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Arbitration: Inexpensive, Informal & Decisive

What is arbitration?

Arbitration is submission of a dispute to one or more impartial persons for a final and binding decision. The parties control the range of issues to be resolved by arbitration, the scope of the relief to be awarded, and many of the procedural aspects of the process. Arbitration is less formal than a court trial. The hearing is private. Few awards are reviewed by the courts because the parties have agreed to be bound by the decision of the arbitrator. In some cases, it is prearranged that the award will only be advisory.

Arbitration and the Law

Arbitration awards are legally binding and enforceable in most jurisdictions. The US Arbitration Act provides for enforcement of arbitration agreements and awards in interstate-commerce and international contracts.

The Advantages

Most persons do not want to become involved in lawsuits. Litigation can entail lengthy delays, high costs, unwanted publicity, and ill will. Appeals might be filed, causing further delay, after a decision has been rendered. Arbitration, on the other hand, is usually faster and less expensive, and it is also conclusive.

Some of the advantages of arbitration include:

  • PRIVACY The hearings and awards are private and confidential. This helps to preserve positive working relationships.
  • SPEED Expeditious procedures and established time frames for each step serve to limit the time required to resolve disagreements.
  • ECONOMY Time saved is money saved. Many of the costly procedures associated with formal court processes can be eliminated in arbitration.
  • FLEXIBILITY Dispute resolution procedures are flexible and can be used for many kinds of claims.
  • INFORMALITY Each party tells it's side of the story to the arbitrator in an atmosphere that is less formal than a court proceeding.
  • FINALITY Arbitration awards are final, binding, and legally enforceable, subject only to limited review by the courts. The court does not second guess the arbitrator's decision as to the facts or the law. Of course, parties may also agree in advance that awards will be advisory only.

Who Uses Alternative Dispute Resolution?

Business controversies arise from millions of commercial contracts containing clauses that provide for arbitration of disputes. These include purchase and sale agreements, leases, property matters, licensing agreements, executive contracts, partnerships, franchises, joint venture and loan agreements and freight-shipping contracts. Even if a clause has not been included in a contract, parties can agree to use an alternative dispute resolution method.

Who Else Uses Arbitration?

  • The Construction Industry
  • International Commerce
  • Labor-management disputes
  • Insurance claims
  • Securities
  • Trade Associations and Professional Societies
  • Private Individuals

How the Arbitration Process Works

Following are typical steps in an arbitration:

  • A party files a demand for arbitration.
  • Other parties named in the demand are notified and replies are requested.
  • The arbitrator is selected by the parties
  • A hearing date and location convenient to the parties and to the arbitrator is arranged.
  • At the hearing, testimony and documents are submitted to the arbitrator, and witnesses are questioned and cross-examined.
  • The arbitrator then issues a binding award, copies of which are sent to the parties.

How does mediation differ from arbitration?

Arbitration is less formal than litigation, and mediation is even less formal than arbitration. Unlike an arbitrator, a mediator does not have the power to render a binding decision. A mediator does not hold evidentiary hearings as in arbitration but conducts informal joint and separate meetings with the parties to understand the issues facts and positions of the parties. The separate meetings are known as caucuses. In contrast, arbitrators hear testimony and receive evidence in a joint hearing based on which they render a final and binding decision, known as an award.

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