Arbitration is an adjudicative dispute resolution in which a decision maker issues a ruling. In arbitration, disputants do not haggle back and forth to craft a settlement, as they do in a negotiated process such as mediation. Parties are usually represented by counsel who argue their cases before a single arbitrator (or a panel of three arbitrators) and the arbitrator adjudicates (or judges) the matter based on the evidence. Thus, participants in arbitration yield control of the outcome to the neutral arbitrator. This is unlike mediation, where participants design their own settlement with the help of a neutral mediator.
Arbitration vs. Litigation
Arbitration is one of the most structured dispute resolution procedures, but in some ways it’s less formal and more flexible than litigation:
- The parties can control the process by tailoring the grounds rules of the proceedings, which cover everything from scheduling to the type ad scope of possible awards
- Arbitrators’ rulings are rendered without written, explanatory opinions, unless the parties specifically require an opinion as part of their arbitration agreement
- Rules of evidence are relaxed; for example, “hearsay” evidence is allowed unless the arbitration agreement specifically forbids it, and evidence is usually admitted over the objection of the other party
- There is less pre-hearing discovery (the process through which each side obtains case-related information from the opposition)
- The process is private, and the parties decide what, if any, records will be kept of the proceedings
- Parties may choose to sit around a table with the arbitrator(s), as opposed to lining up in front of the decision maker(s), as in a court setting
Who should use Arbitration?
Arbitration is suitable for any dispute in which all parties are willing to be bound by the arbitrator’s decision and to forego appellate procedures in favor of a less lengthy, less expensive, more private alternative to litigation.
Steps in the Resolution Process
In many cases, arbitration is used by parties that want to avoid litigation, but have been unsuccessful in reaching a settlement through negotiation and mediation. Thus arbitration is often considered, and designated in commercial contracts, as a “next step” procedure following “non-adjudicative” procedures such as negotiation, mediation and mini-trial. In fact, many experts take the position that it is always better for disputants to try first to resolve their differences without adjudication. For example, the CPR Institute for Dispute Resolution advises that pre-dispute contract clauses direct parties to negotiation or mediation before arbitration. CPR’s own arbitration rules require arbitrators to encourage disputants to attempt settlement negotiations even if the arbitration has already commenced; arbitrators may even arrange to bring a mediator to help the parties settle. According to the CPR rules, “During an arbitration proceeding the door to settlement should remain open.”
Preparing for Arbitration
The most important step before arbitration is preparation of the arbitration agreement. Regardless of whether the decision to arbitrate is part of a business contract or whether it is reached after a dispute has erupted, the arbitration agreement spells out the level of control the parties want to exercise over the process.
In most cases, the arbitration cannot go forward without an agreement. It is proof that no party has been compelled to arbitrate against its will. The agreement is a contract between the parties establishing that all sides have agreed to this course of action. It is important to note, however, that while most statutes require a written agreement, it doesn’t necessarily have to be so in order to be valid. In some instances, a person’s actions may be considered an agreement to arbitrate, such as when a renter signs an apartment lease that contains an arbitration; they may not object to the proceedings later on the grounds that there was no prior written agreement.
Once the disputants have agreed that arbitration will be used, and have made decision about how it will be administered, they must prepare thoroughly for the arbitration hearing(s).
Each side must prepare its own witnesses for questioning and plan its cross-examination of opposing witnesses.
Even though there is no formal discovery process, each side can conduct informal investigations to prevent surprises. The sides can also agree on specific document exchanges.
Each disputant must carefully prepare a written brief and an oral presentation to educate the arbitrator about the facts of the case. Many arbitrators like to receive written briefs several days before the first hearing. Most dispute resolution organizations have rules covering the length of briefs and the times for submission.
Parties should be prepared to arrive at the hearings with all necessary documents explaining and supporting the case, with copies for the arbitrator(s) and the other disputants.
If the case requires a site visit by the arbitrator, all plans for the visits should be arranged in advance, and other disputants should be made aware of the time and place of the visit.
Each side must spend time anticipating the questions, evidence and arguments that will be presented by the opposition.
Disputants must also consider whether it will be necessary to have an outside expert testify. If one side chooses its own expert, it can be sure the opposition will find an expert to counter that testimony. An alternative is to have the arbitrator(s) choose a neutral expert whose opinion is binding on all participants.
The arbitrator calls the arbitration hearing to order. At the outset, disputants hand in any pre-hearing briefs or documents that may have been requested.
The arbitrator, unlike a judge, has the authority to determine the order of the proceedings. Usually, however, the complaining party leads off by presenting evidence to support its claims. Then, the defending party makes its presentation. Following both sides’ presentations, witnesses are called and questioned. Again, the complaining party calls its witnesses first and does its “direct examination,” after which the other side “cross-examines. ” Then, witnesses for the defense are called for direct and cross-examination.
Of all the elements in the arbitration process, many experts believe direct examination is the most important. Each side should think carefully about the order in which witnesses are called and the questions to be asked. Witnesses should be carefully prepared for both direct and cross-examination, so that the case is presented in the most logical and convincing manner possible.
The arbitrator may rearrange the sequence of the proceedings, based on such matters as the complexity of the case and the availability of witnesses and experts. Regardless of the actual order of events, however, the most important consideration is that the arbitrator gives each side an equal opportunity to present its case.
The type of evidence presented in arbitration is like that presented in a civil court trial. It may take the form of testimony or depositions from witnesses and expert witnesses, contracts, correspondence business records, charts, photos, or any other pertinent exhibits. While traditional rules of evidence (regarding what kinds of evidence are permissible and when they should be presented) generally guide counsels, arbitration does allow for flexibility. The ultimate decisions on what may be presented, and when, are governed by statutes, stipulations, arbitration agreements and the arbitrator’s discretion.
As in a court trial, disputants take turns presenting their own evidence and rebutting the evidence of the other side. The “burden of proof” – that is, the duty each party has to prove its allegations or claims – depends on a “preponderance of the evidence. ” Thus, each side must keep in mind that the quality, not necessarily the quantity, of evidence it provides must be sufficient to convince the arbitrator of its position.
The parties decide if they want to have a stenographic record of the proceedings. Some experts point out that it may be an unnecessary expense since arbitrators take expansive notes and the outcomes are, by and large, not subject to appeal. Disputants should also be aware that the arbitrator may rule that a stenographic record, even if it is arranged and paid for by one side, must be made available to the arbitrator and the opposition.
After all evidence is presented, the parties or counsel usually present closing statements. Standard arbitration rules and statutes do not require summations, but most counsel requests permission to sum up their cases, believing it is an important opportunity to pull all their facts together and make a final appeal. Experts advise that closing arbitration statements should be unemotional, well-organized, logical summaries of the main points, evidence and relief sought in the case.
After summations, the arbitrator must ask the parties if they have any final arguments, evidence or witnesses to present. When the disputants are satisfied with the presentations of their cases, the arbitrator declares the proceedings officially closed. Arbitration rules usually specify the time the arbitrator has to render a decision. This period begins after the proceedings are declared closed. If no time has been specified, some state statutes require that the award be made within 30 days. In the absence of a more specific statute, the Uniform Arbitration Act states only that an award will be made within the time set by an arbitration agreement, or “within such time as the court orders on petition of a party. “