We compare three methods of resolving commercial disputes and explain the logic behind their choices.
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Your partner has breached the contract—all you can think about is going to court. Did you know that in half the cases, this isn’t the best first step?
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What is mediation and how does it differ from negotiation—and why are Latvian courts now actively promoting it?
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In what cases is arbitration better than mediation—and vice versa?
Two partners had been working together for five years. A dispute arose over the division of profits—45,000 euros. One said, “Let’s go to court.” The other replied, “We’ll lose clients while we’re in court—let’s come to an agreement.” Ultimately, they turned to a mediator. Three meetings later, they signed an agreement. They saved the money, the business, and the relationship.
Court is not the only option. Sometimes it’s not the best one.
Method one: direct negotiations
What it is: the parties communicate directly without intermediaries. This can be done independently or through lawyers.
When it works best: The relationship hasn’t completely broken down, both parties understand that litigation will be costly, and there’s a mutual interest in continuing the relationship.
When it doesn’t work: One side initially acts in bad faith and uses negotiations to stall for time; there is a clear imbalance of power—the weaker side agrees to unfavorable terms under pressure.
Cost: minimal. Results not guaranteed.
Method two: mediation
What is it: A voluntary procedure involving a neutral intermediary—a mediator. The mediator does not make decisions, but rather helps the parties find a mutually acceptable solution. The Latvian Mediation Law has been in effect since 2014.
How it differs from negotiations: a mediator is a professional, neutral intermediary. They manage the process, help the parties hear each other, and prevent conflict escalation. Without a mediator, negotiations often reach a dead end due to emotions and mutual accusations.
When it works best: the parties want to maintain the relationship, the dispute contains not only a monetary but also an intangible component (reputation, terms of cooperation), both parties are ready to compromise.
When it doesn’t work: one party is obviously dishonest, a precedent or public decision is needed, or forced execution is required without the debtor’s participation.
Cost: Mediator services range from several hundred to several thousand euros. Significantly cheaper than court proceedings if the outcome is successful.
Important: If the parties reach an agreement, the result is formalized as a mediated agreement. By law, it can be notarized and become an enforceable document.
Method three: arbitration
What it is: An independent arbitrator or panel issues a binding decision. The decision is final and enforceable.
When it works best: the parties are unwilling or unable to reach an agreement, a final and binding decision is needed, speed is important (6 weeks versus 6-18 months in state court), confidentiality is important.
When it’s not the best choice: there is no arbitration clause, the parties are still ready to negotiate and want to maintain the relationship, the amount in dispute is very small and the costs of the process are disproportionate.
Comparison by key parameters
Speed: negotiations – days/weeks, mediation – weeks, arbitration – 6 weeks, state court – 6-18+ months.
Cost: Negotiations - minimal, mediation - moderate, arbitration - moderate, state court - high for appeals.
Binding of the result: negotiations - only if signed, mediation - only if agreed upon and notarized, arbitration - mandatory, state court - mandatory.
Maintaining the relationship: negotiations - possible, mediation - most likely, arbitration - depends on the situation, state court - usually not.
Confidentiality: Negotiation - yes, Mediation - yes, Arbitration - yes, State Court - no.
Recommended sequence
Don’t rush to court at the first sign of a disagreement. Try negotiation. If that doesn’t work, try mediation. If mediation fails or the situation is clearly unfair, try arbitration. A state court is recommended if there is no arbitration clause or the dispute falls outside the scope of arbitration.
The best dispute is one that is resolved quickly, affordably, and with the relationship preserved. This doesn’t always mean going to court.
This article is for informational purposes only and does not constitute legal advice.