"See You In Court...I Mean...Arbitration!" Part 5 (Cost)
Is cost an advantage of arbitration over litigation?
In this The Candid Counsel series on arbitration, I have provided an overview of arbitration (what it is), and explored some of the often-cited advantages of arbitration over litigation – including Confidentiality, Speed and Finality and Expert Decision-Makers. Cost is another often-cited advantage, and the topic of this post.
Arbitration is supposed to be less costly than litigation because its informal procedures are designed to get to the heart of the dispute without wasting time. Plus, if your arbitrator does not need to be “educated” in the idiosyncrasies of your business and industry, then that should lead to faster – and, by extension – less costly results. You should also need less lawyer time (and therefore spend less in lawyer fees) to present a case to an arbitrator or panel of arbitrators compared to presenting a case to a jury. With jury trials, lawyers have to work long hours to figure out how to put on the best possible case for their client within the limitations of evidentiary rules. That work is generally not necessary in arbitration.
Still, it’s easy to imagine a scenario where litigation would be less costly than arbitration – namely, where your business is targeted with claims that clearly lack merit and that should be thrown out at the outset. A judge can do that without fear of losing her job the next day. Arbitration is different. Not only do arbitration rules tend to prohibit early case dismissals, an arbitrator (however well-meaning) has little incentive to shut down a case before the final hearing. No more case means no more fees from that case for the arbitrator.
As I’ve said throughout this series, ideally with the help of counsel who knows the ins and outs of litigating and arbitrating business disputes because she has done lots of both, you can decide whether arbitration is better for your unique business and the types of disputes and adversaries you foresee. Like I said, it depends.