Any two parties in a business relationship should strive for peaceful dispute resolution and deterring their escalation. When a commercial contract is involved, there are typically two formal dispute resolution options: litigation or arbitration. Here is a brief guide than can help you choose between arbitration and litigation.
Arbitration is, in layman’s terms, the decision of an impartial third party to settle a dispute between two commercial parties outside of court. From the outside, arbitration may appear to be the less dramatic cousin of litigation. There is no courtroom, jury, or judge. However, arbitration is frequently the preferred option for your small business clients due to its faster resolution, lower cost, and binding decision.
Commercial contracts frequently include arbitration clauses that stipulate that the parties will use arbitration to resolve disputes. These clauses may be simple: Both parties agree to resolve disagreements in front of an arbitrator and adhere to its rules. Specific rules that specify the duration of the agreement, the types of damages to be paid, restrictions on discovery, and appellate rights are among the more robust clauses. You can modify and incorporate sample clauses from the American Arbitration Association into the contracts of your clients.
The process moves quickly once the parties decide to go to arbitration. When compared to litigation, arbitration offers this advantage. An arbitration body receives a dispute, the parties select an arbitrator together, and the hearing can begin. A hearing is typically held, though a summary judgment may be entered.
Arbitration is frequently included in contracts of small businesses because of the need for quick resolution. According to research conducted by the American Bar Association, the typical arbitration case lasts about seven months, whereas the typical litigation case can take anywhere from 23 to 30 months, depending on the court schedule.
Your customers are always looking for ways to cut costs. Arbitration prevails over litigation when cost is a consideration. Arbitration implies a lack of pre-trial depositions, documentation authentication, and expert qualification, as well as limited discovery. When your client enters into a dispute, your experience and knowledge of the arbitration process can help distinguish you from the competition and keep you in mind.
Convenience and Collaboration
Since arbitration does not take place in front of a judge in a courtroom, it may be easier and more convenient for the parties involved. Because the hearing is held in a private location, it is not necessary to negotiate a court calendar. Additionally, location may be a simpler logistical component of the procedure due to the absence of jurisdiction. An arbitrator is chosen, typically from a group of arbitrators chosen by both parties.
Maintaining a spirit of cooperation is essential because the parties to arbitration frequently work together in business. Parties are encouraged to actively participate in the resolution and occasionally assist with the decision’s structure. The arbitration process, in contrast to litigation, encourages a more amicable agreement with less angst and hostility. The numerous complications of litigation can make it uncomfortable for the two parties to continue doing business together.
The private nature of the hearing is a clear advantage of arbitration. There is no public record filed in the court. This helps your small business clients safeguard their intellectual property, such as trade secrets, that may be essential to their operations. The hearing is closed to third parties, including competitors and the press. However, confidentiality is not guaranteed, even though arbitration includes privacy as a component. The rules outlined in the business contract and the laws in effect at the location of the arbitration determine confidentiality.
An arbitrator’s decision can generally be enforced in any US court. While a binding decision aids both parties in moving forward, there is little your client can do if they believe they did not receive an adequate resolution. Their decision is generally regarded as final unless the arbitrator demonstrates bias or fraud.
Why do parties continue to go to court when all indications point to arbitration as the most effective method of dispute resolution for small businesses? When litigation is the answer, who comes out on top in the arbitration versus litigation debate?
Litigation is the option of choice if either party refuses to participate in arbitration or if it is not spelled out in the contract. It’s a solution that has been used for centuries: It will take place in front of a judge and, possibly, a jury in a courtroom. Although it can be costly, invasive, and contentious, it is a good way to settle a dispute.
The ability to challenge the decision in an appellate review is the primary comparative advantage of litigation. The parties have little recourse to challenge a judgment in arbitration, where the decision is typically final and binding; There are multiple levels of appeal in litigation, which can be both reassuring and expensive.)
Most of the time, disputes settle without going to court. Some people believe that a bad settlement is preferable to a successful lawsuit. Settlement of a case may be the best and most cost-effective means of resolving a dispute because you cannot guarantee the outcome of litigation for your client.
Arbitration vs. Litigation Summary
In the case of arbitration vs. litigation, neither option is pleasant. After all, the conflict is what brought the parties to a formal conclusion. However, a disagreement that cannot be resolved is worse. You can provide the insight necessary to guide your clients through the process of resolving business disputes in the most thoughtful and efficient manner.
Speed to Resolution
Arbitration: Months; as soon as an arbitrator is selected. Litigation: Years; dependent on discovery and court schedule.
Arbitration: Comparatively moderate: location fees, arbitrator’s fees, attorneys’ fees. Litigation: Expensive: court costs and extensive attorneys’ fees.
Arbitration: Between the two parties. Litigation: In a public courtroom.
Arbitration: Comparatively cooperative. Litigation: Antagonistic.
Arbitration: Decisions are binding. Litigation: Open to levels of appellate review.