Benefits and Downsides of Arbitrating Commercial Disputes

BENEFITS

Speed - Arbitration is faster than traditional court trials. A study found that arbitration cases through the American Arbitration Association average 11.6 months to resolution, compared to over 24 months for federal district court cases. This time savings is crucial.

Cost-Effectiveness - Arbitration tends to be less expensive due to its shorter duration. The same study estimated that delays in federal court cases led to direct losses of $10.9–13.6 billion between 2011 and 2015, with costs likely to increase due to rising attorney billing rates. The shorter arbitration time frame reduces overall legal expenses.

Streamlined Discovery - Discovery in arbitration is typically more straightforward and less contentious than in court. Arbitrators limit discovery requests to what is necessary, which can prevent the extensive disputes that often occur in traditional litigation. Most studies say 60% of the cost of court litigation is discovery costs.

Privacy - Arbitration proceedings are generally private, protecting sensitive information from public scrutiny. This confidentiality can be critical for businesses concerned about reputational damage from media coverage.

Flexibility - Arbitration offers greater scheduling flexibility compared to court proceedings. Parties can propose their own timelines and deadlines to accommodate their schedules and needs, which is generally not possible in traditional litigation.

Choice of Arbitrators - Parties in arbitration can select their arbitrators based on expertise relevant to their dispute, unlike in court, where judges are assigned randomly. This process allows for a more informed decision-making body.

Immediate Finality - Arbitration awards are generally final and binding, with limited grounds for appeal. This contrasts with traditional litigation, where verdicts can be appealed, prolonging the process.

DOWNSIDES

The benefits of arbitration are essentially the source of its downsides.

Discovery - The limited scope of discovery means that the other side might be successful in hiding evidence critical to your case. However, the age of e-mail and computer storage makes successfully hiding evidence much more difficult than the days of paper files.

Limited Appeal - The limited appeal scope means that if an arbitrator makes a legal error, it is likely that you will not be able to do anything about it.

Injunctions - If you have a case that requires an immediate injunction, the ability to obtain one in arbitration is more difficult. At the same time, however, the grounds for granting injunctions in court are so narrow that it is unlikely you would get an injunction in most cases.

You should consider arbitration as a viable option for commercial disputes because, in most cases, the benefits outweigh the downsides.