The Differences Between Negotiation, Arbitration, and Litigation

There are several ways to settle a dispute between two parties. Many contracts contain “dispute resolution” provisions regarding how a dispute should be settled. For instance, some contracts state that the parties must mediate a dispute before litigation or arbitration. Because these provisions are common in many negotiated agreements, it’s important to understand the difference between them. While all three are designed for two parties to reach an agreement, they each involve different methods, strategies, and practices for reaching such agreements. If you find yourself in need of settling a dispute, you might be wondering which method is best for you. Here we will examine each of these types of dispute resolution and the differences between them. 



Negotiation is an informal process by which two parties settle differences. In a negotiation, both parties aim to achieve the best possible outcome for their position. However, this is commonly achieved through the principles of fairness whereas both parties seek mutual benefits and strive to maintain a strong and productive relationship. Negotiations are reached through discussions between the two parties without the presence of a third party. It is the most informal type of dispute resolution and is a simple alternative to court action and litigation. The advantages of negotiation are that it is less costly and less time-consuming than other types of dispute resolution and decisions are made only by the involved parties. 



Arbitration is a form of private dispute resolution. If two parties cannot successfully resolve a dispute, they may seek the help of a third party. Unlike a mediator, arbitrators typically have legal training and they have the authority to make decisions and impose determinations that are binding on the parties. The arbitrator is agreed upon by the parties and is often chosen on the basis of substantive expertise. Generally, arbitrators are retired judges or experienced attorneys who conduct the proceedings much like a court trial but without the time and expense of an actual trial. The advantages of arbitration are that it is faster and more productive than negotiation and less expensive than litigation. 



Litigation is a term used to describe a formal dispute resolution that involves a court trial. Litigation involves handling a dispute in a court of law in order to enforce a particular right. During a litigation, the judge makes the final decisions for the parties unless a settlement is reached before trial. It begins the moment one party hires a lawyer to enforce or defend his or her legal rights. There are several steps in the litigation process and it can take much longer than other types of dispute resolution. It is also more costly, as there are costs involved with court fees, attorney fees, and hiring of expert witnesses. The advantages of litigation are that it forces both parties to cooperate, it is public record, appeals can be made if necessary, and there will definitely be an end result.