Commercial Litigation vs. Commercial Arbitration

June 17, 2021

Legal disputes can arise for a variety of reasons. Anyone who has required an attorney can tell you how many specialties there are within the legal system. Commercial litigation is…

Legal disputes can arise for a variety of reasons. Anyone who has required an attorney can tell you how many specialties there are within the legal system. Commercial litigation is one type of legal specialty. It is relatively similar to civil litigation (or the process when one party sues another), except that one of the parties involved is a business.  A plaintiff is often suing a company for financial compensation due to a perceived breach of legal duty or compliance, and the defendant is entitled to defend their legal rights.

On the other hand, commercial arbitration is a process in which the two parties involved in the dispute go to a third party with no vested interest in the case, called an arbitrator. Arbitrators are tasked with hearing both sides of the issue and determining a fair resolution. While both of these processes allow for an issue to come to a resolution, they are dramatically different in some ways and very similar in others.

Commercial Litigation – Formalities and Benefits

In many instances, companies try to avoid commercial litigation, if it is possible. Commercial litigation progresses through a series of stages, including:

  • Securing legal counsel
  • Conducting an investigation
  • Preparing motions
  • Appearing before a judge and/or jury to make the case
  • Filing post-trial motions and paperwork
  • Participating in appeals hearings, if the case is appealed

The reality is that commercial litigation can be a lengthy and costly process, but it is designed to provide both parties with a fair chance to make their case. The advantage in going through litigation is that there is an appeals process if the verdict differs from the sought verdict. Because of this, even the party who loses at court has another chance to make their case. Unfortunately, the average time for an appeal exceeds two years in most courts. Because of the delays, commercial litigation can drag out for years, which is why commercial arbitration has become a popular alternative.

Commercial Arbitration

Commercial arbitration offers a way to obtain a quicker, less expensive, and less formal resolution. Unlike litigation, arbitration does not occur in a public courtroom. Instead, it is private and conducted in a neutral location. The selection of an arbitrator or arbitrators does not depend upon jurisdiction. While jurisdiction determines which court hears a litigation case, arbitrators can be selected based on their expertise rather than their geographic location.

These processes also differ in their speed. While commercial litigation can get tied up for years before a final outcome, commercial arbitration can proceed once an arbitrator has been selected. As a result, these cases are often resolved in weeks or months. Both parties generally have more input on the arbitrator than they would if the case was tried through the legal system. While neither party can impact the judge selected for a case in commercial litigation, they can have some input on identifying a fair arbitrator unless there is a clause in the contract allowing one party to decide.

Commercial litigation has to follow the federal rules of evidence, which impacts the evidence that the jury will see. Commercial arbitration, on the other hand, allows the arbitrator to decide what evidence they will allow each party to bring forward in support of their claim.

Perhaps the biggest difference between commercial litigation and arbitration is the finality of decisions. Unlike commercial litigation, the arbitrator process can be binding or nonbinding. If it is binding arbitration, then both parties have no option to appeal after the final decision. This decision is legally enforceable by a court and could be appealed only on very narrow grounds (for instance, if it can be proved that the arbitrator was biased). If it is nonbinding, the arbitrator’s decision is considered advisory and would only be final when accepted by both parties.

Selecting the Right Legal Option

The decision to move forward with a grievance through the commercial litigation process or arbitration can be difficult. While arbitration is often faster, less expensive, and private, it often comes without an option for appealing the judgment. Therefore, this decision should only be made after careful consideration of all of the unique variables, resources available, and the benefits and drawbacks of each process.

One thing that is consistent for both commercial litigation and arbitration is the need for sound legal advice. While the role of an attorney is less prominent in arbitration than it would be in a commercial litigation case, it’s generally a good idea to have their legal advice and/or representation throughout the process. If you additional have questions about commercial litigation or commercial arbitration, contact the knowledgeable legal team at Grellas Shah today.