You have probably heard the word “arbitration” before. Maybe you have purchased a consumer product and looked at the fine print to discover a reference to arbitration. Perhaps you have seen a reference to it in some other context. In some situations, such as a consumer product purchase, you may not have much of a choice when it comes to submitting any disputes to arbitration. In other cases, however, you may have some negotiating power over the terms of a contract you are a party to. For example, perhaps you are negotiating a contract with a homebuilder for the construction of your new dream home and you have come across an arbitration clause. In these and similar instances, it is to your benefit to have a basic understanding of the concept of arbitration and know what you are losing and what you are gaining by agreeing to submit your disputes, should they arise, to arbitration.
Arbitration is a form of alternative dispute resolution. In other words, it is a means of resolving disputes privately as an alternative to a formal lawsuit in court with a judge and jury. In arbitration, the judge is replaced by a private individual, usually chosen and paid for by the parties. Arbitrator rates vary widely and can range anywhere from a couple hundred in total to several hundred dollars per hour.
The benefit of an arbitrator, as opposed to a judge, is typically faster action on disputes that arise during the process. The arbitrator, unlike a judge with many other cases, will usually have more time to turn to your particular matter sooner. However, unlike a judge, who is funded by the taxpayers, an arbitrator’s bill can grow fast.
Another difference between arbitration and a formal lawsuit is the time between start and finish of the case. Lawsuits in court can drag on for months and oftentimes years. Arbitration, on the other hand, can be over in under six months or even sooner.
Arbitration moves faster than a formal lawsuit for a number of reasons. First, in arbitration, the parties are not competing for the court’s priority with hundreds, and oftentimes, thousands of other cases. Second, the arbitration process typically does not provide for beneficial tools known as “discovery” that help parties prove their claims and defenses. These discovery tools, including depositions, written questions, document requests, and more, while very useful in finding and fleshing out evidence, add time to the process. Because the tools are usually not available in arbitration, the process tends to move faster but it can also make it more difficult to prove claims and defenses if there is information you want from the other side.
Before agreeing to any contract with an arbitration clause included, you should consider consulting an attorney who can advise you further on these and many other advantages and disadvantages of choosing this method for resolving disputes with the other party or parties to your contract, should they arise.