3 Ways Mandatory Arbitration Can Help You Minimize Risk

Dealing with disputes in court is risky business. Victory is never certain, and even if you succeed you will have spent a fortune in time and money to obtain a resolution. Instead of going to court, you can reduce risk exposure from legal disputes by including mandatory arbitration clauses in your contracts. Since arbitration resolves disputes very differently than traditional litigation, those who use arbitral forums can avoid many of the expensive downsides of going to court.

1. Arbitration can be fully customized for your specific needs

When a dispute is heard before a traditional judge, you have to accept several general rules of the forum. You are assigned a judge that you are stuck with, and your judge may not have any experience with your type of dispute. Also, your dispute will be heard in a public forum with a public record, typically under the laws of that court and in the language of that jurisdiction. Finally, the court’s award is determined by judge or jury using a calculation method over which you have no control.

When you pursue arbitration, you make the rules. First, the parties to arbitration choose their arbitrator or arbitrators. Typically, parties will choose an arbitrator who has specialized experience in certain types of disputes, greatly reducing the likelihood of a bizarre ruling from a judge unfamiliar with your type of claim. Furthermore, arbitrations produce no public record and can be protected by a non-disclosure agreement; all parties to the dispute, the circumstances surrounding the dispute, and any final resolution can be kept private. You can further customize an arbitration proceeding by selecting the law that will govern the dispute, the language in which the dispute will be heard, the framework by which the arbitrator will evaluate the claim, and the award range from which the arbitrator can choose.

2. Arbitration costs less than litigation

Before you ever get to the courthouse, legal fees begin mounting as each party’s legal team starts preparing for the main event. Discovery in particular can be lengthy and expensive with each party pressing the other for compromising information. Moreover, the inherently adversarial nature of traditional legal proceedings can irreparably damage business relationships and lead to long term costs as former partners elect to do business with others.

On the other hand, resolving your dispute through arbitration involves significantly less expense in preparation. Since the rules of the forum are selected within the parties’ agreed upon mandatory arbitration provision, the scope of discovery is more limited. Likewise, since exclusionary rules of evidence do not apply in arbitration, the focus remains on the dispute itself rather than on the myriad ancillary battles that can crop up in the course of traditional litigation. Accordingly, neither party feels unfairly probed for information or unwillingly dragged into a morass of endless argument. In a more informal arbitration proceeding, parties who entered as partners more often leave with a resolved dispute and an intact business relationship.

3. Arbitration resolves disputes more quickly than litigation

One of the most costly uncertainties of litigation is how long it will take to resolve a dispute. Finding a place on the court’s docket can be a lengthy wait, and even after you obtain a judgment you may still face an appeal. Long waits for resolution are made even more frustrating when appeals end in unfavorable outcomes.

Conversely, arbitration resolves disputes quickly and finally. Individual arbitrators have independent schedules outside of a court’s docket, so they are available more quickly and more flexibly than a judge can be. Additionally, there are more arbitrators than there are judges, so securing prompt dispute resolution is much more likely. Furthermore, arbitral decisions are typically not subject to appeal; once a decision is reached, the dispute is finally resolved and the judgment is set.  

Some battles must be fought in court, but many disputes are better handled through arbitration. Including mandatory arbitration clauses in your agreements greatly reduces the risks associated with one-court-fits-all dispute resolution by customizing the rules of your private forum, by reducing associated preparation costs, and by quickly resolving disputes.