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What is the difference between arbitration and litigation?

On Behalf of | Oct 8, 2020 | B2B Commercial Law |

While many people immediately think “litigation” when they imagine two parties having a business-related dispute, it is actually advantageous for everybody involved to avoid litigation in the majority of situations. Litigation can be time-consuming and costly. Plus, you run the risk of ruining otherwise-positive business relationships by resorting to litigation.

Many times, disputing parties try to solve their problems by turning to mediation or arbitration. Both of these approaches are superior to litigation in certain circumstances, but they are different from each other. As per FindLaw, a major difference between mediation and arbitration is that mediation is nonbinding and arbitration is typically binding.

What is mediation?

Mediation features a neutral mediator guiding the two disputing parties through a conversation regarding the dispute. The mediator does not make any final decisions regarding the situation. Rather, the purpose is to encourage both sides to talk to each other and reach a settlement of their own accord with the guidance of the mediator.

Mediation is not binding. This means that if one party or the other is not happy with the eventual settlement, or if the parties do not agree upon a settlement, the case may still end up in court.

What is arbitration?

Arbitration is more similar to litigation. In some arbitration situations, the parties agree on a single arbitrator, and in others, there is a panel of arbitrators. Much like in court, the parties make their cases to the arbitrators. Then, the arbitrators make a decision on the case.

Whichever route you take, it is important to remember that arbitration is binding. This means that the decision of an arbitration panel is very difficult to overturn. Selecting the right method for resolving differences may differ depending on your circumstances.