Parties to an arbitration can play a larger part in determining how and when that arbitration will occur than they would in a court setting (where an assigned judge can hand down deadlines and sua sponte rulings). Arbitration parties usually play some role in choosing who their arbitrator(s) will be and whether there will be a single arbitrator or a panel. They also may agree upon a schedule and a location for hearings, which set of rules will apply to the proceeding, and whether to modify any of those rules.
Moreover, arbitration parties are not usually bound by the rules of evidence. This gives parties more leeway in determining what facts and evidence they will use to build their case. But a party concerned that its opponent will rely on prejudicial or otherwise objectionable evidence should consider whether litigation is a better option.
A party faced with an existing dispute should consider whether it has arguments or themes (for example, certain emotional appeals) that might be particularly appealing to a lay jury. If it does, arbitration—with an arbitrator who may well be a retired jurist—may not be the party’s best choice.
When it comes to litigation, a decision in the trial court is often not the end of the story; the unsuccessful party frequently appeals. On appeal, fact determinations made at the trial court level will be given some level of deference, but legal decisions by the trial court will be reviewed de novo. This standard can lend proceedings a level of unpredictability, even after a decision has been reached.
Arbitration awards face a much higher bar on appeal. The Federal Arbitration Act (FAA) provides a limited set of circumstances in which a federal court may vacate such an award. (Furthermore, there may be other relevant grounds for appealing an arbitration award under state law.) They FAA circumstances include (1) an award “procured by corruption, fraud, or undue means”; (2) arbitrator partiality or corruption; (3) arbitrator misconduct that prejudices a party; or (4) situations in which the arbitrators exceeded or imperfectly executed their powers to such an extent that “a mutual, final, and definite award upon the subject matter submitted was not made.” 9 U.S.C. § 10(a). In other words, mere error of law or fact—the typical grounds for appeal in court—is insufficient to vacate an arbitration award. However, if the parties’ arbitration agreement expressly allows parties to appeal, then they may appeal within their selected alternative dispute resolution provider (e.g., AAA or JAMS). Each entity has adopted appellate procedures that permit a broader review of the award than the FAA would allow in court.
A party whose dispute could include novel or complex issues of law—the type that are often the subject of appeals—may prefer to avoid arbitration in order to preserve access to a more robust appeals process with a more forgiving standard. On the other hand, a party who values the finality of a decision would be wise to consider arbitration.
Should a party have concerns about its opponent’s willingness to comply with an arbitrator’s award, that party should keep in mind that an arbitrator does not have any enforcement authority. If the arbitrator hands down a damages award and the losing party declines to pay it, the prevailing party will need to have the judgment confirmed in court before attempting to collect on it. Given the previously mentioned backlog facing courts, this could cause significant delay between a damages award and the victor’s collection of those damages.
Neutrality for Cross-Border Disputes
International contracts have become increasingly common in recent years, and that trend shows no sign of stopping anytime soon. Arbitration of disputes arising under those contracts is prevalent, and for good reason. Arbitration can provide a neutral forum for parties concerned about the potential bias of a foreign court or jurisdiction. Institutions like the ICC International Court of Arbitration exist for this reason and offer proceedings in a variety of major languages.
Arbitration is a popular method of dispute resolution and will remain so for the foreseeable future. Counsel should consider arbitration’s unique benefits and drawbacks when drafting contracts that might include an arbitration clause. In choosing whether to proceed with arbitration or litigation, counsel should consider privacy, time, cost, flexibility, and finality concerns, among other factors.