Any two parties to a business partnership should strive to resolve disputes and prevent their escalation peacefully. Arbitration or litigation are two main ways to settle an argument in a commercial contract. Use this guide to explain your options to clients who ask about arbitration or litigation.

Arbitration

Arbitration is a method of resolving a dispute between two parties outside the courtroom by a neutral third-party arbitrator. If you look at TV, arbitration may appear to be the cousin of less glamorous litigation: no judge, no jury, no courtroom. Small businesses often prefer arbitration because of its speed, cost-savings, and binding decisions.

In commercial contracts, arbitration clauses are commonly included. They state that, in a conflict, the parties would use arbitration to settle their dispute. The clauses are usually straightforward: Both parties agree to resolve their disputes before an arbitrator and adhere to its rules. These clauses are more robust and include practices that specify the timeframe, damages, discovery limits, and appeal rights. The American Arbitration Association offers sample clauses that you can add to your clients’ contracts.

Speed up

The arbitration process is speedy once the parties have decided to arbitrate. Arbitration has many advantages over litigation. The parties agree on the arbitrator and file the dispute with the arbitration body. Hearings can then begin. Although a summary judgment is possible, holding a hearing is more common.

Arbitration is often included in contracts by small businesses because of the need for a quick resolution. According to research by the American Bar Association, arbitration cases can last an average of seven months, while litigation can range from 23-30 months, depending on the court schedule.

Costs

Your clients are always looking for ways to cut costs. Arbitration wins when cost is an issue. Arbitration is a limited form of discovery, as there are no depositions before trial, documents cannot be authenticated, and experts do not need to be qualified. You can set yourself apart from your competition by using your knowledge and experience of the arbitration process to keep you at the forefront of client’s minds when they enter into a dispute.

Convenience/Cooperation

Arbitration is a more convenient and more straightforward process for parties because it does not occur in front of a Judge in a Courtroom. Since the hearing takes place in a private setting, a court schedule is not necessary. Because the jurisdiction does not apply, the location of the hearing can be more accessible logistically. A mutually agreed arbitration group will often assign an arbitrator.

As the parties to arbitration are usually business partners, it is essential to maintain a cooperative environment. Parties are encouraged to participate actively in the resolution and even help shape the decision. Arbitration fosters more amicable agreements with less hostility and anguish. The many factors that can complicate litigation can make it difficult for the parties to continue doing business.

You can also find out more about Privacy.

Arbitration has the advantage of being private. No public records are filed. Your small business client can protect their intellectual property or trade secrets that are important to their business. Third parties are not allowed to attend the hearing (including competitors or press members). Privacy may be a part of arbitration, but Confidentiality cannot be guaranteed. Confidentiality depends on the laws in the country where the arbitration is held and the contract rules.

Binding decisions

Any US court can generally enforce the arbitrator’s decisions. If your client believes they did not get a satisfactory resolution, they have little recourse. Arbitrators’ decisions are usually final if they don’t show bias or fraud.

Litigation

Why do small business owners still go to court when arbitration is the best option? Who wins when litigation is the best answer to the arbitration vs. litigation debate?

Arbitration is not an option if one party refuses to participate or it is not written in the contract. The only other solution is litigation. This is an age-old method of dispute resolution: in court, before a judge and perhaps a jury. The process can be expensive, cruel, and intrusive but it is an effective way to resolve a dispute.

Call

In litigation, the primary advantage is that a decision can be challenged through an appeal. In arbitration, a determination is usually binding, and parties have limited recourse to appeal a judgment. However, in litigation, there are many levels of appeal, which can both be reassuring and cost prohibitive.

Most litigation is settled without a trial. Some people say that a nasty lawsuit is better than an inadequate settlement. You can’t promise your client that a case will result in a positive outcome. Therefore, settlements are often the most effective and efficient dispute resolution.

Summary of Arbitration and Litigation

Arbitration vs. litigation is not a pleasant option. After all, a conflict led the parties to a formal resolution. It is much worse to have no way of settling a dispute. You can guide your clients through resolving their conflicts most effectively and thoughtfully.

Rapid Resolution

Arbitration: Months, as soon as the arbitrator has been selected. Litigation: Years, depending on the discovery process and court schedule.