Arbitration generally occurs when all parties to a dispute agree to such a process. The parties may agree to arbitration before or after the dispute arises. In a pre-dispute agreement, parties agree before there is a dispute to submit any controversies to arbitration. In effect, the parties contractually agree to avoid litigation and waive their right to sue each other. In a post-dispute agreement, the parties consent to submit a dispute to arbitration after the controversy has arisen. The parties choose to do so because they prefer arbitration over litigation. Some courts have the power to order parties to arbitrate before proceeding to trial. The timing and details of court-imposed arbitration programs differ throughout the country.
Submitting a Claim to Arbitration. Under pre-dispute agreements, any party to the contract may submit a claim to arbitration. Usually, a party initiates arbitration by filing a claim with the arbitration provider and notifying the other party. Under a post-dispute agreement, the parties mutually agree to submit the controversy to a specific provider.
Types of Arbitration Awards. Arbitration generates two types of decisions by arbitrators: binding and non-binding. Binding arbitration is just that – a decision binding on all the parties. Non-binding decisions are advisory and may be rejected by any party to the dispute.
Arbitrators. Arbitrators are neutral and impartial individuals who have expertise or knowledge regarding the law, business practices, or subject matter of the dispute. An arbitrator may be an attorney, a retired judge, a business person, an engineer, a doctor, a scientist, a labor specialist, or any other person with an expertise relevant to the case.
The arbitrator needs to understand the arbitration procedures and the presentation of evidence.
Number of Arbitrators. Most arbitrations involve one arbitrator. In arbitrations involving complex or significant disputes, it may be necessary or advantageous to have more than one arbitrator, with the typical number being three.
Selection of an Arbitrator. An independent arbitration organization usually appoints the arbitrator(s). The appointment process differs among organizations, with most systems allowing the parties to challenge an arbitrator who may be, for one reason or another, less than impartial. In some arbitrations, the parties may select a specific arbitrator, either before or after a dispute arises. In some three-arbitrator hearings, each party may appoint one arbitrator and those two arbitrators select an impartial third arbitrator. In court-mandated arbitration, the court may appoint the arbitrator from a list of approved arbitrators.
Arbitration Procedures. Arbitrations follow established, orderly procedures that are fast, fair, and efficient. The arbitration organization selected by the parties establishes the specific procedures. Organizations employ different rules that affect the efficiency of the arbitration process.
Arbitration Hearing. The type of hearing involved in an arbitration varies. Many arbitrations involve a hearing with the parties presenting evidence through witnesses and documents. Other arbitrations are resolved by the arbitrator reviewing documents submitted by the parties. Arbitration hearings are less formal than court trials. Arbitrators are not required to follow strict rules of procedure or evidence. Many cases are completed in half a day, others in one or more days.
Private and Confidential. Arbitrations ordinarily are private with procedures and hearings attended only by the parties and witnesses. The results of an arbitration decision usually are confidential, unless the parties otherwise agree.
Decision by Arbitrator. An arbitrator usually decides a case by issuing a written arbitration award shortly after the arbitration procedure. This award states which party has won and what money or relief the party receives. In some arbitrations, the arbitrator may write an opinion explaining the award.
Finality of Award. The award issued by the arbitrator is the final decision, unless the award is non-binding.
Review of Award. There is usually no appeal of a binding arbitration award. Court review of an award occurs only in unusual instances where fraud or corruption occurred or where the arbitrator improperly exceeded authority.
Compulsory Arbitration. The law in some countries requires the parties to arbitrate their disputes and abide by the arbitrator’s award. This compulsory process has not been generally recognized or used in America.
Costs. The costs of an arbitration usually include the filing fees and the hearing fees. These costs reflect the expenses incurred by the arbitration provider in administering the arbitration and in paying the arbitrator who is retained as an independent contractor or an employee. Some arbitrations involve an arbitrator who charges an hourly or daily fee, with the amount of the fee varying depending upon the nature of the issues and the experience of the arbitrator. The parties often split the costs of the arbitration. Arbitrators usually have the discretion to distribute the costs between the parties as part of the award. In some arbitrations involving community or public interest disputes, volunteer arbitrators may be available.
Benefits of Arbitration. These aspects of the arbitration process reveal its advantages:
-The parties ordinarily submit to arbitration voluntarily and willingly.
-Arbitration avoids the use of strict rules, legal technicalities, and delaying tactics.
-The arbitrator who is an independent expert in the area is well equipped to resolve the dispute fairly and quickly.
-The simplicity of the arbitration process reduces animosity between the parties and stress and tension caused by a lengthy and more complex process.
-The arbitration process promotes the development and continuation of good relations by reducing the adversarial posture of the parties, permitting them to work together during and after the resolution of their dispute.
-The private nature of the proceedings results in a confidential process.
-The finality of the arbitrator’s decision eliminates lengthy appeals.
-The overall efficiency of the process saves everyone substantial time and money and significantly reduces attorney’s fees.
-The winning party usually thinks the process was terrific.
Limitations of Arbitration. Arbitration also has limitations. Parties ordinarily do not engage in complete discovery, such as depositions, interrogatories, and requests for admissions, and may have limited access to information before the arbitration hearing. The arbitrator often does not provide a written, lengthy opinion explaining the arbitration award. Parties usually may not appeal the decision of the arbitrator to an appellate court for further review. These limitations may cause some parties to prefer litigation rather than arbitration, particularly if constitutional or governmental issues are at stake or the parties prefer to fight it out in the courtroom ring.
Participants in the arbitration process
Participants in arbitration include the parties, their attorneys or representatives, witnesses, the arbitrator, the arbitration organization, and the administrator.
Parties. Parties are the individuals, corporations, institutions, companies, or agencies who have a dispute. Parties participate directly in the arbitration and provide information, testimony, and documents.
Attorneys or Representatives. A party may be represented by an attorney or other representative who is familiar with the procedures and the case. The parties usually have a right to have a lawyer or representative involved in the proceedings. A non-lawyer representative may be a business person, an expert, a colleague, a friend, or a family member, depending upon the nature of the arbitration. In some arbitrations, parties may be able to represent themselves competently.
A lawyer may be the most skilled person to prepare and present a case. A lawyer usually knows best the legal issues and positions to advance in a case and how to examine witnesses and make arguments effectively. In simple cases, the cost of an attorney may be minimal because the efficient arbitration procedures do not require the attorney to spend a lot of time preparing or presenting the case. In complex cases that involve significant issues or amounts of money, the use of an attorney increases the chances the case will be well prepared and presented and the award will be favorable to the client.
Good lawyers involve their clients in the preparation of the case, advise their clients of the costs and expenses involved, and predict how the case may be decided. It is the clients who, with the advice of their attorneys, decide what is best for them and how they should spend their money and time. Other representatives who may assist the client may be professionals with expertise in the area of the dispute.
Witnesses. The witnesses involved in a specific arbitration depend upon the facts of the case and the nature of the issues. Arbitrations that involve factual disputes necessarily require the testimony of witnesses who know the facts. Witnesses may be any person who has seen or heard something relevant to the case and include agents or employees of the party or independent and neutral individuals. Arbitrations may also involve issues requiring the use of expert witnesses who provide information to help the arbitrator understand and decide the case. An expert witness may be anyone who has specialized knowledge and useful opinions, such as doctors, economists, engineers, scientists, mechanics, and other specialists, or anyone who charges a lot for what they know and uses big words.
Arbitrator. The primary roles of the arbitrator are to conduct the arbitration proceedings and make an award. The arbitrator may enforce procedures, interpret rules, issue subpoenas, meet with the parties before the arbitration, review documents, question witnesses, rule on evidentiary objections during the hearing, listen to arguments, otherwise conduct the hearing, and then rest because all this can be tiring.
The award made by the arbitrator depends on the relief a party seeks. Most arbitrations involve disputes over money matters, and the award is typically an amount of money in favor of the winning party. An arbitration award may also order a party to do or not to do something or to turn over some property.
The arbitrator’s power is derived from the parties’ agreement, the rules of the arbitration proceeding, and the law. The arbitrator has an obligation to be fair to both parties, maintain an orderly proceeding, and conform to standards of justice. An arbitrator may not delegate this power to another person.
Most arbitration organizations select individuals to be arbitrators based on their experience, expertise, and reputation. Arbitrators usually take continuing education and training courses to develop and improve their skills. An organization may maintain and the parties to arbitration may submit evaluation reports regarding the abilities of an arbitrator.
An arbitration organization typically maintains a panel of arbitrators in various specialties. In some arbitrations that occur frequently between parties, a permanent arbitrator may serve for a specific period of time, instead of just for one case. Following the assignment of the arbitrator, the parties may challenge the arbitrator if they believe the arbitrator does not have sufficient experience or may be biased or prejudiced. In those arbitrations where the parties agree to a specific arbitrator before or after the dispute, the parties may not be able to change their minds and request someone else.
Arbitration Organization. The arbitration organization is the provider selected by the parties, or by the court, to administer the arbitration. The organization, also sometimes known as a tribunal, follows established rules and procedures, like a court system but much simpler. The provider processes claims and responses, appoints an arbitrator, arranges a hearing, trains arbitrators, and insures fair and uniform treatment for all involved. The tribunal does not act as a legal representative for any party, does not give anyone legal advice, and exercises no control over the decision of the arbitrator.
Administrator. Most arbitrations involve an administrator who is an employee of the arbitration provider. The administrator appoints an arbitrator or a panel from which the arbitrator is selected. Additionally, the administrator assists the parties with the processing of their claims and defenses, answers their procedural questions, schedules the arbitration hearing, and handles administrative matters not handled by the arbitrator. The use of an administrator relieves the arbitrator of these responsibilities and avoids the problem of the parties individually needing to contact the arbitrator for information before the hearing. The title of this person may be Director of Arbitration, Case Administrator, or a similar title.
Spectators. Parties can mutually agree to sell tickets to spectators to attend the arbitration. Most arbitration rules prohibit the spectators from cheering for any party. There is no recorded instance in the annals of arbitration folklore this ever happened, but it is an intriguing idea.
The parties may agree to arbitration through a pre-dispute or post-dispute arbitration agreement. Any person, corporation or other organization can agree to submit their disputes to arbitration. An arbitration agreement, like any contract clause, binds the parties and is enforceable. Federal and state laws permit parties to consent to arbitration and enforce these agreements. These laws reflect a social policy allowing and encouraging parties to choose how they want their disputes resolved.
These laws also recognize that the parties can agree not to litigate and can select another way to resolve these disputes. Parties who enter into arbitration agreements rely on the arbitration process and the arbitrator to resolve the case. These parties, in effect, waive their rights to a jury or court trial because they believe arbitration is a better way to solve their differences.
One or more parties may suggest a dispute be submitted to arbitration. Parties must voluntarily agree to arbitrate. One party may propose an arbitration clause that the other party may accept or suggest be modified. The parties may include an arbitration clause in a contract or in a separate arbitration document. The signature of the parties to the agreement commits them to use arbitration to resolve any dispute covered by the agreement. The arbitration clause should be conspicuous so it is clear the parties have notice of its inclusion.
There are a few issues that the law in many jurisdictions does not allow to be resolved by binding arbitration. These include some claims based on discrimination, sexual harassment, and civil rights laws. Examples include complaints individuals have that they have been discriminated against because of their race, religion, national origin or gender. The law allows the parties to submit these disputes to non-binding arbitration and permits the losing party to reject arbitration and litigate these claims in court, if the party prefers. The laws in some jurisdictions are changing, and parties may be able to submit some of these claims to binding arbitration.