The use of arbitration can be an effective way of mitigating legal risk when entering into a contractual arrangement. It should be looked at as a pre-litigation risk mitigation or a legal risk management (LRM) tool. To some it may seem like riding up and down a cable car (similar to the picture to the left); one moment you think you have a tool that will save you $$$ and are on top of the proverbial mountain and the next you realize it may not be as cheap a risk mitigation tool that you initially thought it would be; suddenly you find yourself feeling as though you are going back down the mountain.
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Arbitration may not be a cheap tool, but it can be an effective one if used properly. Arbitration counsel, like outside litigation counsel must be managed with an eye on controlling your costs. If used properly, arbitration can be not only effective but less costly and burdensome than litigation. One of the fascinating qualities of arbitration is its inherent flexibility. As the parties create the jurisdiction of the arbitrator(s) and set the procedural requirements, the parties are also able to control and minimize the cost of electronic discovery, which in the US can be quite onerous and time consuming. As arbitration is a neutral process decisions are easily enforceable and the process is less expensive than litigation making it very cost effective. As the parties no longer face excessive legal fees, costs, and potentially large and random jury verdicts, they are free to devise solutions to procedural and substantive matters in resolve disputes.
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Though some parties may find it beneficial to litigate a matter rather than arbitrate it, the latter is usually a more cost effective option. For example, the explosion of discovery requirements in the US (which could cost Millions depending on the matter) especially regarding electronic documents, makes arbitration a much more acceptable resolution process as it does not involve the use of extensive discovery. US courts also impose stringent requirements for maintaining electronic documents (such as emails) and severe penalties for violating the rules. Unsuspecting companies unfamiliar with US discovery rules, will especially be at a disadvantage if they are required to litigate in the US. Most companies outside the US are unaware how expensive and onerous US discovery can be and are not prepared to handle it. In light of this, arbitration becomes a much more appealing dispute resolution mechanism.
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All in all, arbitration, is a very effective dispute resolution process and is an excellent tool to mitigate legal risk and costs. And of course, it is cheaper than litigation if used properly.