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Commercial Arbitration vs. Litigation: Choosing the Right Path for Your Business

There are bound to be disputes every once in a while when there is a commercial contract involved.  What the two parties can usually agree on is that they both want a peaceful settlement without an escalation.  There are typically two ways to settle a dispute: arbitration or litigation.  In this article, we will give you the information so that you may choose the right path for your business.

Differences between Commercial Arbitration and Litigation

Arbitration is an out-of-court resolution of a disagreement between two commercial parties, in a private setting, decided by an impartial third party (arbitrator).  It is a form of alternative dispute resolution (ADR).  Litigation involves a courtroom resolution, in front of a judge, and possibly a jury.

With arbitration, an arbitrator is selected based on knowledge and expertise of the subject matter.  With litigation, a trial judge is assigned without input from the involved parties.  Arbitration generally provides a speedier resolution than litigation while litigation can take more time due to pretrial discovery and the appeals process.  Plus, the backlog of court cases can add to the length of a resolution with litigation.

Pros and Cons of Each Option

Arbitration:  Generally speaking, arbitration is less formal than litigation.  The rules of evidence and procedure are more flexible as the process is designed to be more efficient.

Litigation:  Litigation follows formal court procedures with strict rules of evidence and courtroom protocol.

Arbitration:  The process of arbitration is usually quicker and less expensive than litigation.  The parties can choose a schedule that fits their needs and the entire process is generally less formal.

 Litigation:  Litigation can be a longer and more costly process due to court-imposed schedules, procedural requirements, and potential appeals.

Arbitration:  Arbitration is usually more private and confidential.  The details surrounding the dispute and the arbitrator’s decision may not be publicly disclosed.

Litigation:  With litigation, the court proceedings and records are usually going to be a matter of public record with the details of the case accessible to the public.

 Arbitration:  Arbitration decisions are usually final and binding.  The grounds for appealing an arbitration award are limited and normally involve procedural irregularities or misconduct.

Litigation:  With litigation, court decisions can be appealed to higher courts, providing a more extensive review process.

Arbitration:  With arbitration, the involved parties can customize the rules governing the arbitration process, which can provide more flexibility in how the dispute is resolved.

Litigation:  Court procedures will be less flexible and more standardized when it comes to accommodating the specific needs of the parties.

 Arbitration:  The discovery phase of arbitration is generally more restrictive.  This limitation can make it challenging to uncover all facts in complex cases.

Litigation:  Litigation has an extensive discovery phase which can be necessary for uncovering comprehensive evidence in intricate cases and ending in a more informed judgment.

Cost and Time Differences Compared

Cost and time differences can vary depending on the specifics of each case.  Generally speaking, when it comes to filing fees, arbitration is usually lower than the fees associated with filing a lawsuit in court.  While legal fees can still be considerable, arbitration can be more cost-effective when it comes to streamlined procedures and less formal rules of evidence.  There are arbitrator’s fees to consider which can be higher if you will be using a highly specialized or well-known arbitrator.  However, the involved parties typically share the cost of the arbitrator’s fees.

 When it comes to time, arbitration is usually considered a more expeditious process than litigation.  Since the discovery process with arbitration is limited with arbitration, it usually leads to a faster resolution than litigation. 

Also, if one of the parties chooses to appeal a court decision, it can add more time and cost to the overall process.

Effectiveness in Resolving Business Disputes

As we have learned, both arbitration and litigation have their advantages and disadvantages.  There is no one-size-fits-all answer.   It really comes down to the specific goals, priorities, and circumstances of the parties involved.  Some businesses may value the speed, confidentiality, and flexibility that arbitration can offer.  Others may prioritize the legal precedent, appeals process, and enforceability that is associated with litigation.

Both parties should carefully consider all of the factors involved and seek legal advice when deciding on the most effective dispute resolution for their individual situation.

Considerations for Choosing the Right Path

There are many considerations for choosing commercial arbitration or litigation.  Some of these factors include the nature and complexity of the dispute, how much control do you want over the process, cost and speed considerations, public perception, legal precedent, and confidentiality concerns, as well as the appeals process.

The choice between arbitration and litigation can also be influenced by the terms of existing contracts or agreements made by the parties.

I’m Rob Robinson and I have been offering high-quality legal counsel for over thirty years.  I understand that neither arbitration nor litigation is a pleasant option to think about.  After all, it is a conflict that brought you to this point.  However, there are ways to solve the disagreement.  I can help you determine whether arbitration or litigation is best for you.  You deserve the most thoughtful and effective way to resolve your commercial dispute and I can provide the insight to guide you through the process.

I have been involved in numerous arbitrations, as well as cases that needed to be litigated.  My extensive knowledge and dedication to serving your situation will be unwavering.  Please contact my office to discuss which solution is right for you.

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