Volume 6 Issue 2

Mar/April 2002

© by Newland & Associates

What is arbitration?  Perhaps the best way to define "Arbitration" is to distinguish Arbitration from other means of resolving conflicts.  Broadly speaking, there are at least four ways to settle disputes:

1. Fighting
2. Litigation
3. Arbitration
4. Mediation.

Since Fighting is both a well known means and impractical, we’ll ignore it.  Of the remaining three, litigation is the most formal way of handling a disagreement and mediation is the least formal, leaving Arbitration sandwiched in the middle.  

Litigation

Litigation is the default system.  It is a process usually supervised by older people in odd black robes wearing perpetual frowns.  If you have a dispute with your neighbor, Evyl, civil litigation allows you, the plaintiff, to bring an action in court to get monetary damages from Evyl for, or restrain him from, raising the pythons which recently ate both of your dogs. 

Mediation

Mediation, often used in labor disputes and divorce cases, is a voluntary process of bringing aggrieved parties together with the hope of reaching a resolution.  If mediation is agreed to, mediators, often paid, discuss the problem with the two parties and try to effectuate a settlement to which both parties MUST agree.  The need for mutual agreement is deemed by some to be the major weakness in the mediation process.  If one of the parties is a flaming #$%&*, it will be difficult to reach agreement.

How Does Arbitration Work?  What Are Some Of Its Advantages And Disadvantages?

Arbitration is most often used to settle contractual or commercial disputes. Rather than going to court or mediation, the parties can agree in advance (in the contract) that Arbitration will be used to settle any disagreements.

Many lawyers can, and will, differ strongly on Arbitration’s merits, so don’t be surprised if your attorney disagrees with these comments. 

If the underlying agreement provides for Arbitration, one of the parties to the contract must file a request for Arbitration and pay the required fee to a group that provides Arbitration services.  Often the Arbitration service will suggest an arbitrator or arbitrators to which the parties must agree. The arbitrator may be an attorney, judge, CPA, or businessperson. 

After the parties have defined their dispute, there will be a hearing, often in the arbitrator’s office, at which the parties present evidence and witnesses in a fairly informal manner without the formal rules of evidence used in court litigation.  After the evidence has been presented, the arbitrator reaches a decision and usually later sends the parties a written opinion (an order).

Arbitration is usually quicker, simpler, and cheaper than litigation, but to many there is one perceived disadvantage — no appeal.  With a few narrow exceptions, like fraud, there is no way to appeal an arbitrator’s decision.

Like litigated judgments, and unlike mediated settlements, an Arbitration order can be enforced in court under laws that allow an Arbitration decision to be entered in the court system and then become a “judgment.”  The prevailing party can collect on the Arbitration order using all available legal collection methods, such as levies on property.

The ability to collect an Arbitration monetary judgment through the legal system is one the main distinguishing factors between Arbitration and mediation.  There are some other advantages of Arbitration, as well:

• The arbitrator will often be more familiar with business matters than most judges.
• The Arbitration proceedings are not public and there are no juries.

Newland & Associates regularly incorporates Arbitration wording in its fee agreements.  If you would like to see our version of Arbitration agreement wording, CLICK HERE or give us a call.

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