Arbitration over Litigation and Why the Former is Often the Better Option

Posted by on Jul 13, 2013 in Arbitration, Litigation | 0 comments

Business firms render services that will address the various needs of people, other firms or any other entity. When crises (concerning commercial real estate, contract law, business torts and debt collection) arise, however, individuals and companies face the threat of civil lawsuits to resolve a legal question or matter.

Though a civil lawsuit or a litigation may have been filed, the parties involved oftentimes resort to a voluntary settlement, also known as Alternative Dispute Resolution (ADR) or simply arbitration. The process of arbitration requires the parties involved to come together and agree to respect and follow any decision, which is actually binding, to be arrived at by the arbitrator in settlement of the issue. The arbitrator, an impartial third party, is usually an expert in the subject matter being resolved.

Many times, firms, business owners, and individuals prefer arbitration over litigation and, though arbitrations are not necessarily less expensive than litigation, some say the former is more advantageous than the latter. Alan Freeman of InsideCounsel: Business Insights for Law Department Leaders, mentions 7 factors business owners ought to consider before drafting a mandatory arbitration clause in their contract (these factors, however, are neither final nor constant to every question). A number of these factors include:

Time: litigation can take years, unlike arbitration, which can help disputing parties resolve an issue much more quickly, giving them more time to run their business instead.

Cost: organizing arbitration can definitely be more expensive than filing a court case; however, if motions practice and extensive discovery will surpass the value of the case, then arbitration is surely a much wiser alternative.

Ongoing relationships: arbitration can safeguard any on-going business partnership or relationship between concerned parties since it is more friendly and less formal in nature.

Expertise: the arbitrator/s can be selected and, so, can be experts in the subject-matter to be settled, unlike in litigation, wherein the judge may not be a master in your trade, which may limit the capability of the court to substantially evaluate any evidence presented.

Confidentiality: as arbitrations are neither publicly recorded nor heard, the dispute and any resolutions arrived at can be held in confidentiality, a great advantage for companies avoiding publicity or keeping highly sensitive matters from the public’s grasp.

There are various litigation and arbitration cases where lawyers represent and defend their clients. There are cases involving banks, brokers, senior managers (on wrongful termination), and Futures Commission Merchant (FCM) against a trustee or a PONZI scheme perpetrated by another brokerage firm (a PONZI scheme is a deceptive investment business where promises of high returns are made to investors. The money used to pay the investors, though, actually comes from the money that they, themselves, invested or from the money invested by succeeding investors).

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