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To Mediate or Litigate – Finding a Resolution to Business Disputes

mixed race business partners arguing about bad contract. , investors having problrms with clients. problem, conflict situation in the compaany. misunderstanding

Introduction

In the world of business, a complex and intricate ecosystem characterised by the need for effective communication, collaboration and problem-solving, disputes are inevitable. The nature of such disputes may vary, whether it is a contractual disagreement, the dissolution of a partnership, conflict between investors and companies or an alleged intellectual property infringement. While such disputes are commonplace, it is advantageous for both businesses and their management to seek effective remedies that mitigate adverse impacts on the business and individual interests. However, when faced with a conflict which cannot be resolved internally, businesses may find themselves at a crossroads: pursue mediation, or seek legal relief in the form of litigation?

The difference between mediation and litigation

As defined in section 41A(1) of the Uniform Rules of Court, mediation concerns a voluntary process parties agree to enter into when faced with a dispute they are unable to resolve on their own. The process is overseen by an independent and impartial party acting as a mediator. The role of the mediator is to assist the parties in resolving the dispute, identifying common ground, exploring compromises and generating resolution options through facilitated discussions and negotiation support.

Litigation refers to a process of resolving disputes through the court system, whereby parties present their cases before a judge responsible for making a legally binding decision based on the evidence and arguments presented before them. Unlike mediation, litigation does not encompass a voluntary process for both parties. Often, a party to a dispute may initiate litigation proceedings by issuing a summons or notice of motion, compelling the other party to participate by responding. Unless the parties agree to a settlement proposal and withdrawal of the case, during which time mediation may still be an appropriate tool to use for reaching such an agreement, the dispute will eventually go to trial.

Mediation vs Litigation – how to reach the most effective resolution

Deciding which route is best to follow when faced with a business dispute is a crucial decision, requiring careful consideration of various factors, including the nature and complexity of the dispute, available resources of the involved parties, whether the parties seek to maintain their business relationships and whether the parties are comfortable with the risks associated with each of the dispute resolution mechanisms.

The case of Mangaung Local Municipality v Pudumo and Others (3143/09) [2010] ZAFSHC 2 highlighted the various ways in which mediation may be a more attractive form of alternative dispute resolution than approaching the courts. A mediated session between parties, facilitated by an independent mediator and in a more controlled and private setting, may be more beneficial to lessening tensions and encouraging parties to truly work together to find the root of the dispute. The often cold and rigid nature of the adversarial process may have the effect of heightening tensions, risking further strain and irreparable damage to business relationships. As such, mediation as a process motivates parties to find commonality and workable solutions together, and important quality in the business world. Furthermore, what makes mediation an attractive form of resolving business disputes is not only its significantly lower costs than litigation, but also the speed and efficiency at which decisions are reached, and important factor to consider when trial dates for opposed matters in the Western Cape High Court must be obtained at least two years in advance for non-urgent matters. Additionally, the confidential nature of the mediation process may be a more advantageous solution to disagreeing parties who still seek to protect their business information, interests which are not protected given the public nature and transparency of the litigation process.

There are however considerations which may sway the decision in favour of following the litigious process, despite its costly lengthiness. The formal nature of litigation and structured timeline of when documents and notices must be exchanged may be beneficial in the parties coming to the decision to reach a settlement based on the facts before them. A judgment handed down in court has the advantage of being legally binding, unlike an agreement reached in mediation. The risk is therefore always that one or more of the parties to the mediation process may go back on their agreement, resulting in further disagreement which may harm the effective running of a business. An order of the court provides a clear and definitive resolution, ensuring parties are made aware of their rights and obligations in terms of the business. The litigation process also seeks to protect parties to a business dispute who may be in a weaker negotiation position. Unlike the mediation process, where a party in a superior bargaining position may still make use of tactics to obtain an agreement more beneficial to themselves, the function of the courts is to treat the parties before it equally and fairly. Thus, parties in a weaker position are protected from being strongarmed into an unfair and unjust agreement. As held in Kalagadi Manganese (Pty) Ltd and Others v Industrial Development Corporation of South Africa Ltd and Others (2020/12468) [2021] ZAGPJHC 127, whilst the role of mediators are to facilitate discussions between the parties, they are not responsible for determining what is fair, but rather to find a way out of the deadlock in which the disputing parties have found themselves. In such instances, especially where the dispute concerns complex legal considerations, a judge may be a more suitable determiner of the outcome than the parties themselves. Furthermore, the voluntary nature of mediation may not yield a successful outcome if all parties do not engage in good faith negotiations, an issue that is mitigated by the structured and compulsory nature of the adversarial approach in litigation.

Conclusion

In considering which dispute resolution route to follow when involved in a commercial law dispute, one must weigh up the advantages of litigation, namely the establishment of legal precedent, formal enforcement mechanisms and a structured process, to considerations of cost, time and the potential strain on critical business relationships. Where parties seek to protect their business relationship, mediation may offer a more hands-on, collaborative and cost-effective means to obtaining a resolution. The choice between litigation and mediation is dependent on the unique circumstances of each case, and it therefore always advisable that parties seek professional legal guidance to determine the most effective course of action.

Contact us for all your dispute resolution issues and queries.

Written by: Karli Scholtz | Candidate Legal Practitioner
Dispute Resolution Department
Claremont