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ARBITRATION PROS AND CONS

When contracting parties confront the possibility of a commercial dispute, one of the fundamental questions they face is whether to arbitrate that dispute. This question can be answered by the contract, or the parties can simply choose to arbitrate at any point after the dispute has arisen.

There are several frequently cited PROS and CONS to Arbitration versus court-based litigation:

PROS
1. Arbitration is less expensive
2. Arbitration is quicker
3. The Arbitrator usually specializes in the subject matter
4. More confidentiality
5. An Arbitration decision is more final

There is some truth to each of these cited advantages. The first two points cited above remain true, although the advantage is diminishing due primarily to the increased allowance of discovery and other procedures previously reserved for court cases. If the Arbitration requires a three person panel, these advantages virtually disappear due to the need to pay the Arbitrators and juggle their schedules.

Specialization is usually a good thing in these cases, but it can work against one of the parties to the Arbitration (see CONS, below). The final two factors remain true, as the proceedings are indeed kept confidential and it is more difficult to reverse an Arbitration decision on appeal.

Subject to select exceptions, these advantages are legitimate considerations. There are also, however, disadvantages to Arbitration:

CONS
1. The Arbitrator must be paid
2. The Arbitrator is more likely to issue a compromise decision
3. Arbitrator bias influencing the decision
4. Less transparency
5. Remedies limitations

Yes, these “CONS” are pretty much the flip side of the “PROS.” Payment to the Arbitrator reduces but usually does not eliminate the expense advantage of Arbitration (except perhaps with a three Arbitrator panel). As for Con #2, if you’re looking for a compromise decision, Arbitration is the place for you. If you are not, the Arbitration decision will likely be disappointing.

Arbitrator bias is a real problem, particularly in industry arbitrations such as the employment, securities and construction areas. The Arbitrators actively promote themselves to these industries and industry groups and know they will not continue to have cases referred to them if they defy the expectations of these groups. In addition, the Arbitrator can harbor hidden preferences. All humans have biases; it’s just easier to pick up on it with Judges who have been on the bench for a while.

Arbitrators are not required to write an exhaustive opinion or make a record supporting their decision. This leads to obvious transparency issues which add to the difficulty of reversing an Arbitration Award.

SUMMARY
One size definitely does not fit all. At its best, Arbitration can work very well for all parties, offering the advantages cited above. In many cases, the parties’ choice has been made through the contractual Arbitration clause. In these cases, the dissenting party usually must make the best of the situation. When there is a choice, our firm is not among those who will automatically opt for Arbitration – each individual situation must be considered, with attention to the factors noted above, among others.

Caution: This article provides general information and is not legal advice. You should contact Lambert Law if you seek specific legal advice regarding the topics discussed above.

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