How Can Arbitration Help to Resolve Business Disputes?

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If you’re a corporate owner, commercial disputes are inevitable. Every business faces a dispute at some point — whether it involves a breach of contract, shareholder disagreement, business-to-business conflict, or a dispute regarding the purchase of assets. While these types of conflicts can often be time-consuming and costly to resolve, it’s important to understand that they don’t always require litigation. Arbitration can be an effective, efficient, and economical way to settle a wide variety of business disputes out of court.

What is Arbitration?

Arbitration is a form of alternative dispute resolution that takes place outside the courtroom. Although arbitration is similar to litigation, it is informal, involves limited discovery, and the procedural rules can be tailored to the parties. Rather than allow a judge to determine the outcome of the dispute, this process uses an arbitrator who will render a final decision in the case.

Arbitration can be binding or non-binding. When arbitration is binding, the parties agree to accept the arbitrator’s decision and waive their right to a trial in court. In cases where parties opt for arbitration to be non-binding, either party may request a trial in the event they disagree with the outcome.

What Happens in Arbitration?

An arbitration clause is often included in business contracts requiring parties to engage in the process before a lawsuit can be brought for a commercial dispute. The process is commenced when one party files a Demand for Arbitration — typically after negotiation attempts have been unsuccessful. Both parties will then work together to choose an arbitrator based on the type of dispute in which they are involved.

After the arbitrator has been selected, the parties will meet to discuss substantive issues in the case and exchange information at a preliminary hearing. Even though there is no formal discovery process, the arbitrator will handle any challenges in connection with evidence. At the scheduled arbitration hearings, which are conducted like mini trials, the parties will present evidence and testimony to the arbitrator. Once the arbitrator determines that they have all the information they need to issue an award, they will close the hearing and render their decision in the case.

What are the Advantages of Arbitration to Resolve Business Disputes?

When it comes to resolving business disputes, arbitration comes with a number of advantages. Significantly, it can help to preserve an ongoing business relationship by minimizing hostility and resolving a dispute quickly. Utilizing this process can also prevent any disruptions to business operations that could potentially be imposed by lengthy and costly litigation. Parties also do not need to rely on the court calendar — they can schedule the arbitration hearings at their own convenience.

Specifically, the advantages of using arbitration to resolve a commercial conflict can include the following:

  • Simplified rules of evidence — The procedural rules of evidence used in court are usually not applicable in arbitration and the time-consuming discovery process is eliminated. This can simplify and streamline the process while saving the parties time and money.
  • Allowing the parties to retain privacy — Unlike a trial which is held in the public courtroom, and becomes part of the public record, arbitration is private, and the details of the dispute can be kept confidential. This can help to preserve your business relationships as well as protect trade secrets and other intellectual property.
  • Flexibility — Arbitration allows the parties to have the freedom to agree on the structure and procedure that meets their needs. It also allows them to schedule hearings based on their own schedules and the availability of the arbitrator, rather than be bound to the court’s calendar.
  • Allowing the parties to select the arbitrator — In litigation, the parties have no control over the judge they are assigned. But in arbitration, the parties can choose the arbitrator together. This can help ensure they are confident that the arbitrator will be unbiased.
  • Cost-effectiveness — Since the arbitration process can typically resolve disputes much more quickly than litigation, the cost is often much less than it would be to bring your case to trial.

While arbitration is an essential form of alternative dispute resolution that can be used to resolve most business disputes, there can be possible drawbacks in certain cases. Notably, if arbitration is binding, the arbitrator’s decision is final and neither party has the option to appeal as they would in a litigated case. In addition, since discovery is limited in arbitration, this form of alternative dispute resolution might not be beneficial in cases where the parties do not have all the information they need to properly assess a case.

Contact an Experienced California Business Litigation Attorney

If you’re facing a business dispute, arbitration can be an effective way to reach a resolution out of court. However, these matters can be complicated and it’s important to have the counsel of a skillful business attorney to guide you through the process. At White and Bright, LLP, we provide reliable representation to business owners and entrepreneurs in California for a variety of commercial disputes. We welcome you to contact or call us at (760) 747-3200 to learn more about our legal services.