Business relationships can break down for numerous reasons. They range from unpaid invoices to interpreting key clauses in a contract to interpersonal conflicts. When this happens, the parties must consider how to manage the dispute. This is a critical decision, and can have significant consequences for cost, time, confidentiality, and your business’s reputation.
In Ontario, businesses typically turn to one of three methods of dispute resolution: litigation, mediation, and arbitration. Each option has both advantages and disadvantages. Ultimately, the right choice depends on your goals, your financial status, and the complexity of your dispute.
In this blog, we’ll explain the three main dispute resolution paths: litigation, mediation, and arbitration. We’ll describe the pros and cons of each approach and end with some practical guidance to help you decide which option to choose.
Litigation
Litigation in Ontario refers to the legal process of resolving disputes through the court system. It involves several stages, including:
- Filing a Statement of Claim: The plaintiff files a document outlining the facts and reasons for their claim against the defendant.
- Serving the Statement of Claim: The plaintiff serves the defendant with the Statement of Claim within a specified timeframe.
- Filing the Statement of Defence: The defendant responds to the plaintiff’s claim by putting forth their position in a Statement of Defence.
- Discovery: The parties collect evidence and exchange key documents.
- Trial: The parties argue their cases before a judge (usually without a jury), who makes a binding decision, known as a verdict.
- Appeal: If either party is dissatisfied with the verdict, they may appeal to a higher court.
Pros of Litigation
- Binding decisions: Litigation produces clear, enforceable decisions that are backed by the courts.
- Legal remedies: Parties can seek legal remedies such as injunctions or damages.
- Appeals available: If the court makes an error, either party can appeal and have their case heard by a higher court.
Cons of Litigation
- Expensive: Legal fees and court costs can quickly add up.
- Time-consuming: Cases can take months or even years to move through the system.
- Strains business relationships: Due to the adversarial nature of the litigation process, maintaining goodwill in a business relationship can be challenging.
Litigation is often used in high-stakes disputes where negotiations have failed.
Mediation
Mediation is a confidential process in which the parties work with a neutral mediator to reach a mutually acceptable resolution. While mediation is generally voluntary, it is mandatory in several parts of Ontario, including Toronto. For certain kinds of disputes, courts require parties to attempt mediation before proceeding to trial.
Pros of Mediation
- Confidentiality: Discussions generally cannot be used in court later.
- Fast and cost-effective: Through mediation, disputes can be resolved in weeks or months, whereas they may take years in court. Costs are often lower, although many parties still choose to involve lawyers.
- Preserves relationships: The cooperative nature of mediation, along with its focus on problem-solving, makes it more likely to preserve business relationships.
Cons of Mediation
- Non-binding: A mediated agreement isn’t enforceable unless it’s written into a formal settlement or court order.
- No guaranteed outcome: If the parties don’t agree, mediation ends without resolution, and the dispute may continue to court.
- Power imbalances: If one party is more knowledgeable, dominant, or financially secure, they may pressure the weaker party.
Mediation is especially effective in disputes where both sides value communication and are interested in collaborating to find a mutually beneficial solution.
Arbitration
Arbitration is a private form of dispute resolution where a neutral arbitrator decides the case. Arbitration decisions, known as awards, are generally final and can be enforced in court.
Pros of Arbitration
- Confidentiality: Unlike litigation, most arbitration proceedings and decisions are kept private and out of the public record.
- Expertise: In addition to being neutral, arbitrators are often specialists in fields such as employment law, commercial law, or hotel law.
- Efficiency: Arbitration is typically faster than a trial.
Cons of Arbitration
- Limited appeals: A flawed decision can be hard to challenge or overturn.
- Expensive in complex cases: Utilizing multiple arbitrators and expert evidence can significantly increase costs.
- Risk of bias: Some arbitrators are chosen repeatedly by the same parties. This can create real or perceived conflicts of interest.
Arbitration is essentially like hiring a private judge. It’s an appealing choice for those who want to operate outside the traditional court system.
Choosing the Right Path
If you’re facing a dispute and are debating between litigation, mediation, and arbitration, consider these questions:
- Are you committed to preserving your relationship with the other party in the future?
- How complex is the dispute, and how high are the stakes?
- Are speed and confidentiality priorities for you?
- Does your contract require mediation or arbitration as a precondition to litigation?
You should also consider the long-term business implications of your decision. For example, pursuing litigation may be a sensible option if you aim to establish a legal precedent or convey a strong message to deter future breaches. On the other hand, if maintaining discretion is essential to you, arbitration or mediation might serve you better. In some cases, parties choose to combine these approaches—by, for example, first attempting mediation and then moving to arbitration if no resolution is reached.
It’s also important to consider the resources you’re prepared to commit—both financial and emotional. Each dispute resolution method has its own unique stresses, so you should carefully evaluate what you’re willing to take on.
Answering these questions will help narrow down your options and inform your decision.
Practical Paths to Resolution Beyond Litigation
Contrary to popular belief, not all disputes need to end up in court. Mediation and arbitration provide practical, cost-effective alternatives that can resolve conflicts efficiently without compromising business relationships. Understanding the pros and cons of each option allows you to make informed decisions, protect your interests, and move forward with confidence.
Contact the Corporate and Commercial Lawyers at Baker & Company in Toronto for Advice on Resolving Business Disputes
The seasoned corporate and commercial lawyers at Baker & Company regularly guide clients through various business-related matters, including choosing between litigation, mediation, or arbitration. Our team can guide you through your options, protect your interests, and help you reach the best possible outcome for your business. Call us at 416-777-0100 or reach out to us online to schedule a consultation to learn how we can support your business needs.
