Trial vs. Arbitration in Commercial Disputes: Rethinking Assumptions in Forum Selection

The decision to litigate or arbitrate a commercial dispute is often made long before any issue arises. It appears as a clause in an agreement, negotiated quickly or carried forward from a prior deal. At the time, arbitration is frequently viewed as the more efficient and practical option, offering speed, cost savings, and confidentiality.

In practice, those assumptions are not always borne out. Like many aspects of dispute resolution, the outcome depends less on the label attached to the process and more on how it is implemented. When disputes arise, parties often find that arbitration presents a different set of tradeoffs, not necessarily a simpler or more favorable path.

Understanding those tradeoffs at the outset can materially impact how disputes are handled and, in many cases, how they are resolved.

Confidentiality Is Not Absolute

Arbitration is commonly described as confidential, and in some respects, it is. Proceedings are not conducted in open court, and filings are not accessible through public dockets. That distinction alone can be meaningful for businesses concerned with unwanted publicity or reputational risk.

However, confidentiality in arbitration is often misunderstood. Unless the agreement between the parties or the governing rules of the administering body specifically impose restrictions, there is generally nothing that prevents a party from disclosing the existence of the dispute or even the result.

This becomes particularly relevant when a dispute reaches a point where one party sees value in publicizing the outcome, whether for business, legal, or strategic reasons. At that stage, the expectation of confidentiality can give way to the reality that arbitration provides privacy in process, not necessarily control over what happens afterward.

A party that places real importance on confidentiality must address its concern directly in the agreement to arbitrate. It is not something that can be assumed.

Speed Depends on How the Process Is Used

Arbitration is often viewed as a faster alternative to litigation. In certain cases, particularly where disputes are narrow and discovery is limited, that can be true. In more complex commercial matters, however, arbitration can proceed at a pace comparable to litigation. The rules selected to govern arbitration, scope of discovery, the use of depositions, the involvement of experts, and the scheduling constraints of arbitrators all influence timing. When those elements expand, the perceived efficiency of arbitration can diminish quickly.

In contrast, some courts, including those known as “rocket dockets,” move cases with a level of structure and predictability. Judicial oversight, set deadlines, and motion practice can create a more defined path to resolution.

What is often framed as a question of speed is more accurately a question of control. Arbitration allows the parties and the arbitrator to shape the process, but that flexibility does not inherently result in a faster outcome.

Cost Is Often Underestimated

Cost is another area where expectations and reality frequently diverge. Arbitration is sometimes assumed to be less expensive than litigation, but that is not consistently the case.

Unlike litigation, where the court system is publicly funded, arbitration requires the parties to pay for the decision maker. Arbitrator fees, particularly in matters involving multi-member panels, can be significant. Organizations that charge fees to administer the process add another layer of expense.

These costs exist alongside attorney fees and, in some cases, similar levels of pretrial activity. When all factors are considered, there are proceedings in which the cost of arbitration can equal or exceed the cost of litigation.

Sometimes, the cost of arbitration is the strategy. When companies are forced to pay hefty per-claim fees, massive, aggregated filings can drive strategy and potentially settlements. That was the situation for Uber, which faced over $90 million in administrative fees from 31,500 customer claims. A New York appellate court rejected Uber’s attempts to fight what it argued was an exorbitant and unlawful cost.

For commercial parties, the key point is that arbitration does not eliminate expense. It changes how and when those costs are incurred.

Procedural Flexibility Introduces Variability

Arbitration offers a level of procedural flexibility that is not present in traditional litigation. Arbitrators have broad discretion to determine the scope of discovery, whether dispositive motions will be permitted, and how hearings will be conducted.

That flexibility can be beneficial, particularly in proceedings where the parties seek a more tailored process. It can also introduce uncertainty if disputes arise over process.

Unlike courts which operate under established procedural rules, arbitration depends heavily on the approach of the individual arbitrator. Arbitrators may take different views on discovery, motion practice, and evidentiary standards. As a result, the same dispute can unfold in materially different ways depending on who is presiding.

This variability is compounded by the limited ability to appeal arbitration decisions. Once an award is issued, opportunities for review are narrow. Decisions that might be challenged in a court setting often stand in arbitration. See N.J.S.A. 2A:23B-23.

The combination of flexibility and finality creates a dynamic where process decisions carry significant weight, and where the margin for correction is limited.

Forum Selection as a Strategic Decision

The choice between litigation and arbitration is not a matter of one being categorically better than the other. Each presents advantages and risks that should be evaluated in the context of the specific relationship and the types of disputes that are likely to arise.

Arbitration may be appropriate where parties prioritize a private forum, seek a decision maker with particular subject matter expertise, or value finality over the ability to appeal.

Litigation may be preferable where parties anticipate the need for broader discovery, the use of dispositive motions, or the ability to rely on established procedural rules and appellate review.

In many cases, the most important decision is not whether to include an arbitration clause, but how that clause is drafted. Provisions addressing confidentiality, cost allocation, discovery limits, and the number of arbitrators can materially affect how a dispute proceeds. Also of significance is identifying the forum administering the arbitration and the rules that govern.

Conclusion

The distinction between trial and arbitration is often framed in simple terms, with arbitration viewed as faster, cheaper, and more private. In practice, the differences are more nuanced.

When arbitration provisions are drafted without a clear understanding of how the process operates, parties can find themselves navigating a forum that does not align with their expectations.

Approaching forum selection with the same level of care as other core contractual terms can reduce that risk. In many cases, it can also influence not just how a dispute is resolved, but how it develops in the first place.

Originally published in New Jersey Law Journal: Trial vs. Arbitration in Commercial Disputes: Rethinking Assumptions in Forum Selection