Under the general heading of Alternative Dispute Resolution (ADR) are several different processes that, together, may help ease the crush of court cases. Arbitration is one of these dispute resolution methods, where the contending parties present their cases to a third party (one arbitrator or a panel of arbitrators). The arbitrator(s) will examine the evidence and then make a decision that is usually binding. This process, like the court proceedings it is intended to replace, is adversarial, with each side attempting to prove it is right, and the other wrong. It is, quite obviously, not a cooperative effort. Neither is arbitration as formal as court adjudication, as procedures can be modified to fit the particular situation and participants.
The outcomes of arbitration, like court decisions, are definitely not win-win. In mediation, a different kind of ADR, the mediator often seeks simultaneously to uphold, or at least balance, the interests of both parties. An arbitrator has a completely different mindset and goal, although a win-win solution is sometimes possible – and if one were obvious, the arbitrator would doubtless recommend it. However, unlike mediation, the purpose of arbitration in nearly every instance is to choose a winner and a loser.
Labor and commerce
Arbitration has long been used to resolve everything from day-to-day consumer complaints to serious conflicts between labor and management, as well as between and among businesses. In labor matters, the vast majority of all collective bargaining agreements require arbitration to be used for dispute resolution. Far more work stoppages and strikes have been reversed or averted through arbitration than government intervention or other actions. Arbitration is an accepted method, even internationally, for reaching “out of court” settlements.
Arbitration has distinct advantages, perhaps the most important being its flexibility, in contrast to carefully choreographed court proceedings. Contending parties usually select their own arbitrator(s), who are often experts in the disputed matter or topic. Very seldom is this the case with a judge. For complicated, technical and arcane matters – more and more common as technology continues its onward march – this expertise on the part of the arbitrator is extremely significant.
Many commercial contracts, like labor agreements, mandate that any disputes that arise be resolved through arbitration. Some contracts even specify which arbitrator or arbitration firm is to be used. In some few cases, arbitration procedures are even defined in the original contract or agreement itself.
Arbitration also saves time, and since the result is usually binding and not up for appeal (like litigation) a case cannot take on a life of its own. Another important consideration is that arbitration is a private proceeding. This protects companies’ trade secrets, just as it can keep potentially embarrassing revelations from leading the nightly news.
At home and abroad
In the U.S., an arbitrator can be an individual from any walk of life, and work privately, as a contractor or employee of an arbitration firm, or as appointed by a court or government agency. Arbitrators are supposed to be neutral, of course, but are also assumed to have more than a layman’s grasp of the industry and issue at hand. The National Arbitration Forum is one of the nation’s largest arbitration firms, and many law firms, big and small, have added these services on their shingles.
Many international commercial or business disputes are also resolved through arbitration, and a number of worldwide organizations are now doing this. The International Chamber of Commerce (Paris), the International Court of Arbitration administered by the World Business Organization and the Arbitration Institute of the Stockholm Chamber of Commerce are among the best known. All of these entities have their own policies and procedures, rather than every nation on the planet setting its own rules (which would lead to “jurisdiction shopping”). Companies considering arbitration can choose from a wide range of service providers that share the same basic methods, but have different emphases and strengths so that an appropriate venue can be chosen.
Why not mediation?
As opposed to the adversarial arbitration approach, mediation is a much more informal process, and a cooperative one, at that. A trained, impartial mediator helps the disputants find a mutually acceptable solution, mostly by facilitating communication between and among the various parties. Mediation differs from such other forms of dispute resolution as arbitration and litigation in that the mediator does not impose solutions. A good mediator does not “solve” the problem, but keeps the communication going and the ideas flowing so that the opposing camps can find their own, unique solution.
Mediation does provide some similar advantages to arbitration. Still, it is a cooperative process, not adversarial. When the disputants are unable to discuss matters effectively, even with a mediator’s help, or get stuck and don’t want to cooperate further, mediation will not work, and arbitration should be considered. Arbitration is also more effective when the case at hand involves determining hard facts or interpreting law.
Good communication helps
There is no single principle or activity that you can count on to keep you free of problems in your business. You cannot control everything in the world, and “things happen.” When these things happen in business and cause you loss and/or damage, your goal from the start should be “restoration,” that is, a return to the pre-problem state. For example, if a customer pays you $40,000 on a $50,000 invoice because he says some product was missing, you don’t need a policeman or an arbitrator at first, just a phone. Your goal is restoration, not punishment. You want to get all the facts, talk to your shipping department, contact the other company’s receiving department and so on. You want the money or the missing product back – it’s that simple. Only when things become complicated, affecting your bottom line, should you take a first step toward arbitration.
There are, of course, disadvantages to the arbitration process, and these are related to the same characteristics that make it advantageous. It is an adversarial procedure and will rarely lead to mutually positive outcomes. Neither will it build or improve commercial relationships. In fact, it is very much like “taking someone to court” and can create great hostility. Also, arbitration does not teach the participants how to resolve conflicts more effectively in the future, as mediation can do.
On balance, certainly, arbitration is a positive development in our rapidly globalizing economy. The more businesses (and individuals, too) that eschew the clogged courts in favor of what might be termed “privatized justice,” the better for everyone. Decisions are rendered faster, at less cost and without having to coerce the involved parties. It is not advisable in every instance, and good legal advice is still needed by the participants. But as a way to unclog the pipelines leading to and through the civil courts, arbitration may be just the thing.
The law offices of Bob Schuster, P.C. Specialize in commercial litigation, brain injury, intellectual property infringement and carbon monoxide poisoning cases. Visit their site for more information on commercial litigation and how you can get what you deserve.