Arbitration is a form of voluntary or contracted private alternative dispute resolution, a way to resolve disputes outside of the public court system. Arbitration is often a “creature of contract,” because it is agreed to as part of a contract’s dispute resolution clauses. In contract dispute arbitrations, an arbitrator or a panel of arbitrators will conduct proceedings and make a decision based on the authority granted to them in the contract.
WHAT IS ARBITRATION AND WHO SHOULD USE IT?
Arbitration is a private, sometimes binding, process for resolving disputes outside of the court system. In arbitration, disputes are resolved by an arbitrator or panel of arbitrators (sometimes called “neutrals,” an “arbitral tribunal” or simply the “tribunal” or “panel”). The arbitration ends when the arbitrator or arbitrators make a decision, called an “arbitration award.”
What is binding arbitration?
Binding arbitration is final and legally binding on both sides, and the award is enforceable in Court. When parties agree to binding arbitration, there is a very narrow scope of review and appeal right. Courts are highly deferential to the arbitrator’s decision and typically confirm the arbitration award. In some rare circumstances, as described below, a Court may “vacate” a binding arbitration award.
Is arbitration better than going to court?
There are advantages and disadvantages to arbitration. For parties that prefer a voluntary and private process, arbitration has some advantages. For example, parties can decide the scope of the arbitration and powers of the arbitrator. This may reduce time and cost to reach a decision. Parties can also choose the arbitrator, and can select arbitrators with expertise in the industry or subject matter of the dispute. Arbitration is also a private proceeding without the public filings associated with going to court.
However, parties to an arbitration typically waive jury trial rights, and some might prefer public courtroom proceedings to deter wrongdoing or the public jury trial as a stronger inducement to settlement. Arbitration awards are also very difficult to appeal because Courts defer to the arbitrator’s fact determinations, and will usually defer even if the arbitrator makes legal errors.
Who uses arbitration?
Arbitration is open to anyone but is usually used for contract disputes. Unlike a Court process, a person cannot be compelled to appear and respond in arbitration against their agreement. In arbitration, the parties agree to submit the dispute to arbitration before arbitrating. Usually, this agreement is already made as part of a goods or services contract. If you sign a valid contract which requires disputes be submitted to arbitration, or if you otherwise enter into an enforceable agreement to arbitrate a dispute, then you can be compelled to arbitrate by a court enforcing the contract or agreement.
What are arbitration entities and what are their differences?
There are several organizations that offer arbitration services, both domestically and for international arbitrations, such as the American Arbitration Association (the “AAA”), JAMS (f/k/a Judicial Arbitration and Mediation Services, Inc.), and the International Chamber of Commerce (“ICC”). There are also industry-specific organizations that offer arbitration services such as the Financial Industry Regulatory Authority (“FINRA”) and Independent Film and Television Alliance (“IFTA”).
These organizations provide a set of rules and procedures to conduct arbitrations, and some include different rules depending on the type of dispute.
Does arbitration require a formal organization?
You don’t have to use an organization such as JAMS or the AAA to conduct arbitration, sometimes called “institutional arbitration.” While this is typically how arbitration is conducted, arbitration can also be “ad hoc.” The essential elements of arbitration are the agreement to arbitrate, the submission of the dispute to an arbitrator or arbitrators, and an award or decision resolving the dispute.
WHAT HAPPENS IN ARBITRATION?
Arbitration has stages similar to a litigation, in which the parties first write out their claims, defenses, and counterclaims, then agree to procedures, and then exchange and present evidence for resolution by the arbitrator. However, arbitration processes are more flexible than litigating in Court and can be agreed to or changed by the parties. Therefore, arbitration typically involves less litigation activity than a judicial proceeding.
What is the process of arbitration?
Arbitration usually begins when one side to a dispute, called a “Claimant” prepares a document usually called “Statement of Claim.” The Statement of Claim explains the basis for the dispute and what the claimant is asking for. This Claimant then serves the statement on the counterparty, called the “Respondent.” Often the Claimant submits the Statement to an arbitral organization to serve the Respondent. The Respondent then files and serves a document, usually called a “Statement of Answer,” responding to the claims and including defenses and counterclaims. These documents are like the “pleadings” of a typical court case.
After the parties have filed their pleadings, they typically select an arbitrator from a list of arbitrators provided by the arbitral organization or as otherwise agreed. The arbitrator and the parties then agree on procedures for exchanging evidence, preparing arguments, and holding hearings, or they may default to the rules used by the arbitral organization. The arbitration ends when the arbitrator or panel closes the record and issues an award.
What evidence can be presented in an arbitration proceeding?
Arbitration is usually less formal than litigation, and the parties may create procedures for the arbitration by agreement or using the rules of the arbitral organization. Usually, any evidence that could be used in a Court proceeding can also be used in arbitration. This includes authenticated, admissible documents, witness testimony in the form of sworn statements or even live witness testimony involving direct and cross-examination. Usually, parties in arbitration do not engage in as much “discovery” of evidence as would be typical in a Court case, and would not search for or exchange as many documents as they would in a court case. However, arbitration parties can agree to extensive evidence and procedures in conducting the arbitration if they prefer.
What is the outcome of an arbitration process?
The arbitration concludes with an arbitration award, issued by the arbitrator or arbitral panel. Awards will state which side prevailed in the arbitration on the issues that were submitted to the arbitrator or panel for resolution. Depending on the agreement between the parties and the arbitrator, the award can include the arbitrator or panel’s reasoning. This may also discuss application of legal standards or laws, or “equitable” considerations, meaning issues of fairness. Typically an arbitration award will order a party to: (i) pay money to the other side (a “damages” award); (ii) do or refrain from doing some act (an award of “injunctive relief”); (iii) perform some contract or obligation (an award for “specific performance”); (iv) or amend or change a document (“rectification”). If the arbitration is “binding,” the award can be confirmed by a Court and turned into a Court judgment. In rare circumstances, a Court may “vacate” an arbitration award, which means it undoes the arbitrator or panel’s decision.
When can a Court vacate an arbitration award?
A Court will rarely vacate an arbitration award. The standards that govern when the Court can vacate an award vary slightly between states and between state and federal law, but are usually substantially similar. These standards permit a Court to vacate an award only where one or more parties’ due process rights were severely compromised in the arbitration. This can happen where: (i) the arbitrator’s decision was outside the scope of the parties’ agreement; (ii) the arbitrator had a conflict of interest withheld from the parties; (iii) one or more parties committed fraud in the arbitration that influenced the arbitrator or panel’s decision; or (iv) the award did not resolve the dispute.
EXAMPLES OF ARBITRATION
Arbitration happens all the time in a variety of situations, ranging from disputes between individuals (for example, in a contested divorce) to negotiations between countries (for example treaty and border disputes). Many contracts include arbitration clauses because the arbitration process is often more efficient and cost-effective than litigation. Because of this, arbitration is especially common for resolving contract disputes. For example, arbitration is commonly used to resolve disputes concerning broker commissions, insurance coverage, stockbroker and brokerage agreements, labor negotiations, software services agreements, shipping contracts, and other goods and services contracts.
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