Arbitration - Advantages and Disadvantages

Advantages and Disadvantages

Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings:

• when the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed (as one cannot "choose the judge" in litigation)
• arbitration is often faster than litigation in court
• arbitration can be cheaper and more flexible for businesses
• arbitral proceedings and an arbitral award are generally non-public, and can be made confidential
• in arbitral proceedings the language of arbitration may be chosen, whereas in judicial proceedings the official language of the country of the competent court will be automatically applied
• because of the provisions of the New York Convention 1958, arbitration awards are generally easier to enforce in other nations than court judgments
• in most legal systems there are very limited avenues for appeal of an arbitral award, which is sometimes an advantage because it limits the duration of the dispute and any associated liability

Some of the disadvantages include:

• arbitration may become highly complex
• arbitration may be subject to pressures from powerful law firms representing the stronger and wealthier party
• arbitration agreements are sometimes contained in ancillary agreements, or in small print in other agreements, and consumers and employees often do not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job
• if the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case
• in some arbitration agreements, the parties are required to pay for the arbitrators, which adds an additional layer of legal cost that can be prohibitive, especially in small consumer disputes
• in some arbitration agreements and systems, the recovery of attorneys' fees is unavailable, making it difficult or impossible for consumers or employees to get legal representation; however most arbitration codes and agreements provide for the same relief that could be granted in court
• if the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee
• there are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned
• although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays
• in some legal systems, arbitral awards have fewer enforcement options than judgments; although in the United States arbitration awards are enforced in the same manner as court judgments and have the same effect
• arbitrators are generally unable to enforce interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of member or a small group of members in arbitration due to increasing legal fees, without explaining to the members the adverse consequences of an unfavorable ruling
• rule of applicable law is not necessarily binding on the arbitrators, although they cannot disregard the law
• discovery may be more limited in arbitration or entirely nonexistent
• the potential to generate billings by attorneys may be less than pursuing the dispute through trial
• unlike court judgments, arbitration awards themselves are not directly enforceable. A party seeking to enforce an arbitration award must resort to judicial remedies, called an action to "confirm" an award
• although grounds for attacking an arbitration award in court are limited, efforts to confirm the award can be fiercely fought, thus necessitating huge legal expenses that negate the perceived economic incentive to arbitrate the dispute in the first place.