Arbitration, Business Law
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Transcript of Arbitration, Business Law
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THE ADVANTAGES AND DISADVANTAGES OF ARBITRATION AS A
MEANS OF SETTLING COMMERCIAL DISPUTES
Arbitration is a dispute resolution process in which the disputing parties present
their case to a third party intermediary (or a panel of arbitrators) who examine all
the evidence and then make a decision for the parties. This decision is usually
binding. Like court-based adjudication, arbitration is adversarial. The
presentations are made to prove one side right, the other wrong. Thus the parties
assume they are working against each other, not cooperatively. Arbitration is
generally not as formal as court adjudication, however, and the rules can be
altered to some extent to meet the parties needs.
As in court-based adjudication, arbitration outcomes are typically win-lose, not
win-win. Thus, the arbitrator usually decides that one side was right and the other
wrong. They do not often go out of their way to develop new approaches for
meeting the interests of both sides simultaneously, as a mediator would do,
though if a win-win solution is apparent, the arbitrator would probably
recommend it.
Arbitration has several clear advantages
First, it is more flexible. The disputants can usually choose their own
arbitrator, who can be an expert in the topic in dispute, which a judge
seldom is. This makes arbitration especially useful in complex, technicalcommercial disputes
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The results of arbitration are achieved on a much shorter timeline and
usually much quicker than litigation, especially since the result is binding
and not open to appeal as litigation is, this helps a lot in settling disputes.
The proceedings are private so outsiders do not learn about the issues.
This avoids the disclosure of trade secrets and potentially embarrassing
information.
Costs are much lower with arbitration and this makes it one of the most
convenient ways of settling disputes because of the affordability of the
process. It makes all and sundry able to capable of settling disputes with
arbitration.
Rules of evidence are less strict, making it easier to get to the truth
5. There is less emotion, making it easier for the parties to deal with each
other going forward
The informal settling of a conference room instead of the courtroom may
help preserve the business relationship and increases the level of
confidentiality.
Where the investor has a choice between arbitration and a lawsuit,
arbitration can have significant advantages. Simplified procedures, such
as the lack of formal pleading rules, the absence of most pretrial motions,
and simplified discovery can substantially reduce the cost of obtaining a
decision
Most observers believe that the success of arbitration depends on its
finality. The typical labor contract or submission agreement provides that
arbitration decisions, called awards, are final and that they bind the
parties. This is understood to mean that neither party has the right to
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appeal the result to a court and that both parties understand that they are
bound to the result whether they like it or not. In the labor arena, this
quick resolution removes the threat of a strike and insures that production
will continue.
Arbitration also has disadvantages which also make it difficult in settling disputes
and these are the following:
The disadvantages of arbitration stem from the same characteristics.
Arbitration is adversarial, thus it generally does nothing to create win-win
solutions or improve relationships. Often it escalates a conflict; just as
court-based adjudication is likely to do.
In addition, arbitration takes decision making power away from the parties.
This results in a resolution of the current conflict, but does nothing to help
the parties learn how to resolve their own conflicts more effectively in the
future, as does mediation. Other people also fault arbitration for being too
informal and potentially unjust. Only the courts, with their carefully
regulated procedures can provide justice, some observers believe.
In arbitration, the arbitrators have no legal jurisdiction to bring into the
arbitration preceding all parties to the dispute; therefore, it can be difficult
to resolve the entire dispute
There is no right to traditional discovery. Therefore, most discoveries are
voluntary between the parties, and this usually does not work
well.
The rule for the exchange of exhibits in advance of the arbitration hearing
is also a source for problems. Customers must produce their exhibits and
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witness list to the opposing side in advance, whereas rebuttal exhibits and
rebuttal witnesses need not be identified in advance.
Another disadvantage of arbitration in settling dispute is that neither party
has the right to appeal the result to a court and that both parties
understand that they are bound to the result whether they like it or not.