At a recent presentation to a group of in-house counsel on the subject of cost-effective litigation, one of the topics was arbitration. In the course of the presentation the audience was surveyed regarding their experiences. The reaction was almost uniformly negative. The general consensus was that arbitration is just as expensive and time-consuming as litigation, perhaps even more so, and with highly unreliable results.
There is merit to the point about unreliable results. Litigation has exhaustive discovery, careful evidentiary controls, a judge experienced in applying the law, a jury deciding the facts, and a thorough appellate review process. Arbitration generally does not have anywhere near the procedural protections of litigation. This can, and often does, lead to results that are not what would be expected from the judicial process. That is a risk to be considered when deciding whether to include an arbitration clause in a contract and whether to invoke it when a dispute arises.
That risk has to be balanced against the three potential advantages that arbitration has over litigation:
Arbitration can be considerably cheaper than litigation, but only if you focus on that goal at the outset. Few arbitration agreements spell out the details of arbitration procedure, leaving it to the parties and the arbitrator to work them out when a dispute arises. Here are some cost-saving mechanisms that have been used successfully in arbitration:
Litigation is public; arbitration does not have to be. But unless the arbitration agreement is clear on this point (and many are not), it is vital to get a robust confidentiality order entered at the outset of an arbitration. The order should encompass all aspects of the arbitration—the hearing, briefing, documents exchanged, correspondence, and any orders of the arbitrator. It should include a narrow carve-out for disclosures required by law and disclosures necessary to confirm or challenge an award.
An arbitrator can generally order whatever relief he or she thinks is right, regardless of whether such relief would be available in a court of law. This is an express part of arbitration law and procedure. See, e.g., AAA Commercial Arbitration Rule 47(a) (“The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties, including, but not limited to, specific performance of a contract.”). It is also an indirect consequence of the fact that arbitration awards are effectively unreviewable. But arbitrators—who are sometimes former judges and almost always lawyers—may not be naturally inclined to use this broad authority unless asked. So think creatively. For example, if as a legal matter your case is all-or-nothing but a fair result would be something in the middle, you may want to expressly suggest a reasonable compromise position for the arbitrator to consider.
The challenge with each of these potential benefits is that they are not likely to happen automatically, but rather must be consciously pursued. Otherwise, you can get an arbitration that is the worst of both worlds: all of the problems of the litigation process and none of the benefits. Which, based on the informal survey of in-house counsel described above, appears to happen frequently.
