Arbitration as an Alternative to Litigation
Litigation can be a costly enterprise, both in terms of dollars and the amount of time it can take to resolve a legal dispute. Arbitration is a form of alternative dispute resolution that allows parties to more effectively settle legal differences.
How Parties Come to Arbitration
The parties to a legal dispute may seek arbitration for three reasons:
- They may have entered into a contract that included an arbitration clause, requiring that any dispute be submitted to binding arbitration
- They may have voluntarily agreed to submit the dispute to arbitration
- They may have been ordered by a court to submit the dispute to arbitration
The Benefits of Arbitration
With an arbitration proceeding, the parties can:
- Avoid the time delays (and costs) of being on the court’s docket
- Minimize the amount of time and money spent on discovery (gathering and preserving evidence)
- Cooperatively agree on the rules that will govern the process
- Maintain confidentiality, as the process need not be open to the public
How Arbitration Differs from Mediation
Arbitration differs from mediation in the following respects:
- The role of the arbitrator vs. the mediator—In arbitration, the arbitrator (or arbitration panel) is tasked with making a ruling, of determining the outcome. In mediation, the mediator is a third party neutral who facilitates interaction between the parties, but the parties have complete control over the outcome. The mediator never makes a determination of which arguments have more merit.
- The admission of evidence—In an arbitration proceeding, evidence may be admitted and testimony taken. In mediation, because the mediator does not make any rulings on the merits of the case, there is no need to take testimony or consider evidence.
- The role of legal arguments—An arbitrator functions much like a judge, listening to legal arguments and rendering a decision based on the facts and the law. A mediator is simply an intermediary, helping the parties find a mutually beneficial solution. As such, the mediator is not interested in the law.
The Arbitration Process
The arbitration process consists of the following steps:
- The parties sign a legally binding contract, mutually consenting to settle the dispute through arbitration.
- An arbitrator or panel of arbitrators is chosen. Each party must agree on one arbitrator, or each party chooses one arbitrator and the two arbitrators then select a third to create a panel.
- Before the arbitration hearing, both parties may receive documents from other parties.
- During the hearing, each party has the right to present documents and witnesses and to cross-examine the adverse witnesses.
- The arbitrator makes a decision, usually within a few weeks of the hearing.
Unless the parties agreed to nonbinding arbitration, the arbitrator’s decision is final and may be enforced in court if not honored by one party.
Although an arbitrator commonly awards monetary damages to one party, he or she also may order specific performance of a contract or order a party either to do something or refrain from doing something. While an unsatisfied party may appeal to a court, courts seldom overturn arbitrators’ decisions.