WHAT IS COMMERCIAL ARBITRATION?
Commercial Arbitration is the submission of a dispute by agreement of business parties to a neutral third person, whom the parties have chosen to rule on their dispute. The disputing parties agreed in advance to comply with that person’s decision.
Arbitration is one of several types of proceedings referred to as Alternative Dispute Resolution or ADR which provide parties to a controversy with a choice for resolving their dispute other than a lawsuit filed in a court of law. Arbitration takes place outside of a court in a private setting before an impartial person called an Arbitrator.
While Arbitrators are often attorneys or retired judges, they may also be someone with expertise in the subject matter of the controversy being submitted to arbitration. For example, parties to a construction dispute may chose an architect to be their arbitrator.
While an arbitration hearing proceeds much like a trial there are several meaningful differences. It is generally thought to be cheaper, faster and easier than a lawsuit. The rules of evidence that apply in court are somewhat relaxed in an arbitration hearing. Discovery, which is a pre-trial procedure for obtaining evidence from the other party, is usually much more limited in arbitration than in a lawsuit. While arbitrators are supposed to make decisions based upon applicable law, they are not always required to articulate the reasons for their decisions and are not bound by previous decisions like judges. The grounds for appealing an arbitrator’s decision, called an Award, are much more limited than for appealing a judge’s decisions.
After an Award has been rendered in an arbitration proceeding, it can be filed with a court, which in most cases will routinely enter a judgment upon the Award so that it may be enforced like any other judgment.
Arbitration is most often the creature of contract. Contracts frequently provide that all disputes under the contact shall be (mandatory) or may be (elective) resolved by arbitration. One of the most interesting things about arbitration is that arbitration provisions in contracts give the parties the unique opportunity to design their own arbitration proceeding. For example, arbitration clauses in contracts may provide, among many things, that a Demand for Arbitration must be filed within a specified amount of time from the onset of a dispute, may set schedules for the arbitration proceeding in advance, may specify the location where the arbitration proceeding will take place, may expressly limit discovery, may limit the number of hearing days and may describe the type of Award the arbitrator must render (e.g., solely a monetary award or a monetary award with a reasoned decision). These kinds of provisions can be used to move the arbitration process forward more quickly and to hold down expenses.
Non-profit organizations like the American Arbitration Association, state Bar Associations and various local community organizations, to name a few, provide organizational structures to facilitate and administer arbitration proceedings.
One of the most important attributes of arbitration is privacy. Unlike court proceedings, arbitration proceedings are held in private and are confidential. Arbitration is the first choice for a party who has reasons to keep disputes and their ultimate resolution secret.
The decision of whether parties to a contract should agree to resolve their disputes in arbitration, rather than in court, is a complex one and involves a tangled web of pros and cons that can only be untangled by an attorney experienced in both arbitration and court litigation.