Civil disputes between two parties can be settled in litigation (i.e., court) or through arbitration. The two processes are quite different, so thoroughly understanding them both is essential when facing a business conflict.
In litigation, two parties resolve their conflict in court with the assistance of a judge and/or jury. Litigation is adversarial by nature. It can also be costly, involving attorney and court fees. It can also be time-consuming, as the parties must wait for the court to hear the case before a decision can be made. It is important to note as well that litigation is public and held in a courtroom. Because judges and juries are assigned by the court the parties do not control who hears the case.
The parties gather and submit evidence in a process called discovery which can take several months. The good news is in litigation the parties typically have a chance to appeal the ruling if necessary.
Arbitration involves two parties presenting their argument to a neutral third-party also known as the arbitrator. The arbitrator is empowered to decide on the matter. Arbitration is more confidential than litigation because the matter is largely kept out of court.
The arbitration process can save time as the parties can mutually agree on a specific arbitrator and do not have to wait for the court to hear the case. Arbitration also does away with the high cost of court fees and can involve significantly lower attorney fees, as their role in arbitration is limited when compared to litigation.
Evidence plays a less formal role in litigation, which saves time and therefore money. In binding arbitration, the parties do not have the opportunity to appeal the decision made by the arbitrator.
While there are many differences between these two processes, you may not have a choice between the two if you are in conflict over an existing signed agreement, which included an arbitration clause. It is critical that you decide if you want to use arbitration clauses in your agreements going forward.
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