Arbitration: Advantages and Disadvantages

Arbitration is a method of resolving disputes without going to court. Sometimes an attorney will recommend arbitration to a client as the best means to resolve a claim. In arbitration, the dispute is submitted to a third party (the arbitrator) who resolves the dispute after hearing a presentation by both parties. The presentation may be just documents submitted to the arbitrator by each side. More often, in addition to the documents submitted, each side will make an oral argument in person. Usually, each side will have an attorney to make the oral argument for them. Occasionally the presentation also includes witnesses who testify.

Advantages of Arbitration

There are numerous advantages to arbitration as a way to resolve a case.

  1. The parties to the dispute usually agree on the arbitrator, so the arbitrator will be someone that both sides have confidence will be impartial and fair.
  2. The dispute will normally be resolved much sooner, as a date for the arbitration can usually be obtained a lot faster than a court date. In Virginia, a trial date is normally about twelve months from the date the lawsuit is filed.
  3. Arbitration is usually a lot less expensive. Partly that is because the fee paid the arbitrator is a lot less than the expense of paying expert witnesses to come and testify at trial. (Most of the time the parties to arbitration split the arbitrator’s fee equally). There are also lower costs in preparing for the arbitration than there are in for preparing for a trial. Partly this is due to the fact that the rules of evidence are often more relaxed than in a trial, so that documents can be submitted in lieu of having a witness come to trial and testify. For instance, if a claimant has several doctors who are out-of-state, the cost of bringing them to trial or going out-of-state to take their depositions may be prohibitive for trial, but in arbitration you can usually use just their records and reports.
  4. Unlike a trial, arbitration is essentially a private procedure, so that if the parties desire privacy then the dispute and the resolution can be kept confidential.
  5. If arbitration is binding, there are very limited opportunities for either side to appeal, so the arbitration will be the end of the dispute. That gives finality to the arbitration award that is not often present with a trial decision.

Disadvantages of Arbitration

There are, however, also some disadvantages to arbitration as a method of resolving a dispute.

  1. If arbitration is binding, both sides give up their right to an appeal. That means there is no real opportunity to correct what one party may feel is an erroneous arbitration decision.
  2. If the matter is complicated but the amount of money involved is modest, then the arbitrator’s fee may make arbitration uneconomical. It may be cheaper to try the case before a judge in General District Court, where medical evidence can be presented by affidavits instead of paying the doctor to testify. However, the amount that can be awarded in that court is currently limited to $15,000.00.
  3. Rules of evidence may prevent some evidence from being considered by a judge or a jury, but an arbitrator may consider that evidence. Thus, an arbitrator’s decision may be based on information that a judge or jury would not consider at trial.
  4. If certain information from a witness is presented by documents, then there is no opportunity to cross-examine the testimony of that witness.
  5. Discovery may be more limited with arbitration. In litigation, Discovery is the process of requiring the opposing party — or even a person or business entity who is not a party to the case – to provide certain information or documents. As a result, many times arbitration is not agreed to until after the parties are already in litigation and discovery is completed. By that time, the opportunity to avoid costs by using arbitration may be diminished.
  6. If arbitration is mandatory or required by a contract, then the parties do not have the flexibility to choose arbitration only when both parties agree. Mandatory arbitration allows one party to force the other party to use arbitration. In situations where the arbitrator is reliant on one party for repeat business [1], then the potential for abuse is present and the advantage of impartiality is lost [2].
  7. The standards used by an arbitrator are not clear, although generally the arbitrator is required to follow the law. However, sometimes arbitrators may consider the “apparent fairness” of the respective parties’ positions instead of strictly following the law, which would result in a less favorable outcome for the party who is favored by a strict reading of the law. Although this issue has been present since antiquity (Aristotle said ” an arbitrator goes by the equity of a case, a judge by the law, and arbitration was invented with the express purpose of securing full power for equity,” this consideration is often overlooked in evaluating the applicability of arbitration.

In sum, arbitration is a very useful tool for resolving disputes, but careful consideration has to be given as to whether it is applicable to or preferable in a particular dispute. Your attorney will advise you if it is appropriate in your case.

About The Author: Clayton Allen has been helping clients with all types of personal injury claims for more than 30 years. He is highly respected in the legal community for his meticulous research and legal analysis. Outside of the courtroom Clayton serves on the Board of the International Hospital of Children, an organization which provides healthcare to children in underserved countries.

[1] See Wall Street Journal article detailing claims by former employee that the National Arbitration Forum favored some repeat business clients over consumers and even directed arbitrators to reverse decisions that were favorable to consumers.

[2]  BusinessWeek magazine articles regarding lawsuits claiming that the National Arbitration Forum (NAB) was biased in favor of business clients over consumers, and that a lawsuit by the Minnesota Attorney General claiming fraud and bias forced the NAB Forum to stop arbitrating consumer disputes. At that time, the NAB was apparently the United State’s largest company that was arbitrating delinquent credit card debt (often under mandatory arbitration clauses in consumer credit card contracts).