In a perfect world, businesses would run as predicted, partnerships would always work out perfectly, and there would be no disagreements, offenses, or disputes ever. Unfortunately, we don’t live in a world like that, so the need for dispute resolution is a very harsh reality.
When determining how to resolve disputes between businesses and other parties, including partners, clients, providers, and other entities, there are primarily two options: litigation and alternative dispute resolution, which often means arbitration. Determining which of these to use is a matter that is not always clear, so you might wonder whether litigation or arbitration is better in your specific situation.
Definitions
First off, let’s look at the difference between litigation and arbitration.
Litigation: Litigation is your classic lawsuit which is decided in court. In litigation, you generally have one side that wins while the other loses. The results are also enforceable by law.
Arbitration: Arbitration is a form of alternative dispute resolution in which both parties present their cases to a skilled lawyer. The lawyer will usually have some amount of expertise in the matter involved in the dispute, and it will be up to the lawyer to make a final decision. This decision may be binding or non-binding, depending on the wishes of the parties involved.
Knowing the basic differences between the two, we can kind of tell where one might be more desirable than the other. There are a number of factors to consider, however, which will be detailed one by one below.
Expenses
One of the keys deciding factors when choosing between arbitration and litigation is that of expenses, both in terms of time and money. While it’s often said that litigation tends to be more pricey and drawn out than arbitration, it really depends on the specific situation and how well it’s handled.
For example, if arbitration agreements between two parties are handled poorly, it can take a long time to resolve an issue once it arises as the arbitrator selection and discovery processes become drawn out. In this case, going to court may actually be faster and less expensive.
Confidentiality
Another matter to keep in mind is confidentiality. There is no court in the nation where you can maintain full confidentiality with litigation – it will ultimately end up being a part of the public record. It’s for this reason that arbitration is more appealing. The disputing parties can resolve the issue quietly without making it public.
Nature of the Relationship
One more factor to take into account is the nature of the relationship between the disputing parties. If they are part of a business partnership, for example, then the arbitration will likely be much more appealing since they can reach a resolution beyond a simple “loser pays winner” model. Their differences can be resolved in a more balanced way—key if you intend to keep doing business together. Litigation, on the other hand, is often preferable in scenarios in which you are best off severing ties with the other party.
This, of course, is a very basic overview of the matter. When pursuing arbitration or litigation, you need legal expertise and Hart David Carson LLP can help you out!