Naperville Business Attorney Discusses the Commercial Dispute Arbitration Process

arbitration, dispute resolution, Illinois business contract attorneyI am regularly approached by clients with questions regarding arbitration clauses in business contracts. A large number of business owners prefer arbitration over litigation and many elect to insert arbitration clauses into all or most of their contracts. At the Gierach Law Firm, we work with all of our commercial clients to make sure they understand both the advantages and disadvantages of the arbitration process.

What Is Arbitration?

Arbitration is a dispute resolution mechanism in which a neutral, third party makes a decision that is generally binding and private.The arbitration process essentially functions as a private court; as such, there are no public filings or public records. The parties involved in the dispute present their case to the designated or chosen arbitrator(s) who will function as the decision-making body to resolve the dispute. The process is typically much less formal than a court proceeding, with the decision often being rendered much more quickly. However, the decision from the arbitrator can be equally binding, may be filed as an order of the court, an be enforced as such.

Advantages of Arbitration Compared to Traditional Litigation

Without an arbitration provision, a normal contract default provision will require a party to seek remedy in the court with local jurisdiction, to be subject to the laws of that jurisdiction, and to the procedures of that court. This process contains a high level of unknown variables that are dependent on both the rules of the jurisdiction and the court procedures. Procedural rules are generally more relaxed in arbitration, as the intent is to make the process less formal and allow presentation of all available evidence.

With the help a qualified business contract lawyer, an arbitration clause in a contract can eliminate a significant number of unknown variables in advance. A properly prepared contract can specify considerations for:

  • The process by which the matter will be arbitrated;
  • What organization will conduct the arbitration;
  • Where the arbitration will take place;
  • The required qualifications of the arbitrator;
  • The rules to be followed in the arbitration; and
  • Whether the arbitration will be binding or advisory.

Disadvantages of Arbitration Compared to Traditional Litigation

Arbitration may not be an appropriate remedy in situations where immediate relief is necessary. The process is not typically able to provide temporary injunctions, wage garnishments, or other actions that can affect either party while the case is ongoing. During the business contract drafting process, your attorney can help you be aware of other disadvantages, including:

  • Arbitration fees are typically significantly higher than court fees and the cost savings in attorneys’ fees is often not significant.;
  • Arbitrators typically require their total fee in advance;
  • The process of discovery is generally limited; obtaining “proof” via the arbitration process is more difficult;
  • Many arbitrated cases are resolved by forced compromise between the parties, rather than a clear decision for either party; and
  • Arbitrated awards are frequently made without a written decision or justifying documentation.

Should You Consider Arbitration?

The decision to insert an arbitration clause into a business contract should be made in consultation with a business law attorney. When you need guidance on legal matters related to your business, contact an experienced Naperville business lawyer. I, along with my staff at the Gierach Law Firm, have been helping commercial clients with their legal needs for more than 30 years, and I’m ready to put my knowledge and skill to work for you.