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Understanding Arbitration

Some contracts involved in the purchase, sale, or lease of real property contain language requiring that the parties settle any dispute through arbitration. Arbitration is a method of dispute resolution that resembles the traditional litigation process, although the proceedings are typically less formal. Also, in arbitration the parties usually agreed to employ that procedure before any dispute arose, and they may have the right to decide who will hear their case. Like litigation, at the arbitration hearing the parties present their competing evidence to the decision maker, called an arbitrator, who then makes a determination and issues an order, judgment, or decree. Under some circumstances, a panel of arbitrators will hear a case.

Similar to the trial process, arbitration has formal rules that must be followed regarding procedure and evidence. The decision is final, although there are very limited rights of appeal. Because of this limited right to review, the choice of arbitrators is crucial. The parties' lawyers can help them make this pivotal decision.

Arbitration has a number of possible advantages over traditional litigation:

• Efficiency. The parties can usually obtain a quick decision. It is not uncommon for the arbitration to be completed and the decision rendered within two to three months of selecting the arbitrator, depending on the complexity of the case and the parties' availability. Traditional litigation, on the other hand, may take years.
• Privacy. The arbitration hearing usually is not open to the public or anyone who is not involved in the matter. Traditional lawsuits, however, are open to the public and the media.
• Parties' right to choose. The parties involved in the arbitration can select an arbitrator who has extensive experience in the area of the dispute, which is far different from the process of being assigned a judge who may or may not have a background in the legal and factual issues involved. The parties involved in arbitration may also agree on the governing rules, which can be as informal or as complex as they wish, and on the location of the arbitration.
• Expense. Attorneys' fees incurred in arbitration are usually less than in litigation because less time is involved, and the parties often split the cost of the arbitrator. Also, many arbitrators allow parties to appear by telephone rather than in person for preliminary and procedural matters, saving additional time and travel costs.
• Convenience. In addition to the convenience of the location selected by the parties, arbitration hearings are often scheduled at the parties' convenience, unlike trials, which are scheduled according to a court calendar that takes little heed of the parties' other commitments.

Arbitration has long been employed in labor-management disputes. Unions and employers have found it mutually advantageous to have an informed arbitrator of their choosing resolve their conflicts in a more economical and expedient manner. Because of the proven track record in this arena, the business and commercial world is becoming more enthusiastic about using arbitration in its other disputes as well.

In a newer form of arbitration, called court-annexed arbitration, the parties involved in certain civil cases are required by the court to engage in nonbinding arbitration. A growing number of state and federal courts are adopting this approach. Another method of dispute resolution, called mediation-arbitration, or med-arb, combines the approaches of arbitration and mediation. First, the mediator attempts to bring the parties to an agreement, and then, if they cannot compromise, they proceed to arbitration for a final and binding decision.

The decision to use arbitration must be determined by a careful assessment of risk and the mutual recognition that each party shares some responsibility for the conflict. Arbitration may not, however, be appropriate in all cases.

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