Arbitration can be used to resolve everything from personal injury cases and commercial disputes, to conflicts between countries. But how does it differ from mediation and litigation? Why would clients opt for arbitration over other forms of dispute resolution?
In this post, we're breaking down some of the most common advantages and challenges of arbitration, with the goal of helping newcomers to the field get a better sense of how this process works.
Thinking about becoming an arbitrator? Take a look at the key features of arbitration, and some of the issues you'll face helping clients settle dispute within this framework.
Choice: Participants Can Decide the Arbitration Structure & Process
In litigation, parties have very little say over how the process unfolds. They can't choose the judge, modify the structure of the proceedings, or decide where it will take place.
In arbitration, on the other hand, participants have a lot more choice. They decide on the arbitrator (or arbitration panel) together. They choose the place where the arbitration will take place and agree on the rules of procedure.
For example, an arbitration can play out in an informal setting, with parties seated around a table. Or it can adopt a more formal courtroom process, where witnesses are examined and cross-examined and the rules of evidence are followed.
Skilled arbitrators are prepared to adapt their approach to suit the needs of each client and the nature of the dispute .
Expense: Arbitration Usually Costs less Than Litigation
In many cases, the streamlined nature of arbitration (versus litigation) helps control expenses. The process tends to be faster, as there is limited time for research and investigation ("discovery.")
Plus, with litigation there are far fewer unpredictable costs. Parties just have to pay their counsel and then split the cost of the arbitrator. In litigation, a longer, more drawn-out process makes it much harder to know just how big the bill will get.
Time: Arbitration is Typically Faster Than Litigation
Because parties can define the structure for arbitration and even set an end date for the process, it's typically a much faster alternative to settling disputes in court. It's even possible to fast track an arbitration, and the built-in flexibility helps remove much of the red tape associated with litigation.
With delays and continuations, court disputes can take months or even years to play out—whereas arbitration can be completed in a matter of weeks.
(There are some exceptions, though. Complicated disputes with multiple parties and arbitrators can be quite long and drawn out.)
Privacy: Arbitration is Confidential
Have a client who doesn't want media coverage or for the details of the conflict to become publicly known? Arbitration is an ideal solution. Where litigated disputes offer very little in the way of discretion, arbitration can be kept private and confidential. This is widely considered a major advantage of arbitration.
Adversarial: The Win-Lose Outcome Can Be a Problem in Some Cases
Similar to litigation, arbitration is an adversarial, win-lose process. It's possible for an arbitrator to negotiate an outcome that benefits both parties—but this is mostly associated with mediation.
So, much like litigation, there is usually a party who feels disappointed in the end, which can easily lead to a re-escalation of conflict.
Adding fuel to the fire, arbitration awards can rarely be appealed, so there's little recourse if one party feels wronged and wants to challenge the decision.
Experts agree that this win-lose dynamic is the main reason arbitration has fallen out of fashion for resolving international disputes (more on this later).
In these cases, mediation is usually preferred, so both parties can walk away feeling as though they've gained something—which hopefully paves the way to reconciliation and a more productive relationship.
Enforcement: Will the "Award" be Respected?
This is another issue that can be particularly challenging in international disputes (and another reason we've seen a shift away from arbitration between countries).
At the end of an arbitration, the arbitrator reaches a decision and decides on an outcome, known as the "award." When parties agree to arbitration, they also agree to respect the outcome and abide by the award. If they refuse, there are usually structures in place to enforce the decision or transfer the matter to court.
But in international cases, it's much easier for parties to avoid implementing the decision—or look for ways to challenge the outcome.
Enforcing arbitration awards between international parties gets very tricky, which is another reason why mediation is often preferred for cross-border disputes.
Can the Informality of Arbitration Jeopardize Fairness?
This is a point of contention among legal professionals. Some say the potential informality of arbitration may actually be a disadvantage for clients, who don't end up benefiting fully from the rule of law. Others suggest that arbitrators often strive to split the difference to please both parties, rather than focusing on what is fair and just.
There are indeed some highly contested disputes that are more appropriate for litigation versus arbitration—where a formal discovery process and the rules of evidence are necessary to reach a fair outcome.
The truth is, there are pros and cons to every form of dispute resolution, including litigation, arbitration, mediation, and negotiation. Each has its own advantages and limitations.
Are you interested in delving deeper into the differences between these models? Considering becoming an arbitrator, and want to learn more about arbitration training?
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