The Arbitration Blame Game: Notes on Developing an Effective Corporate Arbitration Program

Article excerpt

Arbitration, love it or hate it, it's here to stay. The real question for any business is whether arbitration can be used intelligently, as part of a well-considered dispute resolution program. The author offers an outline of how to construct such a program.

The business and legal communities are divided between those who embrace arbitration and those who abhor it. Arbitration boosters point to the advantages of arbitration and suggest that every business could benefit from its use. Arbitration haters point to problems with the process and suggest that these problems cannot be avoided.

Is there a middle ground? Indeed, there is. Even the most fervent advocates of arbitration must recognize its limitations and potential problems. Similarly, the most ardent arbitration opponents must admit that arbitration can be effective for certain purposes and in certain circumstances, and that it is possible (with careful planning) to avoid many of the negatives sometimes associated with arbitration.

Arbitration Is Not Perfect

Many people who have had some experience with arbitration can point to proceedings that were not well conducted. A proceeding that takes much longer than expected or involves steeply rising costs can be quite frustrating.1 Similarly, an arbitrator who is less capable than expected can produce disaffection, not just with the outcome (everyone wins and loses sometimes in any dispute resolution system), but with the fairness and rationality of the process itself.2 The lack of assurance that the proceedings will be efficiently and fairly managed and the potential unpredicability of outcomes, moreover, have led some to avoid the process, evidently concluding that it cannot be improved (or that the work involved in improving arbitration is not worth the effort).3

One could say that the problem is too big to tackle, that the "system is unfair," or that reform is "somebody else's problem." All of these are really just excuses for inaction. None of these excuses will bring about change. And none of them recognize the reality that arbitration is here to stay. In certain industries, like textiles, securities and reinsurance, arbitration is a regular method of dispute resolution.4 Some businesses insist on arbitration in some or all of their contracts, and any party contemplating a deal must be prepared to accept arbitration as part of the price.5 Courts around the country are turning to alternative dispute resolution processes (often mediation or early neutral evaluation, but in some instances offering an arbitration alternative) as a means to reduce caseloads and streamline the litigation process.6

Why We Should Fix Arbitration

The potential benefits of arbitration are well-recognized. Here are some key benefits for commercial parties.

Parties in arbitration may pick an expert in the subject matter to serve as the arbitrator (or on a panel of arbitrators). Having an expert decision maker may lead to a quicker decision in complicated, technical disputes because of the expert's comprehension of the evidence, which is often more than ordinary jurors (and even judges) could be expected to have.

The commercial arbitration process is most often a private process.8 So when trade secrets or similarly sensitive information must be discussed, arbitration may be preferable to public court proceedings. Even when trade secrets are not likely to come up, it is often beneficial not to have the dispute made public because of the detrimental effects a public dispute can have on the reputation of the disputants.

Arbitration has the potential to be faster and less costly than litigation. The informality of the process, the fact that discovery and motion practice are more limited than in litigation, coupled with the ability of the parties to streamline the arbitration process, make arbitration capable of providing a decision on the merits far sooner than a verdict could be obtained in court. …