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Advantages and Disadvantages of Using Arbitration for a Commercial Dispute

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As a business owner, you may find yourself in a situation where you and another company disagree, and there is a risk of a commercial dispute.  There are various methods to settle business disputes; one option is to choose a form of alternative dispute resolution (ADR). The arbitration process is a form of ADR to resolve your commercial dispute. This article will explain the advantages and disadvantages of arbitration for your commercial dispute.

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What is Arbitration?

Arbitration is a method for resolving your commercial dispute. It is one of the alternative dispute resolution (ADR) techniques, such as mediation and adjudication. It does not take place in a courtroom, and the details of this dispute resolution method are, therefore, confidential.

When you choose arbitration to resolve your commercial dispute, you and the other party choose an independent and neutral arbitrator with expertise in the area. You may both agree in advance on how you do this. For example, you may have the details in an arbitration agreement related to the dispute arising. The arbitration process will follow rules and a formal process, and the arbitrator will make a binding decision to resolve the dispute. 

What Are the Advantages of Arbitration for My Commercial Dispute?

There are advantages of arbitration for your commercial dispute, and we explain some of them here.  One of the key advantages of arbitration is that it can be more cost-effective than taking the commercial dispute to court for litigation. It is also usually faster than court litigation.  Arbitration is confidential, so it does not replace a commercial court, which the public can sit in and watch.

Another advantage of arbitration is the expertise of the arbitrator.  They will be an expert on the matter, so be knowledgeable about the subject matter of your disagreement. This can be very helpful when the commercial conflict is technical. Also, you get to choose the arbitrator, which is not the case for a judge in court, and as they are an independent third party to the dispute, you have neutral consideration in reaching a decision.

There are elements to a decision made by an arbitrator that makes arbitration advantageous for a commercial dispute. One is that it is relatively straightforward to enforce the arbitral award. Also, if you are a successful party in the arbitration procedure, few routes are available for the losing party to appeal the arbitrator’s decision.

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What Are the Disadvantages of Arbitration for My Commercial Dispute?

Although arbitration has its advantages, it also has disadvantages. We consider some of the disadvantages of arbitration below. 

Although arbitration can be more cost-effective for your commercial dispute, it can also be quite costly. This depends on the nature of your commercial dispute, so it could be expensive if the case value is high and the disagreement is complicated. Also, the fact that there are limited ways to appeal an arbitral decision is a disadvantage to the losing party. 

A further disadvantage of arbitration is the nature of the arbitration, such as the process and location. Unfortunately, the arbitration process can sometimes take longer than court litigation. This can be the case if you have a panel of arbitrators where getting mutually beneficial hearing dates can be tricky. 

Also, if you and the other party agree that carrying out the arbitration process is mandatory and binding, it can be a disadvantage. This is because this means that you do not have a chance to choose commercial litigation if you want to select this.  Also, the location of the arbitral hearing can be a disadvantage, such as if it is inconvenient to your business, such as in another city. 

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Another disadvantage of arbitration for your commercial dispute is that although binding, the decisions are not legally enforceable. Therefore, to enforce the decision, you would need a judicial remedy. 

Key Takeaways

If your business is part of a commercial dispute, you may choose arbitration as an alternative dispute resolution (ADR) to resolve the disagreement. The arbitration process involves both parties appointing an independent and experienced arbitrator to decide the dispute. There are advantages and disadvantages of the arbitration process. Advantages include, for example, that the arbitrator is an expert in the area and that it can be less expensive than commercial litigation. There are, however, also disadvantages to arbitration for your commercial conflict. For example, there are few routes to appeal if you are the losing party.

If you need help understanding the advantages and disadvantages of arbitration, LegalVision’s experienced disputes and litigation solicitors can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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Clare Farmer

Clare Farmer

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