Why Arbitration Beats Litigation for Commercial Disputes

The Law Offices of Stephen R. Stern, P.C. Profile Image

Practice Areas: Real Estate

 

Clients, including business clients -- as a general rule -- are cost conscious. They need results quickly. Arbitration generally affords these clients the best of all possible worlds; fundamental is the control the client can exercise over the entire process. This control minimizes costs and usually provides faster results. The discussion below highlights some of the benefits of using the arbitral process in commercial disputes.

 

More Control

Parties to an arbitration exert more control over the outcome than parties to a court litigation. By properly drafting a full and complete arbitration provision into their contract at the outset of a relationship, they are able to craft the arbitral process to meet their particular needs in the event of a dispute. Parties are able to specify the nature and scope of discovery, the conduct of hearing, the length of time for the process, and the pre-screening of arbitrators, among other aspects of the arbitration.

Indeed, including a properly crafted arbitration provision in a contract or agreement generally will ensure an arbitrator who is skilled and who has an expertise in a particular area of the law can be selected by the parties to decide any dispute which arises. In co-selecting an arbitrator, parties are able to vet a potential candidate in areas such as subject-matter expertise, reputation for competence, temperament, number of years of experience, number of arbitrations, availability, commitment, and ability to conduct efficient, cost-effective arbitration. The parties can even provide for a panel of multiple arbitrators to hear complex and/or high-dollar disputes.

This process can be contrasted with a typical courtroom litigation, in which parties have little to no control over the judge to whom a case may randomly be assigned or, as a defendant, even the court in which it may be sued. And, perhaps worse, nearly every judge has his or her own individual rules. In federal court, cases also are assigned to magistrates, and they, too, have their own rules. Litigants must cope with a multitude of rules that differ from case to case, creating even more uncertainty and lack of control.

Quicker Results

Arbitration generally provides a swifter sense of justice to the parties than does litigation. The court system is typically backlogged with cases. The total time elapsed in an arbitration, measured from the filing of an arbitration demand to the rendering of a final award, is far shorter than the total time in a litigation, measured from the initial filing of a complaint to the date a verdict is handed down in a civil trial. This can be vital, particularly in commercial matters where the parties may have ongoing business relationships or need to end relationships during the course of the dispute, or where the parties cannot delay in making basic business decisions simply because of the continuing dispute. Parties should be aware of the possibility [though it is rare] that arbitration can be used by a party to extend a litigation.  

Less Expense

Customarily, attorney fees and expenses are the most substantial costs incurred by the parties during the course of litigation. These very same costs are generally curtailed in arbitration because an arbitration is almost always concluded quicker than a court case and typically tends to involve less discovery. Court cases require more lawyer time and more expense to prepare. Although there is a cost incurred by the administering institution for the arbitration and a cost for the arbitrator, these costs are generally far less than the attorney fees attendant to litigation in court. And, in those cases where a jury is involved, the court process becomes even more drawn out and costly.

In addition, there are added expenses in court litigation. For example, in court proceedings, parties are typically faced with evidentiary issues, voir dire, jury charges, motion practice, proposed findings of fact, authentication of document issues, qualification of experts, multiple witnesses for the same point and appeals, redirect and cross-examinations, extensive discussion over objections, post-trial and pre-memorandums of law, the judge’s need to attend to other matters during the course of the trial, and more. All of these items are nonexistent or typically far more limited in arbitration.

Increased Flexibility

When compared to litigation, arbitration is a far more flexible process that can be changed or molded to suit the needs of the parties. For example, in an arbitration parties have the ability to:

·         mutually select a location for the hearing that will minimize costs;

·         take witnesses out of order or interrupt a witness to accommodate individual needs;

·         continue a hearing after normal business hours (i.e., during the night or over the weekend) to complete a witness or finish the hearing;

·         take testimony of distant witnesses by videoconference or telephone;

·         “hot tub” or organize testimony so all expert witnesses on one topic testify directly after one another or all at the same time; and

·         use written witness statements instead of oral testimony.

And it is worth noting the above list is by no means all-inclusive; but all of this can serve to save time and limit expense, goals of almost every client.

In addition, arbitration overall can be less formal and occur in a less adversarial setting, reducing the stress on what can be a continuing business relationship between the parties to a commercial dispute.

More Manageable Discovery

Litigation is subject to broad discovery, including both document discovery and depositions, under either the Federal Rules of Civil Procedure or parallel state court rules. This can not only be very burdensome to the parties, but also is a very expensive part of trial preparation. Conversely, in arbitration, document discovery is usually far more limited, and often there are no depositions or depositions are severely limited in number. Likewise, in litigation, motion practice is far more common if there are disputes regarding discovery; those same disputes occur far less frequently and are even typically discouraged in arbitration. Moreover, when they do occur in an arbitration, the process to decide the discovery dispute is more streamlined.

Heightened Confidentiality

Confidentiality is often crucial to the parties involved in a commercial dispute, particularly for big corporations that may be involved in disputes over intellectual property and trade secrets. Arbitration hearings are held in private and attended only by designated parties and their lawyers. Conversely, litigation proceedings are held in court, are open to the public. Parties also can agree an arbitration proceeding will be kept confidential, whereas requests in court to seal the record are infrequently granted. Most arbitral institutions have specific rules regarding the confidentiality of proceedings and awards.

Greater Finality and Enforceability

Arbitration is a voluntarily binding process which provides finality for the dispute between the parties; lengthy, expensive appeals are not available under either the Federal Arbitration Act (FAA) or state arbitration statutes. Both the FAA and state statutes strictly limit a court’s power to vacate arbitration awards except on narrow grounds (e.g., corruption, fraud, evident partiality), all of which are challenging to prove and rarely succeed given the cases decided by the courts to date. This can be the most critical factor for many corporations seeking a quick and final resolution of a commercial dispute.

In disputes spanning across multiple jurisdictions, the parties also will want to ensure the final judgment rendered is enforceable against assets regardless of location. A court order from one jurisdiction may not be easily enforceable in another, whereas an award from an arbitral tribunal rendered in one contracting state to the 1958 New York Convention will generally be enforceable in another contracting state.

Conclusion

When used properly, pursuant to properly drafted provisions or agreements, arbitration is far superior to court litigation and yields the exact benefits which are of critical importance to business clients, reducing their expenses and lost time while increasing their control over the process.

 

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