Arbitration: Advantages and disadvantages

What is arbitration?

Arbitration is a method of resolving disputes without going to court. Sometimes an attorney will recommend arbitration to a client as the best means to resolve a claim. In this post, we will break down the advantages and disadvantages.

In arbitration, the dispute is submitted to a third party (the arbitrator) who resolves the dispute after hearing a presentation by both parties. The presentation may simply be documents submitted by each side. More often, in addition to the documents submitted, each side will make an oral argument in person. Usually, each side will have an attorney to make the oral argument for them. Occasionally the presentation also includes witnesses who testify.

The advantages of arbitration

There are numerous advantages to arbitration, such as:

1. The parties usually agree on the arbitrator, so that both sides have confidence that the proceedings will be impartial.
2. Disputes are often resolved sooner because, in Virginia, a trial date takes about twelve months from the date the lawsuit is filed.
3. Arbitration is often less expensive than expert witnesses for trial.  Plus, the parties usually split the arbitrator’s fee, which customarily costs less than preparing for trial.
4. Arbitration is essentially a private procedure, so if the parties desire privacy,  the details will be kept confidential.
5. Very limited opportunity for appeals means that the arbitration will be the end of the dispute, providing finality.

The disadvantages of arbitration

There are, however, also some disadvantages to arbitration as a method of resolving a dispute.

1. Both sides give up their right to an appeal, which means one party could end up feeling slighted.
2. If the matter is complicated but the amount of money involved is modest, the arbitrator’s fee may make arbitration uneconomical.
3. Strict court rules may prevent some evidence from being considered by a judge or a jury, but an arbitrator may consider that evidence.
4. If certain information from a witness is presented, there is still no opportunity to cross-examine the testimony of that witness.
5. Discovery may be more limited with arbitration. In litigation, discovery is the process of requiring the opposing party to provide certain information.
6. Mandatory arbitration allows one party to force the other party to use arbitration. In situations where the arbitrator is reliant on one party for repeat business, then the potential for abuse is present and the advantage of impartiality is lost.
7. The standards used by an arbitrator are not clear, because at times, arbitrators may consider the “apparent fairness” of the respective parties’ positions instead of strictly following the law. This would result in a less favorable outcome for the party who is favored by a strict reading of the law.

The latter issue has been present since antiquity (Aristotle said ” an arbitrator goes by the equity of a case, a judge by the law, and arbitration was invented with the express purpose of securing full power for equity.”), and yet this consideration is often overlooked in evaluating the applicability of arbitration.

In sum, arbitration is a very useful tool for resolving disputes, but careful consideration has to be given as to whether it is applicable to or preferable in a particular dispute. Your attorney will advise you if it is appropriate in your case.