Most business owners do not enjoy being mired in public disputes or messy litigation, either with business partners or clients. For this reason, if it is possible, these businesses may choose alternative dispute resolution methods that keep them away from litigation in court and offer more in terms of keeping the details of the dispute private. One such dispute resolution method used by many businesses is arbitration.
Arbitration is a process that takes place out of court and in which the parties in dispute present evidence of the dispute to a neutral third party, known as an arbitrator, who then makes a decision. The parties can choose the arbitrator in agreement, and can choose an arbitrator who has specific technical knowledge that would assist in resolving the issues in controversy.
The decision the arbitrator makes can be binding on the parties or non-binding, depending on the arbitration agreement the parties signed. If the arbitrator’s decision is non-binding, the parties can go through litigation to settle the dispute.
Arbitration can often present a more cost effective approach to dispute resolution than litigation, but it comes with different costs. In addition, it can often take a shorter period of time to resolve a business dispute through resolution than through litigation. Arbitration further offers more protection of proprietary business information than a trial would because in a trial, the information may be publically available.
Arbitration agreements between businesses and individual clients are not always favored. This is because the business presumably is in a better bargaining position than a client. However, if the arbitration agreement is clear and well drafted, the contract will be enforced. Restrictions that are included as part of the arbitration agreement may not be enforced if they are not allowed under the law.
In order to go through arbitration, the parties in dispute generally have a preexisting contract requiring disputes to be resolved through arbitration. Although it is possible for parties to agree to arbitration after the dispute arises, it is less likely to happen. Arbitration clauses in contracts should be drafted very carefully to ensure that they are later upheld. Failure to properly draft the agreement could mean prolonged and expensive litigation on the validity of the arbitration clause which was supposed to help avoid litigation in the first place.
Arbitration does not eliminate the need for an experienced business attorney, and each side in arbitration is often represented by an attorney. The cost of the attorney’s fees and cost of litigation can sometimes be built into the arbitration agreement, with the agreement holding that the prevailing party will be reimbursed for its attorney’s fees.
Arbitration is not always better than litigation, and vice versa. Which option a business chooses depends on the needs of the business. Therefore, before making a decision on including an arbitration clause in a contract, it is important to seek legal advice from an attorney who is familiar with the needs of your business.
Contact Us for Legal Advice
For more information on alternate dispute resolution, and arbitration in particular, contact an experienced business attorney at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan, to schedule a consultation.
(image courtesy of Olu Eletu)