Arbitration or Litigation: Which is Better for You?

Hopefully your business is growing.  Your projects may be moving ahead so successfully that the last thing on your mind is a disagreement with a client, partner, or vendor; however, as most of us realize, even in the best of times disputes can occur.

That’s why when two or more parties decide to work together on a project where money is being exchanged for services, they generally take preventative measures beyond the talk and the handshake and draw up a thorough business contract.  The contract ensures all expectations are outlined fully so, should any confusion or disagreement arise in the future, the parties have their full agreement in writing in a contract enforceable by law.

As you move forward to create such an important business document, we recommend consulting with an experienced business law attorney.  At the Law Offices of Robert L. Hill, APC, we understand that the details of any business contract you may enter into are critical to protecting your business. For example, if you are a contractor getting ready to build a house for a client, it’s expected that you will have a written contract that includes (among other things)a detailed description of the work to be performed, the materials to be used, when the project will begin and the estimated date of completion, the cost, when payments are to be made, and procedures for handling any change orders.   Generally, a Dispute Resolution clause also should be included, stating:

• How any disputes will be handled, whether through arbitration or litigation (or perhaps a pre-filing negotiation or mediation process);
• How parties are to be notified of any dispute;
• How and where the dispute will be settled; and
• Who will pay attorney’s fees.

While it may be easy to gloss over a Dispute Resolution clause because you do not expect any problems, we encourage you to carefully review the clause to ensure it satisfies your needs.  Doing so could well save you a lot of headache later. Take the time to become educated on the pros and cons of both arbitration and litigation so you know what will work better for you.

Arbitration can offer benefits such as more flexible scheduling for having the case heard, the potential for faster resolution, less expense (in some cases), a more casual forum with less restrictive rules concerning calling witnesses and presenting evidence, and confidentiality.  If your case is straightforward, you may also welcome the limited discovery process associated with arbitration.

While litigation can be more expensive and sometimes more time consuming, keep in mind that with arbitration you could also be giving up a very important tool: the power of the court.   The flexibility and expedience which might initially appear to make arbitration attractive can work against you as the matter progresses. Litigation typically offers the parties more expansive rights for discovery, ensuring both you and your attorney have the most information possible before going to trial.  It also ensures you have a Judge willing and able to impose sanctions if you are dealing with an evasive or unreasonable opponent.

Furthermore, in litigation your case is heard and decided by a judge or, in many instances, a jury.  In contrast, most arbitrations are decided by one (or sometimes three) arbitrators.  Arbitrators are not required to have extensive legal training or even a law degree. Arbitrators also are not required to follow previous legal precedents as they decide on a case.  Their decisions may be far more subjective, based on what they consider to be just.

Keeping in mind that generally you get what you pay for, attempting to take the faster and less expensive route in dispute resolution may not be in your best interest, or that of your business.  As a result, giving up your right to go to court by agreeing to an arbitration clause is something you should take very seriously.