Posted September 24, 2020
As a litigator, the first thing I do when a client provides me with a commercial, employment, or operating agreement is to check for any provision that identifies methods to resolve disputes. Increasingly, such contracts require the litigation of business disputes through arbitration rather than a court of law. If you encounter an arbitration provision, you may question whether you should be pleased or concerned about the provision.
Advantages to Arbitration
There are certain advantages to arbitrating disputes. Arbitration is a less-formal private process. One the other hand, publicly conducted in a courtroom, litigation is a more formal process. In arbitration, the parties to a dispute select the arbitrator(s) who decides pre-hearing disputes and ultimately decides the case. Arbitrators are usually attorneys who practice in the area of law that is the subject of dispute or retired judges. Rules of procedure and rules of evidence control the courts. Arbitrators have greater flexibility to consider evidence and decide cases based on the perception of fairness or equity. Parties to an agreement have the opportunity to establish rules and limits on how pre-hearing discovery is to be completed and how the arbitration hearing is to be conducted. Thus, arbitration is typically a speedier and less expensive process than litigating cases in the courts.
Disadvantages of Arbitration
Arbitration has its disadvantages also. Arbitration is less expensive because of the compressed schedule. However, arbitrators are paid for their time and costs are increasing. Depending on the case, costs associated with initiating an arbitration can be significantly greater than the cost of filing a lawsuit in cases involving relatively low damages claims. Also, arbitration awards are final and binding. In most jurisdictions, there is no right to appeal an arbitrator’s decision even if the arbitrator makes a mistake of fact or law. The right to appeal an adverse decision can be an important safeguard especially in complex cases.
The pros and cons of arbitration are important considerations in charting your litigation strategy. These considerations are also important to consider when you are negotiating business contracts.
Feel free to contact me if you have any questions about this article.
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