Commercial dispute resolution – How to deal with B2B conflicts

Commercial dispute resolution is a highly skilled and nuanced method to resolve disputes within businesses and between businesses.  It can be an incredibly helpful process for businesses that would like to settle disputes quickly and effectively without having to go through litigation and deal with all the costs associated with that.  It also provides a way for companies to continue to retain the relationships that they have with other businesses and vendors by allowing them to settle their disputes amicably.  It can be particularly helpful in international disputes because the companies are often unfamiliar with the other company’s domestic legal system and would create inequalities in the domestic legal systems.  Many states and countries also encourage dispute resolution processes to resolve business disputes and have laws that enforce contracts and agreements to participate in dispute resolution.

But is dispute resolution the best option for business disputes? Many experts say that dispute resolution solves many of the problems that companies face in litigation; however, other experts disagree with this and say the alternative dispute resolution is not the best option for business disputes.  The answer to the question lies in the details of the dispute and the possibilities that commercial dispute resolution presents.  Some disputes will be best served by using traditional litigation, yet many disputes can be resolved through the dispute resolution system.  This article will briefly discuss business law and how it can affect both litigation and dispute resolution mechanisms.  Then it will discuss the ways the business to business disputes, known as B2B disputes, can be resolved through alternative dispute resolution and the benefits and drawbacks of these possibilities.

An Important Note

This article will be focusing on business disputes either within a business or between businesses.  It will not be addressing disputes between businesses and consumers or consumer protection.  Many of those disputes are handled by agencies or through specific mechanisms and types of resolution.  While dispute resolution can be used in these disputes, it must be balanced.  Dispute resolution, especially arbitration, can be difficult when the parties are a consumer and a company, as the consumer typically has less power and money to support their position.  Therefore, the use of alternative dispute resolution in such disputes should be completely voluntary so that the party can fully agree to the process, protecting their interests.  It is an important distinction to make when talking about commercial disputes, but this article will only be referencing the effect that dispute resolution has on business to business disputes and not business to consumer disputes.

Business Law’s Effect on Disputes

Business law is a complex area of law that is made up of many different types of law.  Some of the areas of law that business law encompasses are:

  • Business Organizations: This type of law governs how businesses are organized and how they can protect the owners and shareholders from liability in disputes.  There are a few different types of business organizations in the United States, and each type has special rules that apply to that specific type of business.
  • Contract: Businesses sign many contracts as a part of doing business.  They sign sale agreements, use agreements, employment agreements, and many others.  Many disputes that arise in business law happen within the contract signed by businesses.  Contract law looks at the validity of a contract, the enforceability of a contract, whether a duty under the contract was breached, and what damages may be recovered for that breach.
  • Mergers and Acquisitions: Many companies with combine with other companies—a merger—and other companies will absorb a company into their own—an acquisition.  This type of law governs the types of mergers and acquisitions and how the businesses will function.
  • Anti-Trust/Competition Law: Companies are also required to comply with anti-trust laws in the United States or competition law in much of Europe.  This area stops companies from becoming too big or owning too much of the market for a particular item or service.  This protects the competition and keeps pricing low for consumers.
  • Tax Law: Companies will regularly deal with having to pay taxes and will likely be required to file and pay taxes in different ways.  Tax law looks at a person or business’s tax liability and either ensures that they pay the correct amount or punishes them for not paying the correct amount.
  • International Law: Companies that cross international borders will have to comply with international law. This body of law governs which laws apply to a dispute and how they apply.
  • Local Law: Businesses “exist” in at least two places.  First, they exist in the state in which they choose to incorporate.  For many businesses, this is Delaware because the laws in Delaware are historically friendly to businesses.  The second place is where they have their place of business and offices.  This can be the same place, but many companies are headquartered in one place and incorporated in another. Businesses have to follow local laws in both places when they apply to the business.  This can be zoning laws around their headquarters or registration laws in their place of incorporation.

With so many moving pieces, many of the large law firms that represent businesses have many departments with lawyers specializing in each area of law that businesses deal with.  This grand list of types of law is not exhaustive, and many other types of law will affect a business depending on the specific industry the business deals in.

Effect of Litigation

So many areas of law can make it difficult for businesses to effectively litigate an issue, especially when many types of law intersect.  Many judges hear a variety of types of cases and will be required to understand the law as the parties see it in a given case.  Often juries, who have little to no experience in the subject matter will have to make decisions about the case in litigation.  However, it also gives the companies in the dispute the ability to be able to demonstrate the complexity and show the judge or the jury the law as they believe it applies to their case, which takes creative lawyering and work.

Effect on Alternative Dispute Resolution

This intersection can also be problematic when a company is arbitrating a case and the arbitrator does not fully understand all of the moving pieces.  However, arbitrators are often experts in an area of law, and parties can choose arbitrators for their dispute, so they may be able to choose arbitrators with the expertise they need.  It can also be beneficial for complicated disputes to be arbitrated in front of a panel with varying expertise so that they can fully understand all the different aspects that the dispute has arisen from.

Finally, the complexity of business law can affect other types of alternative dispute resolution, such as mediation or conciliation.  If a mediator or conciliator does not know all of the issues that are present in a dispute, they may not be effective in resolving the dispute between the parties.  Similar to arbitration, the third-party neutrals may be chosen by the parties, so the parties may choose an experienced business neutral, but it takes knowledge of the process and foresight to select someone who can fully resolve the dispute or assist the parties in the resolution process.

Resolving Business Disputes

Now that this article has examined the particular challenges that business law presents to the resolution of disputes, it will consider the different options for resolving disputes.  There are a variety of options, the most common of which are litigation and arbitration, but also includes other forms of commercial dispute resolution.

Litigation

Litigation is the traditional form of dispute resolution where the parties present their case in a courtroom to a judge or jury who will decide who has presented the adequate evidence to support their claims.  This type of dispute resolution can take a long time and can cost a lot of money in legal and court fees.  It is also the most formal of the dispute resolution options.  Litigation can be helpful in disputes where the parties need an opportunity to fully present their evidence but would like the opportunity to appeal a decision or influence the law in an area.  Litigation can be a good option for certain disputes, but the disadvantages of litigation also need to be considered when deciding how to resolve a dispute.

Arbitration

Arbitration is probably the most commonly used dispute resolution mechanism in commercial dispute resolution.  Arbitration involves a panel of neutral decision-makers called arbitrators.  Many arbitrations are heard by a single arbitrator, but others are heard by a panel of three or more arbitrators.  Arbitrators listen to the case and evidence presented by each side and issue a decision, known as an award, that the parties are bound by.  The process is less formal than litigation and is not usually bound by the same rules of evidence.  As mentioned earlier, the arbitrators are often chosen for their expertise in the subject matter of the dispute, making arbitration a good fit for a complicated and intersecting area of law like business law.  Arbitration can move faster than litigation and may be cheaper, depending on the dispute.

Arbitration is the main form of dispute resolution used in international commercial disputes.  International commercial arbitration is an area of law that deals with international commercial contracts.  Usually, the agreement to arbitrate is contacted in the contract between the parties, and the arbitration clause determines the rules that will apply and the law that will govern the dispute.  This allows the parties to decide their dispute under the law that they have chosen and follow the procedure for the arbitration that they would like.  Many times, international arbitration will be governed by the rules of an organization or arbitral institution such as the International Chamber of Commerce (ICC) or the United Nations Commission on International Trade Law (UNCITAL).  These institutions manage arbitrators and govern the rules of procedure that the arbitration will provide.

International commercial arbitration can be incredibly helpful because the decisions are often being enforced in countries where the parties are located, not in the country where the dispute was decided.  Courts in most countries are friendlier to arbitration results than they sometimes are to decisions in a foreign court over their nationals.  It is also helpful because it saves both parties money on the dispute and time that may be accrued in foreign litigation.  However, international commercial arbitration can also be difficult because it is not able to be appealed except in very specific instances that have more to do with procedure than substance.

Other ADR Forms

Commercial disputes may also be determined by mediation or conciliation, where a third-party neutral helps move the parties through the negotiation process and to a settlement agreement.  Mediation is procedurally focused, as the mediator leads the parties to their own solutions, while conciliation tends to be focused slightly more on the substance as the conciliator suggests possible solutions to the dispute.  Negotiation may be used as well, as the parties interact directly with each other.  All of these options allow the parties to save time and money on the dispute as they resolve the dispute in one or two conferences.  However, unlike litigation and arbitration, which guarantee a decision, mediation, conciliation, and negotiation do not guarantee a decision at the end of the day and the parties may need to continue with the dispute resolution process.

Conclusion

Commercial disputes begin from a complicated and interconnected area of law and can difficult to resolve through the traditional process.  However, commercial dispute resolution gives the parties the ability to resolve their disputes without litigation and allows the parties to have more control over the outcome of their disputes.  Arbitration, mediation, conciliation, and negotiation are all useful options for businesses in dispute looking to resolve the dispute and restore their relationship.  Identifying the issues and choosing a method that works well for the parties can ensure that the parties can move forward and continue with business as usual.

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