Arbitration vs. Litigation: Weighing the Pros and Cons for Businesses

In my over years of legal practice, I’ve been there for almost all of the intricacies and challenges a business can face when navigating disputes, from contractual disagreements to complex commercial liabilities.

The choice of how to proceed with these situations can have profound implications for the businesses seeking resolution – it can mean the difference between safeguarding your interests or facing costly setbacks and loss of investment.

Let’s explore the differences between arbitration and litigation, shedding light on the respective advantages and pitfalls of these routes to resolution.

Why choose arbitration?

Arbitration is a common method of resolving disputes outside of the traditional court system. It involves submitting the dispute to one or more neutral third parties, known as arbitrators, who then hear evidence, consider arguments and render a decision.

The main advantages of arbitration are that the arbitration decision is binding on the parties with very limited bases of appeal, the parties remove the possibility of a runaway jury verdict, it is typically a faster process with more limited discovery, arbitration agreements sometimes include the possibility of fee and cost shifting, you can get an experienced and knowledgeable decision maker instead of just average jurors off the street with no specific expertise or experience, and it is a private proceeding outside of the bright, public light of the courtroom.

Cons of arbitration include the expense as the parties need to pay the arbitrator(s) and the organization administering the proceeding, potentially limited remedies compared to litigation, there being virtually no appeal of an adverse opinion that does not follow the law or the facts, the relaxed evidentiary standards, and the risk of unknown bias or relationships between the arbitrator(s) and the parties or their attorneys.

Why choose litigation?

I generally recommend courtroom litigation over arbitration unless there are specific reasons for arbitration.  Litigation is the process of resolving disputes through the court system, where parties present their case before a judge or jury. It follows formal legal procedures, including filings, pleadings, discovery, and courtroom proceedings following legal precedent and the rules of evidence. Litigation outcomes are determined by the court, and are legally binding, yet may be subject to appeal.

This option provides parties a wide range of remedies for seeking redress, including monetary damages, injunctive relief and declaratory judgments. Litigation also allows extensive evidence gathering through discovery, assisting informed decision-making on this matter and potentially others in the form of precedent.

The appeals process is the main reason why I usually favor litigation.  Frequently the person deciding the case (arbitrator, judge or jury) gets it wrong.  That is why we have appeals in the court system, but arbitration decisions are only appealable for very limited purposes.  Arbitrators can get the facts and law wrong, yet their opinions are not subject to appeal on this basis.  The appellate process is a very important part of the system of justice where the goal is getting the decision right.  Plus, the public nature also fosters trust and allows scrutiny of judicial proceedings, enhancing transparency and accountability.

For example, when I represent owners in the contracting process with contractors, I almost always choose not to make arbitration the sole dispute resolution mechanism.  I opt for the court system instead.  If I do have an arbitration clause, I make arbitration at the option of the owner.

One middle ground is to have jury waivers.  This keeps you in the courtroom, but it takes the case away from a jury and the wild results that can result from that process.  I personally do not like jury waivers because I enjoy being in front of a jury, and I trust my skill in convincing a jury to rule for my client.

If you need legal guidance or assistance when carefully weighing the pros and cons of each approach and considering either, don’t hesitate to reach out — I’m here to offer support and strategic counsel to help you through the process.

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