Alternative Dispute Resolution (ADR) – Litigation or Arbitration
One of the most important decisions that a party faces in drafting a new contract is how to settle any disputes that arise under the contract. More and more, parties are deciding to include arbitration provisions in agreements as the chosen method for deciding such disputes. Courts generally give these provisions great weight and will not hesitate to enforce them.
There are a number of advantages to choosing arbitration over litigation at the onset of litigation. For instance, arbitration is often less expensive than full-blown litigation and it allows for a certain amount of customization in the dispute resolution process. Moreover, it is one of the preferred methods for resolving international disputes. Contracts that choose arbitration should also include specific provisions regarding topics such as how arbitrators are chosen, which organization will provide the arbitrators (e.g. AAA), and which jurisdiction’s laws will be applied in an arbitration (called a choice of law provision).
Arbitration is not for everyone, however. Litigation in court is more formal and provides more certainty as to the process and procedures. It is possible that arbitration may be more expensive than litigation, as the parties have to pay for the arbitrators. Many times, parties to litigation in court may feel like they have a better opportunity to present their case and keep the process from devolving into consideration of extraneous and irrelevant issues. When litigation is the preferred method, the parties should still choose the particular forum in which a case may be brought and a choice of law provision.