Litigation as a last recourse: How can arbitration help small businesses?

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There are plenty of challenges when running a small business. Amongst them, one of the most important ones is effectively handling dispute management. Having a strategy in place as a contingency is paramount. Planning the courses of action for falling out with suppliers or for resolving issues of late payments is critical for business. The latter still remains a problem with many enterprises, often because their customers are reluctant to pay in pre-determined periods. So, could alternative dispute resolutions prove to be economically beneficial alternatives? Let’s go over some key points.

1.      The defining terms

In today’s globalized business environment more and more contracts are including arbitration as an alternative to litigation. So, what does this term mean? Arbitration is the submission of a dispute to an impartial entity for a final, binding conclusion. The arbitrators will hear the evidence brought by both sides constituting the dispute and make a decision. The arbitrators are impartial, have no interest direct interest in the results of the dispute, they are spectators and witnesses. Arguably the most important aspect of arbitration is that it is legally binding. This, in extension, just like with court judgement makes it enforceable. On the other hand, litigation is a court-based process. It involves a decision that is binding on all parties involved and allows for the decision to be appealed. The difference between the two is the processes themselves and their results in the disputes.

2.      Common misconceptions

One of the most common mistakes people make is confusing arbitration with mediation. We have already defined what arbitration is. On the other hand, mediation is an informal process of having a third party whose role is to help settle the dispute between the other two parties. It is not a legally binding process; therefore, it is not enforceable by the law. Also, the mediator is not made aware of the evidence at any point. The parties are met for the discussion, with the presence of the mediators. Then, the mediators try to bring the parties together by discussion to try to resolve the matter. All three processes, arbitration, mediation, and litigation have a key role in settling business disputes.

3.      The proceeding of arbitration

Typically, arbitration will begin after the two parties agree to settle their dispute through this type of process. It could be that this decision was already made by a clause in a contract signed by both parties. It begins when one party submits a demand for arbitration. The respondent is notified and a deadline is set for them to respond. Later on, criteria are determined by all parties for identifying and selecting an arbitration. Preliminary hearings with the parties take place, where the issues about the procedural matters are discussed. These include, but are not limited to: depositions, witnesses, sharing information, etc. Information is disclosed between the parties. At the hearings, both parties will present their testimonies and evidence for their cause to the arbitrators. Naturally, our business dispute lawyers will approve these crucial elements, beforehand. After the hearing, it is possible for the parties to provide additional documentation, if allowed by the arbitrators. In the end, the arbitrators close the record and issue their decision. It may encompass an award, a sanction, or a combination of both. Disputes between businesses that do not find themselves in the same country will be settled by international arbitration. In these cases, there are governing bodies that will act as intermediaries, will provide arbitrators, and will facilitate the discussions. Also, these cases are most commonly handled online.

Arbitration is rarely cheaper or less time-consuming compared to litigation. Price and time savings are not the primary driving factors when deciding on this course of action. Many businesses have arbitration clauses that include provisions that deny the signers the right to class action lawsuits. While the process itself is not necessarily cheaper or shorter, it prevents companies from falling into unnecessary spending. A huge saving for businesses, employers, and entire industries. There are even tailor-made schemes for small to medium businesses being made. For disputes up to a certain amount, these enterprises offer the certainty of a final and legally binding award. These contracts can also include time-frames, such as a ninety-day limit from the appointment of the arbitrator. If they wish so, businesses can present their case without legal representation, since formal procedures are kept to a minimum. It is not advisable, but ultimately, it offers the freedom for the two business entities to make a free arrangement. With the costs involved, including time and effort spent, it is clear why entire industries are choosing arbitration over litigation.

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