When to Choose Mediation vs. Litigation for Contract Disputes

Whether you are establishing dispute resolution terms for a new contract or attempting to resolve a current conflict, understanding the differences between mediation and litigation is key. Alternative dispute resolution (ADR), such as mediation and arbitration, can often help with small contract disputes, but complex cases with higher stakes sometimes require more costly litigation. Learn when to choose mediation vs. litigation for contract disputes and find out how an experienced attorney at Global Legal Law Firm can help you navigate the legal process.

Mediation and Litigation Definitions and Uses

Mediation is a type of alternative dispute resolution (ADR) in which an impartial third party works with the stakeholders to facilitate a mutually agreeable outcome. In ADR for contracts, the mediator is usually a judge, a retired judge, an attorney, or an experienced dispute resolution professional. During mediation, the mediator reviews evidence and facilitates discussion between the parties to establish a resolution to the dispute without resorting to litigation. 

Litigation uses the court system to resolve a contract dispute. The process starts when one party files a lawsuit against the other. During litigation, both parties share evidence and argue their case before a judge or jury. Contract dispute litigation typically resolves in one of three ways:

1. A judgment in one party’s favor
2. A settlement agreement between the parties
3. A case dismissal

Mediation vs. Litigation: Which is Better for Contract Dispute Resolution?

Contract disputes can range from minor fee disagreements to major partnership divisions. With such a wide range of possible conflicts, there is no one correct avenue for resolution. Each method has unique benefits and pitfalls depending on the details of your dispute. 

Advantages of Mediation

Mediation is ideal for small businesses and low-stakes discussions. Approximately 70-80% of business disputes are successfully resolved using mediation. Some of the benefits of using mediation include the following:  

• Cost-effective: Mediation typically costs between $5,000 and $15,000, which can be much lower than the fees and costs associated with full-blown litigation. 
• Less time-consuming: Mediation can secure a resolution within weeks or months, while litigation can go on for years. 
• Preserves relationships: Since mediation focuses on cooperation, it can protect the business relationships between the parties. 
• Confidential: Mediation details are confidential, so the parties can protect their business reputations and professional relationships.

Disadvantages of Mediation

While ideal for many situations, mediation has some pitfalls, including the following:

• Inappropriate for complex issues: Mediation is not ideal for complicated disputes or disputes involving many interested parties. 
• Ineffective without cooperation: If either party refuses to compromise or cooperate in good faith, mediation can fail. 
• Expensive if it fails: If mediation fails, the parties are out both time and money without the benefit of a resolution, requiring them to then move to even more costly litigation. 
• Non-binding results: Mediation resolutions are typically non-binding unless formalized in an agreement, which can make them difficult to enforce. 

Advantages of Litigation

Litigation works better for business disputes involving high financial stakes or complex legal issues. The primary benefits of litigation for contract dispute resolution are the following:

• Legal precedent: If the case addresses complicated legal issues or has no legal precedent, litigation can clarify legal rights and establish precedent for future claims.
• Legally binding results: The court’s decision is legally binding, which provides the parties with a clear resolution and method of enforcement.
• Effective in adversarial disputes: Litigation is often better than mediation if either party is unwilling or unable to engage in good-faith negotiations to achieve a fair resolution.

Disadvantages of Litigation

Although litigation can help with complex, high-stakes, and adversarial situations, there are a few downsides:

• Higher expenses: Litigation often takes longer and costs more than mediation, and costs can vary depending on the jurisdiction. 
• Reduced confidentiality: Since litigation is usually a matter of public record, lawsuits can damage the reputations of the parties and businesses involved. 
• Damaged relationships: Litigation can also harm the relationships between parties, clients, suppliers, employees, and other business connections.

Work with a knowledgeable breach of contract attorney to learn which resolution options are best for your situation. Global Legal Law Firm’s business litigation attorneys can review your case details and provide sound guidance to help you decide on your next steps. 

What to Expect from Contract Dispute Mediation

Some contracts include a dispute resolution clause. This clause details the type of dispute resolution the parties must use in the event of a conflict. If the contract does not include dispute resolution terms, the parties may sign an agreement to take the dispute to mediation. 

The parties may choose a mediator or allow a designated ADR provider to select the mediator based on the dispute details. Mediators typically approach mediation using one of the following styles or a combination of all three: 

1. Facilitative mediation: The mediator provides neutral guidance to encourage communication between the parties and reach a mutually agreeable resolution. Facilitative communication is ideal if the parties wish to improve communication and continue a business relationship in the future. 
2. Evaluative mediation: The mediator offers an impartial assessment of each party’s strengths and weaknesses, using this information to assess the likely outcome if the parties choose to litigate. Evaluative communication is helpful for parties that need legal guidance, clarity, and an honest assessment of their positions to resolve an adversarial or complex dispute. 
3. Transformative mediation: The mediator encourages empathy and understanding between the parties to identify and address the issues causing the conflict. 

In business disputes, most mediators use facilitative mediation, evaluative mediation, or a combination of these styles. However, transformative mediation may also be useful if the parties wish to maintain an ongoing relationship. 

FAQs

Here are answers to some of the most pressing questions regarding mediation and litigation in contract disputes: 

Choosing the Best Option for Resolving Your Contract Dispute

Consult with an attorney to learn whether mediation or litigation is the better option for resolving your vendor dispute, breached agreement, partnership conflict, or other business conflict. The skilled attorneys at Global Legal Law Firm specialize in complex business litigation for electronic payment disputes. We represent ISOs, agents, card brands, processors, and commercial collections from initial contract drafting through dispute resolution, litigation, and post-judgment enforcement. 

Contact our breach of contract lawyers today.