Disputes are an unavoidable part of being a business owner. They arise in the context of employment relationships, relationships with customers, service providers, business partners, and in various other contexts. When considering the most common dispute resolution methods, what should you chose – litigation or arbitration? Each has its own benefits and drawbacks, as we explore below.
Why a Business May Choose Arbitration
The main reason for choosing arbitration is speed and efficiency. The arbitration process is generally less formal, which can save time and resources. Unlike court cases, which may have long waiting periods and crowded dockets, parties in arbitration can schedule hearings at their convenience, leading to a quicker resolution of the dispute.
Arbitration process is often more flexible than litigation. Arbitration allows parties to have more control over the process and tailor it to their specific needs. The parties can agree on the rules, procedures, and even select their arbitrator. This flexibility can be particularly beneficial in cases where specialized expertise is required, allowing parties to choose arbitrators with relevant knowledge and experience. The added benefit is a more informed and specialized decision compared to a judge or a jury, who may not have the same level of understanding of the technical or industry-specific issues involved.
Unlike litigation, which generally takes place in public courtrooms, arbitration proceedings are private and confidential. This confidentiality can be vital for parties seeking to keep sensitive information out of the public eye or to protect proprietary or trade-secret information.
In many cases, arbitration can be more cost-effective than litigation. While there are high costs associated with engaging arbitrators and organizing the process, the overall costs may be lower than in litigation. That is because the faster resolution of disputes in arbitration leads to cost savings for both parties. As an example, a non-complex arbitration matter can be resolved in six months, while an average lawsuit is resolved in 18 to 24 months.
Why a Business May Seek Litigation
Litigation takes place in a public court system, which allows for the presentation of evidence and arguments in a public forum. This transparency can be important when the outcome has broader implications or when setting legal precedents is desired. These precedents can shape future legal decisions and provide guidance on how to interpret and apply the law.
In certain cases, arbitration clauses may restrict access to the court system, requiring parties to resolve disputes exclusively through arbitration. However, litigation ensures that parties have access to the court system and can exercise their rights to a fair trial. This can be especially relevant when there are concerns about bias, lack of independence, or fairness within the arbitration process.
Litigation generally offers more extensive discovery processes, where parties can request and gather information, documents, and testimonies from the opposing side and non-parties. This allows for a deeper investigation into the case and can be advantageous when complex or extensive evidence needs to be gathered. In contrast, arbitration may have more limited discovery procedures (including a limit on a number of depositions, or a shortened period of documents exchange), potentially restricting access to evidence.
Finally, litigation provides a broad opportunity for appellate review, allowing parties to appeal a decision if they believe there were errors of law during the trial. This avenue for review can be important in cases where the outcome has significant consequences. Arbitration, on the other hand, generally provides limited avenues for appeal.
It is important to note that the decision to choose litigation or arbitration depends on various factors, such as the complexity of the case, the desire for a public and transparent process, the need for extensive discovery, or the possibility of setting a legal precedent. Each method has its strengths and weaknesses, so careful consideration of the specific circumstances is essential in making an informed decision.
Get in Touch with a Business Litigation Attorney
Olesia Y. Belchenko has extensive experience in litigating and arbitrating business and commercial disputes. For more information about how we can assist you with resolution of your business disputes, contact us to schedule your consultation.