Arbitration can be a cost effective means of resolving disputes. If the parties merely exchange copies of relevant documents and then attend a one or two day arbitration hearing, it is likely to be significantly less expensive than having a court case. Most court cases also involve pretrial depositions, motions, and mediation before ever getting to trial. Also in court cases, there is a right to appeal. There are very limited rights or grounds to appeal a decision in arbitration. The expenses of court cases may not be justified for smaller disputes.
If an arbitration agreement is limited to disputes where the total claim for damages is a smaller amount, say $50,000 or less, then arbitration is more likely to fulfill the goal of being a cost effective means of resolving disputes.
The author has been involved in arbitration of claims for more than $1 million dollars. In those cases, there were many depositions and other expenses normally incurred in court cases. The arbitrations were not less expensive than a court case. Careful consideration should be given to whether, under the circumstances of a particular contract, it is prudent to agree to binding arbitration of larger claims.
An agreement to arbitrate generally eliminates the possibility of a jury trial. Many companies include arbitration agreements in their contracts because they do not want to be exposed to a jury trial. If your business does not want a jury trial for any disputes, there should be no limit on the amount of damages in an arbitration agreement.
