When legal disputes between business associates arise, parties have several options for resolution. The most common are mediation, traditional court litigation, and arbitration. While these aim to settle disagreements, they differ in significant ways in their approach, process, and outcomes. In our prior blog, we explored the power of mediation – how it helps in preserving business relationships, and provides an efficient and cost-effective method to resolving disputes. 

This blog post focus on explaining the benefits of arbitration, so that business owners and entrepreneurs may utilize this process to their advantage when navigating commercial disputes. 

Remember, arbitration is a less formal, often faster, confidential process, where a neutral arbitrator resolves the parties’ disputes by making a binding decision on the issues presented.  

Cost-Effectiveness 

Arbitration is often considered more cost-effective than traditional litigation (i.e. court) for several reasons including: 

1. Limited discovery –In arbitration, the amount of documents and information the parties can request of each other is generally limited. This streamlined process saves money.  In traditional litigation, a state’s rules may allow for extensive document production and depositions, which will inevitably result in higher attorneys’ fees and costs. 

2. Faster resolution – The informal setting, and flexible scheduling of arbitration typically lead to quicker resolutions compared to court proceedings, which can drag on for years. 

3. Fewer appeals – With limited grounds for appeal, arbitration decisions are generally final, reducing the likelihood of costly and time-consuming appeals. 

Choice and Party Control 

Arbitration offers greater control in ways traditional court proceedings do not: 

1. Arbitrator selection – Parties have a say on who will decide their case.  Parties can work together to choose their arbitrator.  The arbitrator may be an expert in a particular industry or field.  This contrasts with litigation, where juries are  selected without much input from the parties, and where assigned judges may not be subject matter experts in the types of disputes before them. 

2. Flexible scheduling – Arbitration allows for more flexible scheduling, accommodating the needs of all parties involved, unlike rigid court schedules. 

3. Customizable process – Parties can agree on specific rules and procedures for their arbitration, tailoring the process to their unique situation. 

4. Confidentiality – Arbitration proceedings and awards can remain private, protecting sensitive information, and preserving valuable business relationships. Litigation, on the other hand takes place in public forums, and offers less control and discretion to the parties involved. 

Finality 

One of the most significant advantages of arbitration is the finality of decisions: 

1. Limited appeals – Arbitration awards are usually final, with very limited grounds for appeal. This provides a sense of closure and allows parties to move forward quickly. In a court proceeding, however, appeals can take years and are often very costly.  

2. Binding decisions – Most arbitration agreements stipulate that the arbitrator's decision is binding, ensuring a definitive resolution to the dispute. 

3. Faster enforcement – Arbitration awards are often easier and quicker to enforce than court judgments.  

Arbitration offers distinct advantages in terms of cost-effectiveness, party control, and finality. Its confidential nature, efficiency, and flexibility make it particularly well suited for many commercial disputes between business partners, and entrepreneurs that cannot afford to be tied up in lengthy court battles that take them away from their day-to-day operations. 

The American Arbitration Association offers educational resources for business owners interested in learning more about arbitration services that can be found at adr.org. For assistance drafting arbitration clauses, please visit our ClauseBuilder Tool clausebuilder.org or contact us at SBE@adr.org