Arbitration and litigation are two formal methods for resolving commercial disputes. They differ in who hears the dispute, how the process works, and whether the parties can appeal the decision. This article discusses the main differences between these two methods of dispute resolution.
What is the difference between arbitration and litigation?
Litigation is an age-old process that involves resolving issues through a court with a judge or jury.
On the other hand, arbitration involves two parties in a dispute agreeing to work with a neutral third party in an attempt to resolve the dispute. Arbitration is used instead of civil litigation between two parties.
Comparison of Arbitration and Litigation
Arbitration:
- Type of procedure: Private – between the parties
- Allowed evidence: Limited evidence process – rules of evidence allowed
- Jurisdiction: Yes, depending on the type of case – jurisdiction does not apply
- How to choose the arbitrator/judge: The parties choose the arbitrator – the court appoints the judge – parties have limited input
- Right to appeal: The decision is usually binding and may not be appealed
- Speed of process and waiting time before starting: Once the arbitrator is chosen, the case can be heard immediately – must wait until the court has time to hear the case; this can take months or even years before the case is heard
- Costs: Fees for the arbitrator and attorneys
- Use of attorneys: At the discretion of the parties – limited use of attorneys
Litigation:
- Type of procedure: Public – in a public courtroom
- Allowed evidence: Limited evidence process – rules of evidence allowed
- Jurisdiction: Does not apply
- How to choose the arbitrator/judge: The judge is appointed, and the parties have little to no input in the selection
- Right to appeal: The decision is usually binding on the parties, but the losing party may appeal to a higher court
- Speed of process and waiting time before starting: Must wait until the court has time to hear the case; this can take months or even years before the case is heard
- Costs: Attorney fees and court costs
- Use of attorneys: Extensive use of attorneys – necessary
What is best for your business?
Since arbitration is mandatory in many commercial disputes between businesses, the choice may be out of your hands. If you have the option, consider all factors in determining whether to resort to arbitration in a particular case.
In many instances, arbitration is faster and less expensive than litigation, as the time between starting the case and the final verdict can take several months instead of years. Since attorney fees are the largest cost in litigation, limited use of attorneys in arbitration can save money for both parties.
Regarding arbitration, its flexibility in scheduling and procedures accommodating to the parties is another benefit. The informal atmosphere and privacy can reduce stress. Finally, quickly resolving your business dispute and avoiding lengthy and costly appeals is crucial for most businesses.
On the other hand, litigation may be the better alternative. Sometimes, it is preferable to resolve the dispute in a public courtroom. In other cases, litigation may be best if the ability to appeal is important, if there are concerns about a frequently recurring judgment, or if a legal principle needs resolution.
Every case varies for small businesses, and you may have a case that necessitates one method over the other. Speak with your attorney before deciding between arbitration and litigation.
Frequently Asked Questions (FAQs)
What is binding arbitration?
Arbitration is usually binding; when both parties agree to submit their dispute to arbitration, they agree to comply with the arbitrator’s decision. In binding arbitration, parties typically do not have the option to appeal unless an appeal clause is included in the arbitration provision or contract. Some arbitration decisions may be reviewed by a judge and can be overturned if it is found that the arbitrator was biased.
What is…
What is the difference between mediation and arbitration?
Mediation and arbitration are two types of alternative dispute resolution processes, used as alternatives to civil litigation.
Mediation is an informal and voluntary process where the parties in dispute come together with a trained mediator to try to resolve their differences. The mediator can be chosen by the parties or appointed by a judge, and this person does not impose an agreement on the parties. Any agreement between the parties is non-binding, and the dispute can continue in court if the parties do not reach an agreement.
Arbitration is a more formal process, where the parties agree to submit their dispute to a trained arbitration professional as an alternative to litigation. As in litigation, the parties present their arguments, and the arbitrator makes a decision, which is usually binding on the parties.
How long does arbitration take?
The arbitration process is shorter than litigation. Once the decision is made to go to arbitration, the parties select and hire an arbitrator, find a location, and the case can begin. Unlike litigation, arbitration does not involve complex pre-trial processes such as depositions, jury selection, document discovery, or expert witness qualifications.
The American Bar Association reports that the average time for an arbitration case from start to final judgment is about seven months, while the average time for litigation ranges from 23 to 30 months, depending on court congestion.
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Sources:
- Cornell Law School, Legal Information Institute. “Alternative Dispute Resolution.” Accessed Oct. 26, 2021.
- U.S. Courts. “Civil Cases.” Accessed Oct. 26, 2021.
- United States Courts. “As the Pandemic Lingers, Courts Lean into Virtual Technology.” Accessed Oct. 26, 2021.
- Nevada Bar Association. “A Brief Overview of the Use of Evidence in Arbitration.” Accessed Oct. 26, 2021.
- Florida Bar Journal. “Appeals Before and After Arbitration State and Federal Issues.” Accessed Oct. 26, 2021.
- American Arbitration Association. “Resolution Times in Healthcare Cases.” Accessed Oct. 26, 2021.
- American Bar Association. “Arbitration.” Accessed Oct. 26, 2021.
- American Arbitration Association. “Pro Se / Self-Represented Arbitration.” Accessed Oct. 26, 2021.
- American Arbitration Association. “Measuring the Costs of Delays in Dispute Resolution.” Accessed Oct. 26, 2021.
- American Bar Association. “Benefits of Arbitration for Commercial Disputes.” Accessed Oct. 26, 2021.
- American Bar Association. “The Conundrum of the Arbitration vs. Litigation Decision.” Accessed Oct. 26, 2021.
Source: https://www.thebalancemoney.com/arbitration-vs-litigation-what-is-the-difference-398747
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