system, is driven by lawyers and derives its enforceability from the sovereign authority of the national court system. Both arbitration and court determinations culminate in a binding decision being imposed on the disputants.
The fundamental distinction between a negotiated outcome and arbitration or litigation, is that a negotiator has no authority to impose a decision or determination on the parties. The role of the negotiator is to create an environment, which will enable the parties to reach their own determination of the way in which the dispute should be resolved. Not only is the solution process variable and flexible, but also the range of solutions open to the parties is as extensive as are their common commercial interests.
When to instigate a negotiated outcome A negotiated process may arise from a specific decision by the parties to a dispute to embark on solution or it may derive from a conflict negotiation clause inserted in the original contract between the parties. There is a dual advantage in inserting such a clause in all Agreements. In the first place it serves to remind the parties, when they find themselves in dispute some months or years after entering into an Agreement, that negotiated solution was the chosen mechanism of first resort. If, of course, the solution process fails, it always remains open to the parties to arbitrate or litigate.
The second advantage of including a negotiated outcome clause is that not infrequently two parties to a dispute would both be minded to submit it to resolution but each hesitates to make the first move in this direction lest it be interpreted by the other side as a sign of weakness. A model negotiation Clause in a contract will remove the occasion for this hesitation.