If you are setting up a contract for which you’d like to avoid a potentially high-conflict, lengthy process of litigation (in the event that the contractual relationship breaks down), it’s worth including provisions that govern alternative dispute resolution. Specifically, you’ll want to consider writing a contract that explicitly references an arbitration strategy.
Don’t be alarmed by the unfamiliar terminology! These concepts are actually quite easy to understand, so let’s break them down.
Across the United States, the process of civil litigation – in which a lawsuit is filed, the plaintiff and defendant assert their claims and counterclaims, a judge presides, and the court (typically a jury) comes to a decision based on the weight of the evidence – is the default process for resolving a contractual dispute. The problem with litigation is that it can be a lengthy, expensive process that takes several years to resolve, and pits the involved parties against each other, thus escalating existing tensions.
In recent times, however, many savvy businesses and contracting individuals have realized that pushing a dispute through litigation can lead to a lose-lose situation for both parties. The expense, delay, and conflict typical of civil litigation may damage the position of both parties in the long run. Instead, parties often choose to engage in alternative dispute resolution.
Arbitration is a form of alternative dispute resolution that sidesteps the civil litigation process, and is an excellent choice for parties that would like to hold each other to their agreements without having to risk the potential expense, delay, and adversarial conflict inherent to formal civil litigation.
When a contractual dispute is being arbitrated, a neutral arbitrator (often a lawyer or judge specializing in arbitration) is brought in to examine the evidence and hear each side’s arguments, and is subsequently empowered to make decisions regarding the associated claims.