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When can arbitration help resolve business disputes?

On Behalf of | Mar 22, 2024 | Business Litigation

Conflicts within business are commonplace. Having a passionate team can mean that conflicts become heated. In some cases, these disagreements can escalate and result in legal action. Whether looking to navigate this type of dispute or put together contracts that address the potential for the dispute before it becomes a problem, business leaders are wise to consider the role arbitration can play in helping to better ensure their business survives the dispute.

What is arbitration?

Arbitration has become a favored method for resolving business disputes, offering an alternative to the traditional court system. This method involves a neutral third party who reviews the case and works towards a resolution.

It is important to review the language of the arbitration provision, whether headed to arbitrate a dispute or looking to add one in business documents, as the decision is often legally binding for both sides involved.

What are the benefits and risks of arbitration?

Two of the primary benefits of arbitration include:

  1. Cost efficiency. Arbitration can be less expensive than litigation due to its streamlined process. Parties avoid the extensive pre-trial procedures, and this can significantly reduce legal costs.
  2. Confidentiality. Unlike court trials, which are public, arbitration proceedings are private. This confidentiality can protect a company’s reputation and trade secrets.

Businesses often prefer arbitration for its various benefits, but it is important to consider the potential risks as well. It is important to note that those who enter arbitration generally have limited options for recourse. As noted above, decisions in arbitration are often final and binding, with very limited opportunities for appeal. This can be risky if the arbitrator makes an unexpected decision.

The arbitration process can also result in an uneven playing field. If one party has more experience in the arbitration process, they might have an advantage over the other party who is less familiar with arbitration.

How is arbitration different from courtroom litigation?

Arbitration differs from court litigation in several key ways. The informal setting and the ability to choose an expert in the field as the arbitrator are among the unique features of arbitration. However, the lack of formal evidence rules can be a double-edged sword, offering flexibility but also unpredictability in the presentation and consideration of evidence.

Arbitration is often a valuable tool for resolving business disputes efficiently and privately. However, parties must weigh the lack of options for recourse and the potential for bias before opting for arbitration. It is essential for businesses to carefully consider these factors when drafting arbitration clauses in contracts or deciding to proceed with arbitration.