Conflict Resolution for Small and Family Business: Arbitrating Supplier-Customer Disputes

business arbitrationWhen companies have disagreements with suppliers, distributors or customers, it often disturbs a mutually beneficial arrangement.  Neither party wants a prolonged, expensive legal dispute.  Neither party wants the public, or other customers and suppliers, to know about the dispute or the terms of the underlying contract.  Small or family businesses are often so constrained in time, money or the need for continued production that there is a premium on efficient resolution.

There is an alternative.  If both parties are looking for a fast, cost-contained solution, they can call on an arbitrator to make an expedited decision for them.  An arbitrator is similar to a private judge.  By agreement with the parties, he can look at each side’s version of the facts of the case and any particular laws that apply, then reach a decision that the parties have been unable to reach.  The whole thing can be decided and done within a few months, which reduces the drag on internal resources, reduces the legal bills and reduces the ongoing buildup of conflict between parties that may want to continue to work together.  The whole process stays private, as do the terms of the arrangement from which the dispute arises and even the fact that the parties have done business together.

One way an expedited arbitration process can work is that the parties first try to work out the problem themselves, then call in their attorneys who continue to try to negotiate a solution while preparing for the possibility of litigation or other adversary process.  The attorneys advise the parties of the various ways in which they might resolve the dispute and, if the parties are amenable, contact a professional arbitrator, who is usually another attorney with no relationship to the parties or the case.  For these kinds of cases, parties often choose arbitrators who are experienced business attorneys or commercial litigators who have business experience, so that the context of the dispute makes sense to them.  The arbitrator discloses any conflicts of interest and the parties sign a simple arbitration agreement.

If the parties need information they cannot access except through discovery, the attorneys and arbitrator work together to come up with a plan for streamlined discovery that takes place within a limited time, at limited cost.  The parties, attorneys and arbitrator schedule a hearing at their convenience (the parties retain much more control over scheduling than with a court).  A hearing occurs, which may take as little as a few hours.  Typically the arbitrator will provide a written decision within ten days of the hearing.  The award can be enforced in court if necessary.

Some people object to arbitration since awards are difficult to appeal.  However, very few court judgments are appealed anyway.  Appeals are not always successful, the cost can be prohibitive and further delays can be disruptive.

Although arbitration is not the right solution for every dispute, it can be a useful tool in the right contexts.  Disagreements with suppliers, distributors and customers can be good applications for expedited arbitration proceedings.