Arbitration in Business Disputes: How it Works

When a business dispute arises, some people immediately assume that litigation is the way to proceed. However, formal litigation is usually only used as a last resort. One of the main reasons litigation is typically used as a last resort is that litigation can be time-consuming and extremely expensive. One alternative dispute resolution method that is suited to business disputes is arbitration. Arbitration lets disputing parties submit to an arbitrator or panel of arbitrators for a final impartial decision. If you have a business and there is a dispute between you and a customer, supplier, employee, or any other party, it is vital that you understand how the arbitration process works before you choose this dispute resolution method. Below, we look at how the arbitration process works.

As mentioned already, arbitration involves letting an arbitrator or panel of arbitrators make the final decision. Your right or another party's right to refer a dispute to arbitration may depend on the existence of a contract. Most contracts regulating business relationships between people or businesses include a clause regarding how disputes relating to that contract will be resolved. If there is no contract requiring disputing parties to refer the dispute to arbitration, the dispute parties can voluntarily choose to enter arbitration.

During the arbitration process, the disputing parties can agree on the procedures to be incorporated into the process. If the parties cannot agree on what procedures to incorporate in the process, the rules of the arbitration association will decide the procedure. However, in arbitration, the strict court rules usually do not apply. There is usually no formal discovery process in arbitration, and the legal rules of evidence that apply in court do not apply. There is also no jury in arbitration.

Typically, arbitrations begin with both sides making an opening statement. After that, the plaintiff presents their case. They give their testimony and present documentation/evidence, and then the defendant cross-examines their witnesses. Next, the defendant presents their case, and the plaintiff cross-examines their witnesses. Once both sides have presented their cases, closing arguments are presented. After considering both sides of the story, the arbitrator or panel of arbitrators makes a decision. The arbitrator's or panel of arbitrators' decision is often final and binding.

It is vital for us to mention that mediation and arbitration are not the same thing. Both are alternative dispute resolution methods, but they involve different procedures. With mediation, the mediator can only recommend the outcomes to the parties, and the parties can decide whether or not to accept the recommendations. On the other hand, an arbitrator or panel of arbitrators has the power to make decisions that bind the parties. Usually, mediation is used to resolve disputes before arbitration or litigation is needed. When mediation fails, parties can move to arbitration and then litigation if arbitration fails. As mentioned at the beginning of this article, litigation is usually used as a last resort.

Arbitration can be a very useful tool for resolving business disputes. However, careful consideration must be given as to whether it is the right option for you. At SAC Attorneys LLP, our skilled Silicon Valley business attorneys can assess your situation and advise you on the best way to proceed. Contact us today to schedule a consultation.