Conflicts. Disputes. Both are inevitable in life, both in interpersonal relationships and, on a larger scale, in the commercial and international arenas. Both must also be ultimately dealt with and resolved. Focusing on the greater disputes, business-to-business, consumer-to-business and international problems, how best to resolve them? One might say that the traditional route would be through the courts system, however, more and more, these disputes are being resolved through the use of Arbitration; and now Arbitration has become Big Business!
Though its use has increased noticeably within the last few years, arbitration is by no means a recent creation. It was used extensively by the ancient Egyptians and Romans, and as the Global Arbitration Mediation Association (GAMA) points out, it was also used by “warring Greek city states and by various Catholic Popes who acted as arbitrators of conflicts between European countries during the Renaissance” (“History of Alternative Dispute Resolution,” n.d.).
What exactly is arbitration? A form of Alternate Dispute Resolution (ADR), arbitration is a legally-binding procedure for concluding a dispute between parties by utilizing the expertise of an individual (or team of individuals) in lieu of a judicial process. More than a simple mediator, who simply facilitates an open dialogue between parties, the arbitrator has comprehension of the applicable laws; and makes binding judgments and decrees based on that knowledge. In its definition of arbitration, Wikipedia (“Arbitration,” n. d.) says, “Arbitration is most commonly used for the resolution of commercial disputes, particularly in the context of international commercial transactions.”
Turning to arbitration as an alternative to resolution through the courts system has many advantages, and so has caused organizations specializing in its application to spring up. One such corporation is the American Arbitration Association (AAA), which provides training in the field as well as services to those in need. In describing its Dispute Resolution Services on its website, the AAA states, “The American Arbitration Association (AAA) is the nation's largest full-service alternative dispute resolution (ADR) provider, addressing disputes involving, but not limited to, employment, intellectual property, consumer, technology, health care, financial services, construction, and international trade conflicts” (www.adr.org/). It would seem that utilizing the AAA’s services could be of tremendous advantage. However, after further exploration, we may find this not to be the case!
As already stated, there are quite a few advantages to opting for arbitration over judicial pursuits, “in particular, confidentiality, flexibility, finality (in terms of avoiding the costs and delay of endless rounds of appeals) and the ease of enforcement of awards” (“Legal Analysis: The Shifting Sands,” Proquest Database, n.d.). Other benefits are the speed with which the resolution is achieved and the expertise of the arbiters in each field. Parties, for instance, involved in a dispute over copyright or patent infringement may obtain an arbiter who has very intricate training in the field and so is capable of rendering an informed decision. A court-appointed judge might not have such expertise. Scheduling arbitration is much more efficient than awaiting a court date. As the proceedings of the arbitration are not held publicly, as in a courtroom, awards (rulings by the arbiter) can remain confidential. Awards are not easily appealed nor overturned, and enforcement is workable. Attorneys from the Law Office of Bryan Cave disclose, “absent very unusual circumstances (such as fraud or corruption in the procurement of the award), an arbitration award can easily be confirmed as a court judgment, which can then be used to collect payment from the losing party through judicial enforcement” (www.lectlaw.com).
An area in which arbitration is particularly applicable is in international disputes as just determining jurisdiction when entities from different countries are involved can be a daunting undertaking. An impartial arbiter with experience in the workings of international commercial enterprises would be an optimal adjudicator in such instances. Wikipedia informs, “The Jay Treaty of 1794 between Britain and the United States sent unresolved issues regarding debts and boundaries to arbitration, which took 7 years and proved successful. In the first part of the twentieth century, many countries (France and the United States being good examples) began to pass laws sanctioning and even promoting the use of private adjudication as an alternative to what was perceived to be inefficient court systems” (“Arbitration.”Wikipedia, n.d.).
Arbitration has its disadvantages as well; for one, “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” (Conflict Research Consortium, University of Colorado, 1998). As the unofficial consensus for an ideal resolution of a conflict is the “win-win” that mediation ideally provides. Arbitration, on the other hand, thus produces a “win-lose” scenario as its end result. Other disadvantages, as listed by Arthur Mazirow, Esq., himself a real estate arbitrator and mediator are, “There is no right of appeal even if the arbitrator makes a mistake of fact or law … An arbitrator may make an award based upon broad principles of ‘justice’ and ‘equity’ and not necessarily on rules of law or evidence … Unknown bias and competency of the arbitrator …” (CRE: The counselors of real estate, 2010).
Another issue that could be problematic with arbitration is that often the “losing” party does not have the recourse of filing a legal claim in a court of law regarding an issue decided through arbitration. The law firm representing one party may have some influence upon the arbiter; or if the arbiter (a representative of AAA, for instance) has a longstanding relationship or contract with one of the parties, a biased award could result.
Regrettably, many contracts or “informal agreements” have hidden within them an entry requiring that any dispute that may arise be handled through arbitration; this is an enforced or mandatory arbitration agreement. In a report for Public Citizen, the self-proclaimed “lobbyists for the people,” the authors (Gima, Lincoln & Arkush, 2009) showed that in many such mandatory agreements, the consumer is invariably the loser. “Forced arbitration creates a systemic bias in favor of businesses while offering few, if any, meaningful deterrents against negligence or even foul play.”
So do AAA and other similar associations truly provide a measurable, valuable service? I would have to say that in some cases, yes. Arbitration is a valuable tool when both parties are large entities who would otherwise spend billions and billions of dollars in legal fees to prolong the outcome and wear down their opposition. International disputes most of all, will benefit from an arbitrator or team who is capable of analyzing the niceties and minute disparate details that make up international commerce. As a member of several labor unions, I have seen firsthand the advantage, and often necessity, of having an arbitrator resolve a longstanding impasse in negotiations.
However, in many instances, I believe that the disadvantages for employing an AAA outweigh the advantages. In consumer-vs.-corporation circumstances, there is sufficient opinion that supports the Public Citizen’s contention that the consumer will usually lose in such a contest. Mediation as a win-win goal would be much more advantageous. As mediation brings with it the social scrutiny that motivates each party to come up with a mutually satisfactory conclusion, the “muscle” of the big corporation might relax a bit in hopes of maintaining a positive image and deal more equitably with the consumer. The principal downside in this case is that mediation is not legally binding. So is arbitration, more specifically arbitration through the American Arbitration Association, good? The short answer would have to be that for issues involving two or more large entities, yes; and for those involving individuals, no.
References
About us (2007). American Arbitration Association. Retrieved April 14, 2010, from
http://www.adr.org/index.asp
Arbitration. (1998). Conflict Research Consortium, University of Colorado. Retrieved April 15, 2010, from http://www.colorado.edu/conflict/peace/treatment/arbitrat.htm
Arbitration. (n.d.) Retrieved April 15, 2010, from Wikipedia: http://en.-wikipedia.org/wiki/Arbitration
Colagiovanni, J. & Hartmann, T. (n.d.). Enforcing arbitration awards. ‘Lectric Law Library. Retrieved April 16, 2010, from http://www.lectlaw.com/files/adr15.htm
Gima, Z., Lincoln, T. & Arkush, D. (2009). Forced arbitration: Unfair and everywhere. Retrieved April 15, 2010, from http://www.citizen.org/documents/-UnfairAndEverywhere.pdf
History of alternative dispute resolution (2009). Global Arbitration Mediation Association. Retrieved April 17, 2010, from http://www.gama.com/HTML/history.html
Legal analysis: The shifting sands of arbitration. (2008). Retrieved April 17, 2010, from Proquest Database http://proquest.umi.com/pqdweb?did=1589234791&sid=-3&Fmt=3&clientId=74379&RQT=309&VName=PQD
Mazirow, A. (2008). The advantages and disadvantages of arbitration as compared to litigation. CRE: The Counselors of Real Estate. Retrieved April 16, 2010, from http://www.cre.org/
A recent trend among some lawyers is to include an arbitration provision in their engagement contracts. A typical clause will require the client to settle their dispute with the lawyer before one or more arbitrators, in what is essentially a private proceeding. The idea is to completely bypass the court system, including the constitutionally protected right to a jury trial.
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