Arbitration: The Basics
Arbitration clauses can be found in many types and a broad range of agreements. From commercial arrangements to employment contracts, among others. According to the American Arbitration Association, over two million arbitration cases are filed every year.
The purpose of an arbitration clause in a contract is to ensure that all disputes arising from the implementation of the contract are resolved outside the traditional judicial system.
Yet, despite the increase in the use of arbitration as a means of resolving conflicts, many people still do not understand what arbitration is or how it works.
What is arbitration?
Simply put, arbitration is a process of resolving disputes without involving the courts. Aggrieved parties present their issues to an arbitrator (typically chosen by the parties) who reviews the evidence, listens to both sides, and makes the final decision. The arbitrator can but need not be a retired judge or even a lawyer. Rather, often the arbitrator can be someone who has a familiarity with the specific issues that are in dispute. Although not mandatory, it is advisable to have the assistance of experienced legal counsel when presenting your case to an arbitrator.
The arbitration process is not as formal as a conventional trial. The arbitrator acts as a jury and judge of matters brought forward by the parties. Unlike court proceedings which are a matter of public record, arbitration can be confidential. It is meant to be less time consuming than court cases, and thus less expensive in terms of legal fees. Also, arbitral decisions are meant to be final so there is no right to an appeal, which means once the arbitrator rules, the parties will essentially have certainty as to the result. Although a party dissatisfied with the arbitrator’s decision – – referred to as an “award”- – can seek to have a court vacate the award, the grounds for doing so are few in number and narrow in scope. Although the arbitration process is not conducted in court, a lawyer can help you understand the various legal aspects of the process and advance your case before the arbitrator.
Where is arbitration used?
The arbitration process is typically triggered by an arbitration clause contained in a contract – where parties have agreed to resolve any disputes through an arbitrator. The contents and scope of an arbitration clause often depend on the nature of the contract. When there is an arbitration clause that governs, should one party resort to court proceedings rather than arbitration, the other party can request that the court direct both parties to arbitration. On the other hand, if both parties proceed in court rather than go to arbitration, then they may be deemed to have waived the right to arbitrate.
Even in the absence of an arbitration provision in a contract, once a dispute arises the parties can agree to have their dispute resolved by arbitration rather than court proceedings.
Who sponsors the arbitration?
There are numerous private arbitration institutions and associations that for a fee provide rules, a list of arbitrators, administration and oversight of the proceedings, and even a physical locale for your arbitration. Arbitral institutions include the American Arbitration Association, the National Arbitration Forum, and JAMS, to name a few. Sometimes the arbitration clause in the contract specifies that a particular arbitral institution be used in the event of a dispute. Other contracts, however, do not mandate use of a particular arbitral organization, leaving it to the contracting parties to choose one. Or the parties can agree to their own mechanism for conducting an arbitration, referred to as an ad hoc arbitration. Having legal counsel familiar with the various institutions and options is helpful.
Choosing an arbitrator
Either the arbitration clause in the relevant contract or the rules of the applicable arbitral institution will provide for the number of arbitrators to be assigned to the arbitration. Typically, either one or three arbitrators is specified. The various arbitral institutions generally provide lists of approved arbitrators, with information about their background and experience, to assist you in making the choice. The rules of the arbitral institutions also specify the process for choosing the arbitrator(s). In addition to the fees to be paid to the institution, the parties will be required to compensate the arbitrator(s) for their time. If your contract does not mandate the use of a particular arbitral forum, then you can also find independent arbitrators and discuss with them the fees and terms of their service.
Getting help from a lawyer
As with any legal proceeding, it is essential that your arbitration be well strategized, thoroughly prepared, and skillfully presented by experienced legal counsel. The experienced lawyers at Kravet & Vogel can help guide you from start to finish in your arbitral proceeding.