Arbitration falls under the category of Alternative Dispute Resolution, commonly shortened to ADR. In short, ADR offers an alternative path for people to resolve their disputes in ways that are outside of the normal legal channels, such as filing a lawsuit in court.
Arbitration is different than the court system. It is not a judicial process, even though there is sometimes pressure to treat it as such. Arbitration sprang from a premise that business and industry disputes may be best resolved outside of a criminal court system. Arbitration is common in business and commercial contracts; these are the cases that it was originally designed to address, and they represent the bulk of the cases today.
Private and Binding:
Arbitration is a private process that results in a binding decision, called an award. Arbitration offers a confidential hearing before a neutral decision-maker, often an industry expert, who delivers a binding award with limited appeal after providing the parties with a full and fair hearing. Confidentiality is perceived as a tremendous benefit, protecting the reputations of those involved in the dispute. This is in stark contrast to courts of law, where decisions are published and referred to for years to come. Arbitration is primarily used in business and commercial disputes, and also in family matters. Arbitration is not generally a venue for criminal cases. Parties may agree on many aspects of arbitration either ahead of time, by including an arbitration clause in a contract, or at the time a dispute arises. Agreements about how arbitration is conducted includes what forum will administer the claim, where the hearing is conducted, what type of hearing, whether the award should be a simple award or fully supported (a reasoned award), and other procedural matters. Many arbitrators are appointed or selected based on their expert knowledge and experience within an industry; others are chosen for their understanding of the legal process, such as former administrative law judges or seasoned, reputable attorneys.
An arbitrator is a private judge; a finder of fact in a hearing of equity. Arbitrators must disclose any known conflict of interest and sign an oath that they have no known bias and can be fair in dealing with the parties and the subject matter in dispute prior to accepting appointment to a case. Parties may not contact or communicate with the arbitrator outside the presence of all parties to the dispute. Private communications, called ex parte communications, are forbidden to preserve neutrality and to ensure fairness of the process. For this reason, claimants must choose a forum to administrator the case, rather than contacting an arbitrator directly. A USADR Case Administrator can be contacted via email or by phone 303-256-6400.
It is common to have either a single arbitrator for small to mid-size claims. A panel of three arbitrators is used in very large claims, due to the treble fees that a panel requires.
Rules of Procedure:
The arbitration process is governed by rules of procedure published by arbitration forum that provides administrative services for the arbitration proceeding. When a contract provides that any disputes will be settled by binding arbitration using specific rules of procedure, the arbitrator conducts the case according to the time frames, document and exhibit provisions, and hearing parameters noted in the rules. The parties may jointly agree to utilize USADR's administrative services rather than the forum specified in the contractual arbitration provision. By joint agreement, the arbitrators may conduct the arbitration utilizing the rules specified in the contract, or that the parties unanimously agree to. ♦More about Rules
Size of Claim Determines Procedure:
USADR’s rules provide that smaller claims have a less formal hearing than larger claims in order to provide reduced cost and compressed time frames for the benefit of the parties. Small Claims ($14,999 or less) have a flat fee and are decided on the written evidence submitted. Expedited Claims ($15,000 - $74,999) have an administrative fee and a flat hearing fee if conducted in four (4) hours or under. Large Claims ($75,000 and over) consist of one or more pre-hearing teleconferences followed by a hearing attended by the parties and their attorneys, when represented. The necessary hearing time is determined by the parties. ♦More about Types of Hearings
Arbitration is Less Formal than Litigation
Using the court system to solve problems is often overkill. The length of time necessary to get to hearing is often prohibitive. The legal process is punctuated by formality and is often confusing to non-attorneys. A business or layperson’s understanding of the Rules of Evidence often prohibits submitting evidence in litigation unless it is done in a narrow, specific way. Legal formality fosters the need to hire an attorney, which adds to the cost of resolving the dispute, and the dispute itself is usually costly. It is not uncommon for litigation to take years! Additionally, the element of fairness may not be addressed by a judge because judges are bound by both the written law and an extensive body of case law, created over the years by a myriad of past cases that may or may not seemingly apply to your business case.
Arbitration is Not Mediation
Mediation also falls under the category of ADR, and often these terms are used interchangeably due to confusion. To clarify, mediation is a formal negotiation of the matter and does not have a guaranteed conclusion. Just like when you offer to buy a car, if the seller doesn’t like the deal, they can walk away. If the seller likes the deal, they sign a contract and there is a legal consequence – the car’s ownership changes hands. However, arbitration results in a decision, like it or not. Arbitration offers a full and fair hearing of each party’s presentation of the evidence and testimony of the parties. Big difference, even though both mediation and arbitration fall under the category of Alternative Dispute Resolution, or ADR for short.