It's commonplace for commercial contracts to contain arbitration clauses. But should they? The answer to this question depends on several factors, such as anticipated cost, the importance of confidentiality, the importance of third-party discovery, and whether you prefer (or want to avoid) a jury trial.

Often, parties view arbitration as cheaper than a court proceeding. In comparison to a jury trial, that is often the case. But the right to a jury trial can usually be waived if the waiver clause is drafted appropriately, which means the lawsuit can be resolved by bench trial. What parties often forget is that arbitration requires both paying the fees of the arbitration association (e.g., AAA) and paying the compensation of the arbitrator(s). These costs can easily run into the 6-figure range in high-value, hotly contested cases. Litigants do not have to pay judges.

Confidentiality is another consideration. Arbitration is generally completely confidential - the only common exceptions to this rule are when an arbitration award is confirmed in court, when a party seeks injunctive or other provisional relief in court, or when a court must be used to compel (or resist) third-party discovery. Court proceedings are public record and it is burdensome (and often difficult) to seal court filings. If confidentiality is a concern over cost, go with arbitration.

Third-party discovery is another consideration - albeit one that is often more difficult to anticipate at the time of contracting. The ability of arbitrators to compel third-party witness discovery and testimony is limited and varies between jurisdictions. If third-party discovery is likely to be necessary in a dispute, omitting an arbitration clause is the stronger position.

To sum up, arbitration provides significant benefits to contracting parties, but it also can have its drawbacks. The lesson here is to think about whether you want an arbitration clause and why, rather than blindly including one in a contract.