Plano Business Litigation Attorney Richard Armstrong poses the question, “Is arbitration always the best dispute-solving mechanism for business?”

One of the common advantages touted for arbitration over litigation is that it reduces the cost of resolving a dispute. The absence of a jury and the finality of the decision, which has no right of appeal should, at least in theory, streamline the case. Other commonly mentioned advantages include speed, confidentiality (no court reporters or news media), procedural informality, and less likelihood of outrageous results. But to the business person considering inserting arbitration clause in his or her contracts, Armstrong points out that the cost is often the chief consideration. Therefore, it is important to ask: Is arbitration always less expensive, as often represented?

Arbitrator compensation is perhaps the biggest expense to the disputing parties. Typically, arbitrators are paid on a sliding scale. The greater the amount in controversy, the greater the fee. In cases involving substantial damages, the fee can be very high; even moreso if there is a panel of arbitrators. These fees and other expenses unique to arbitration, are not incurred in a court of law, which operates on a “filing fee” system.

From Mr. Armstrong’s extensive experience, arbitration may prove less expensive only if the participants and their attorneys invest the time to agree on procedural rules early on. If not, arbitration can quickly digress to a nightmare of point and counterpoint, trying to reach consensus on rules that would be pre-set and automatically applied in a court of law. Additionally, arbitration may be a boon for the winning company, IF it gets an award for what it wants. For the loser, however, there is no right of appeal, which can be a hard pill to swallow. Additionally, there are certain remedies which an arbitrator cannot administer, such as injunctive relief, commonly known as the “cease and desist” remedy. Such remedies are reserved strictly for the courts. 

The bottom line is that a business owner should carefully consider with his legal counsel what types of agreements he may want to include arbitration in, if any, and under what conditions. One size does not fit all in this arena. Above all, advises Armstrong, don’t try drafting an arbitration agreement yourself. A vague or poorly worded one can be far worse than none at all, and wind you up in court over it’s interpretation.

Plano Business Litigation Attorneys affiliated with the Texas law practice, Armstrong the Law Firm, have successfully arbitrated and tried business litigation lawsuits of all varieties over nearly thirty years.