Why Arbitrate? How Do You Limit Costs?

Many individuals and business concerns, when faced with disputes, will be presented the opportunity to arbitrate the dispute rather than go to court. If a written contract is involved, the contract may require arbitration. Why arbitrate a dispute? Why have a requirement in a contract to arbitrate if a dispute arises?

Most people will say the reason to arbitrate is that it is a quicker way to reach a resolution and cheaper than litigating in court. In most cases that is true.

In order for arbitration to be quicker, the agreement to arbitrate should limit discovery (written interrogatories; depositions). Discovery for all but the most complex disputes should be limited to an exchange of pertinent documents.  Written interrogatories and depositions should be excluded.

When it comes to expense, one arbitrator costs less than three. If you put an arbitrator selection process in the agreement which protects both parties, you can select an arbitrator who is fair and competent. The arbitrator can be selected from a list agreed on by the parties or from an arbitration administration organization (such as the American Arbitration Association).

To further reduce costs, the parties can agree to an arbitrator who will administer the arbitration rather then select an arbitration administration organization. However, the administration may not be carried out as efficiently as if done by an organization. This will depend on the experience of the arbitrator in administering – as well as hearing and deciding – a dispute in arbitration.

In addition to financial considerations, there are other reasons people may choose to arbitrate. For one thing, arbitration is private and confidential. The filings and evidence are not of public record. Typically, the award (decision) of the arbitrator will be entered on the public records as a judgment, however the parties can agree that the award will not be entered on the public records unless a certain number of days has passed without payment of the award by the party against who it is rendered.

On a final note, be aware that there is no appeal from arbitration. While this makes arbitration quicker and cheaper, it does mean that the arbitrator should be carefully selected.