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Any two parties in business disputes should aim to prevent the escalation of the disagreement through peaceful means. When a commercial contract is involved, the dispute resolution process can go two ways to settle the said disagreement formally: arbitration or litigation.
With years of legal experience under my belt, I have settled many cases using both methods.
In this article, I will tell you what you need to know about litigation vs. arbitration.
- Arbitration typically involves taking your case to trial to resolve national and international disputes.
- If arbitration is unavailable or one party refuses to comply with the contractual obligation to arbitrate, litigation becomes the resolution method of choice to resolve disputes.
- The resolution of an arbitration case usually only takes a couple of months, as opposed to litigation which can take years.
What is Arbitration?
Arbitration is a method of solving disagreements between two people or groups where they agree to present their case to an arbitrator instead of going through the court system .
An arbitrator, a neutral third party, is appointed to mediate between the two parties. They will discuss the matter with both sides and then try to help them reach an agreement and arbitrate disputes.
The arbitration process is similar to taking your case to court out of all the alternative dispute resolution methods.
What is Litigation?
Litigation is the process of settling differences by filing or responding to a claim through the public court system .
Court litigation is the resolution method of choice if arbitration is unavailable or one party refuses to go to arbitration, as required by contract. It's a formal process that involves going to federal courts in front of a judge and sometimes a jury.
While the litigation process can be hostile, intrusive, and expensive, it's an effective way to end disagreements.
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5 Key Differences Between Litigation and Arbitration
While some contractual relationships prefer arbitration to resolve legal disputes, others parties agree that litigation is a better option.
Before deciding whether to create an arbitration clause, parties negotiating an agreement must be aware of the five primary differences between litigation and arbitration.
1. Speed to Resolution
Based on my experience, lawsuits take forever. In most legal systems, a lawsuit filed today wouldn't go to trial for another 18 to 36 months.
The arbitration process is often quicker than litigation, as it generally takes only several months to resolve an arbitration case. This is partly due to the lack of formalized procedures during arbitrations which can lead to competitiveness and delays in civil litigation cases.
Many small business disputes opt for arbitration in their contracts because it generally results in a faster resolution.
"Average arbitration cases take about seven months, while average litigation can take 23 – 30 months, depending on the court schedule."
- American Bar Association
Litigation is costly. Throughout a lawsuit, lawyers must draft and respond to numerous court proceedings. They need to procure expert witnesses. They often have to bring external consultants to help manage the documents traded during discovery.
Unfortunately, some contractual disputes necessitate a significant time investment from a party's employees or executives during the discovery process.
They will need to reply to requests for information and documents from their lawyers and opponents, which could entail sitting for depositions.
Arbitration is cheaper for a few reasons. One reason is that discovery- collecting information from the other party relevant to the case-is typically limited in arbitration.
With fewer court costs, employees and executives don't have to spend significant time participating in the discovery process.
Court filings in lawsuits are typically public, allowing reporters and bloggers to view the contents of these filings in the public courtroom and share them with the rest of the world.
In almost complete contrast, arbitration is always private. There is never a public arbitration docket or record of the proceedings.
Furthermore, the parties' documents and other filings must not be filed publicly. Thus, there is often little concern about members of the media or the general public finding out about the nature of disputes between those involved in arbitration proceedings.
Usually, people in a lawsuit cannot choose which judge hears their case. They also must follow the procedures and rules set by the trial judge and local laws about how suits work and what evidence can be used.
In comparison, arbitrations are more flexible. Usually, the opposing parties decide on their arbitrators.
They can usually pick which set of arbitration rules to follow - like the American Arbitration Association's "Commercial Arbitration Rules and Mediation Procedures," which are not bound by court rules.
The rules (particularly involving discovery), how the arbitration hearing will play out, and other procedural aspects of arbitration can be decided by agreement between both parties.
In addition to progressing slowly, litigation sometimes seems never-ending. That's because many decisions made by a judge or magistrate are appealable.
If the losing party appeals to the judicial decision, then the parties must spend more time and money on the litigation throughout the appeals process.
Most arbitration awards are non-appealable, typically meaning that the parties involved will resolve their dispute more quickly than if they litigated it.
However, it also means that the parties lose the opportunity to challenge a third party's decision about their dispute since an arbitration award is final and legally binding.
What Is the Difference Between Mediation and Arbitration?
The difference between mediation and arbitration is that an arbitrator decides a case based on the facts and evidence they hear. In a mediation process, a mediator helps both sides figure out what the issues are and what each side wants.
Is The Arbitration Process More Formal Than Litigation?
No, the arbitration process is much less formal than litigation, which is a formal court proceeding.
What is The Disadvantage of Arbitration?
The disadvantage of arbitration is that an arbitrator's powers are not as strong as the court's. This means that the arbitrator cannot make someone obey their decision.
Do You Need Legal Assistance?
Arbitration and litigation are both solid dispute resolution strategies but choosing the right one will be based on your case. Consult a qualified attorney if you are looking for legal assistance regarding the difference between arbitration and litigation. An experienced lawyer can advise on how to resolve your dispute best and protect your rights.
Contact Schmidt & Clark for your free consultation with our experienced attorneys, who will help you understand your legal options and ensure your case is resolved in a way that best serves your interests.
Our legal team has the expertise to guide you through arbitration and litigation so that you can make informed decisions about resolving your dispute.