Arbitration is a legal process that involves a neutral party presiding over a disagreement in order to make a decision much in the same way that a court judge would. The difference between arbitration and trial court, however, is that arbitration can occur outside of a court setting, and the arbitrator is usually a lawyer rather than a judge. Commercial arbitration is one category of arbitration that involves businesses and companies, consumers and employers. Commercial arbitration is different from other types of arbitration because it focuses on consumers and employers rather than arbitration between other groups.
Why Use Arbitration?
There are a number of reasons for using commercial arbitration, especially when it comes to including arbitration clauses in your commercial agreements. The primary reason is because commercial arbitration can be prompt and cost effective for the purpose of resolving business related disputes. Commercial arbitration is also capable of assuring that the dispute is decided by someone who is familiar with the right commercial context, meaning that the arbitrator would be well versed in the commercial industry in play. The arbitrator, then, would not only be unbiased, but also educated and informed enough to make decisions regarding awards for each dispute resolution arbitration process.
Commercial arbitration is also capable of operating in a way that reduces the risk of certain damages, including exemplary damages and punitive damages for example. This makes it a smart idea to include commercial arbitration clauses in every commercial agreement, so that if a business disagreement should arise for any reason, the next logical step will be to enter into mandatory arbitration in order to deal with the conflict in a legally binding way where an unbiased party is responsible for making the ruling. There are both binding and non binding types of commercial arbitration, and both have their purposes.
Are There Disadvantages to Arbitration?
In some circumstances, commercial arbitration may not be the best option, or it may not make complete sense. You are going to want to counsel against commercial arbitration in situations where the client is looking to pursue an extensive level of discovery. Clients may also want to avoid the commercial arbitration process in situations where it would be better to go through protracted litigation because of what potential adversaries are capable of withstanding. The biggest alternative to commercial arbitration is litigation, and litigation and arbitration offer completely different situations, scenarios and possible outcomes. While commercial arbitration is not always the best route to pursue, it is usually a solid one to consider. Arbitration does compare to litigation in some ways, but it tends to be more cost effective and quicker in nature, which is why it is the preferred option in most commercial dispute situations.