ADVANTAGES VS. DISADVANTAGES OF CONTRACTUAL ARBITRATION
The potential advantages and disadvantages of arbitration should be considered before executing an arbitration agreement or commencing proceedings to enforce such agreement.
Potential Advantages: Arbitration may provide:
Quicker results than available in court;
Shorter and less costly proceedings than court trials because technical rules of evidence and procedure are often relaxed.
Resulting savings both in litigation expenses and client's time and effort;
Greater choice in selection of fact-finder and better qualified fact-finders (e.g., the agreement may provide for appointment of a particular arbitrator or panel of arbitrators with special expertise);
Greater privacy than judicial proceedings;
From a defense standpoint, no exposure to “runaway” jury verdicts and less risk of punitive damages;
From a public policy standpoint, less burden on the courts and more community involvement in the dispute resolution process.
Parties contemplating arbitration proceedings should be aware of various potential drawbacks:
Perception of “justice by halves”: Arbitrators are more likely than judges to make compromise awards that satisfy neither party (“splitting the baby”).
No discovery: Absent an agreement, there is generally no right to discovery in arbitration proceedings.
No jury: From a plaintiff's standpoint, lack of a jury trial may limit the value of the claim.
No summary judgment: From a defense standpoint, arbitration usually requires a full-blown evidentiary hearing with no opportunity for the summary judgment short-cut available in court (although there are circumstances under which summary judgment may be considered;
Some arbitrations slower than court proceedings: Some arbitrations routinely take longer than court proceedings (e.g., in medical malpractice cases). There are usually no “fast track” rules in arbitration, and arbitrators are often more lenient than judges in permitting continuances.
Some arbitrations more costly than court proceedings: Arbitration filing fees are usually higher than court filing fees. Some arbitration agreements require a panel of several arbitrators whose fees are likely to be substantial. The cost of arbitration may be an essential element of a fairness analysis in deciding whether an arbitration agreement is enforceable. Finally, there is less control on delay in arbitration than in court proceedings, and such delays run up costs and legal fees.
No assurance arbitrator will apply rules of law: An arbitrator may make an award based on broad principles of “justice” and “equity” rather than the rules of law or evidence that would apply in court proceedings.
More procedural issues: If the opposing party wishes to avoid arbitration, it can utilize various procedures to challenge and delay the arbitration hearing. Moreover, after an award is made, the opposing party has additional procedures to challenge the award.
Limited judicial review: There are only limited grounds (fraud, corruption, etc.) on which an arbitration award can be challenged in court.
Inability to join third parties: There are only limited grounds to join non-signatories, so that there may be incomplete resolution of the dispute, with parties at fault watching the proceedings from the sidelines.
Malicious prosecution action unavailable: A defendant who obtains a contractual arbitration award cannot use the award as a basis for a claim of malicious prosecution.
Note: Some of the limitations discussed in (e.g., lack of discovery, applicable rules of law, etc.) can be modified in the arbitration agreement or by stipulation of the parties in the arbitration proceedings.