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Last Modified: May 2, 2023

Arbitration: What, When, and Why

Legal books The United States Courts saw a decrease in the amount of cases filed through the traditional judicial system in 2012. There are many times when dealing with legal disputes that makes going through the courts unnecessary. Many people agree, going to court is an expensive and time consuming way to come to a resolution. There are alternative ways in which two parties can reach a decision without needing a judge to rule the case. Alternative dispute resolution options are increasing in popularity as a way to settle legal matters. These options give the involved parties the chance to settle the dispute without the expense of litigation or the exhaustive time spent waiting for a court date. Arbitration is an alternative dispute resolution process, however; not all cases can be settled through arbitration. Cases dealing with crimes, status, and family law are not seen to be arbitrable. Whereas matters dealing with private rights between two parties can be handled through arbitration. Arbitration does not limit a party’s right to seek a specific solution, but simply shifts the venue for finding that solution from the court system to an arbitration forum.

 Advantages and Disadvantages

There are a number of perceived advantages of going through arbitration rather than judicial proceedings. Here are a few:

  • Some cases require a degree of technical expertise in order to understand all of the issues. In that case, the parties of the dispute can agree on an arbiter who has that expertise.
  • Going through arbitration could potentially settle faster than going through traditional judicial courts.The parties involved can choose the arbiter; whereas in litigation, you cannot choose the judge.In the United States, arbitration awards are enforced in the same manner as court judgments and have the same effect.
  • Going through arbitration allows the parties confidentiality, as these cases are generally non-public.

However, there are some disadvantages of arbitration as well. Here are a few:

  • The parties waive their rights to go through the court on the dispute; making the decision through the arbiter binding and mandatory.
  • There are few ways to appeal the decision of the arbiter. Making erroneous decisions final and not easily overturned.
  • Thought to be speedier, it can sometimes be difficult to schedule meeting times when there are multiple arbiters on the panel, causing delays.
  • Rule of applicable law is not necessarily binding on the arbiters; however, they cannot completely disregard the law.
  • In some cases, if a party is attempting to enforce an arbitration award they must then seek judicial remedies. Arbitration awards themselves are not directly enforceable.

Can arbitration be mandatory?

First and foremost, it is important to note no one can be forced to go through the arbitration process. The process is said to be consensual, and both parties must agree to use an arbiter before any ruling can be made. However, there are many times that in fine-print contracts, there may be a clause on arbitration. The clauses are often found in contracts when purchasing a new car, or in a clause contained in a sales invoice or on a notice sent with a monthly bank account statement. This could potentially leave the signer bound and without bargaining power to go to the courts, if a dispute were to occur.  To increase the control over the arbitration process, specific terms may be added into the arbitration clauses. When a dispute arises, certain arbitration rules may be modified to improve the likelihood of resolution of that particular dispute. Restriction can be made that limits or provides confidentiality of information used; evidence, locale, number of arbitrators; and the issues raised in the dispute, to provide some examples. The parties could also add terms designed to speed up the arbitration process, including shortening the usual time limit for paying out an arbitration award.

Who can be an arbiter?

Much like a judge, the arbiter is able to rule on the cases brought to them. The requirements to become an arbiter vary between states. Most states require that you’ve graduated from law school and have experience as an attorney. Certification is always required. Arbiters must have knowledge of the law in question to handle the different types of cases. As mentioned in the advantages of arbitration, the benefit of going through arbitration is that both parties may find an arbiter that has some specific area of expertise to handle their case. This could be very beneficial to those parties where the private rights are confusing or require extensive knowledge of the law in that matter. An arbitrator may be a single person or a panel.

Who else is involved?

Seeking an attorney experienced in arbitration to represent you at an arbitration hearing is in your best interest.  However, having an attorney is not required in arbitration hearings. That being said, having legal counsel at the hearing has its advantages.  Consider the following when deciding whether or not to hire an attorney:

  • Financial significance of the dispute
  • Costs of arbitration
  • Your financial ability, funds and assets
  • The opposition is, or is not, represented

If you decide not to hire a lawyer to represent you during the hearing, it would be beneficial to consult with an attorney to prepare for the hearing. The attorneys involved in arbitration handle the cases much like they would with judicial proceedings. As mentioned before, in many situations you are contractually obligated to go to arbitration. However in other cases, an attorney can determine whether arbitration is the best for you after they have viewed the circumstances and facts of the dispute.

Your arbitration attorney:

  • Will help you through the arbitration process. They can also explain your rights and obligations of arbitration.
  • Can consult you on developing your evidence, selecting witnesses, and preparing you to testify at the hearing, if you decide to do so.
  • Could help you with the paperwork and other documents that are required for arbitration.

Legal documents can be very confusing and can require prior knowledge of the law. Attorneys are able to protect you throughout the process or you may use them just for defined tasks; such as paperwork or selecting witnesses. You may do as much of the work as you want, or of course there are attorneys who are able to counsel you through the process.

The arbitration process

Once an arbiter is chosen by both parties, the arbitration process may fully begin. Much like court cases, each party has the opportunity to present their side and evidence to the arbiter. The process is much less formal than regular trail proceedings. You do not need to testify if you choose not to. However, the option is available if you, or your attorney, thinks it may help your case. Once the evidence has been presented and each side has taken the time to present their case, the arbiter is then given time to review each side in depth. The arbiter than can speak to each party and potentially negotiate between the two, finding an agreeable ruling. The main difference between court proceeding and the arbitration process is that the arbiter can negotiate between the two parties; whereas in court proceedings the judge decides on the case without the negotiation process. Since arbitration is less formal than court cases, the interaction between the parties is often more reasonable and provides each party the opportunity to “give and take” on the final ruling.

Binding vs. Non-Binding Arbitration

There are different binding types that can be agreed upon. The parties involved can decide whether the resolution is binding or non-binding. In a binding arbitration, all parties agree the arbitrator’s decision will be fair and to abide by this decision before the process begins. Once concluded, the arbitrator’s decision carries the same legal weight as the ruling of a court. In contrast, a non-binding arbitration, the parties agree that they will not be obligated to accept the arbiter’s ruling. After hearing all sides, the arbiter makes a decision that is much like an opinion. The decision may or may not include a suggested damage award. Non-binding arbitrations are commonly used by disputing parties to get a sense for the strength of their case. After the arbitration process ends, the parties are free to engage in litigation, to enter into binding arbitration or to engage in mediation to resolve their issues. The need to go through the court system when dealing with private disputes is fading and more people are resorting to alternative dispute resolutions.  Businesses and consumers are understanding that court trials can be expensive and time consuming, thus making arbitration or other alternative dispute resolutions favored by many people.

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