What is Arbitration?
Arbitration is a way to resolve disputes outside of court. No jury or judge is present in an arbitration proceeding; rather, there is an arbitrator who is present who makes the final decision, which is called the arbitration award. The award is legally binding on all parties of the hearing.
The arbitrator is the neutral third party who is expected to make a decision that is beneficial to all parties and free from any bias. Arbitration is taken up voluntarily and can be decided mutually by all parties to go for it or not.
In Canada, although each province adheres to its own arbitration legislation, there is a central code that governs federal arbitration called the Commercial Arbitration Act (CAA). The CAA was put into effect in August 1986 and applies to all commercial arbitrations where at least one party is a federal department. The legislation in different parts of the world vary, but there are certain features, like the voluntary nature of arbitration and flexibility, that are common across regions.
- Arbitration is a way to resolve disputes outside of court. There is no jury or judge; rather, an arbitrator is present who makes the final decision, which is called the arbitration award.
- Arbitration is a popular alternative to litigation, and although both processes may seem similar, there are certainly obvious differences between them.
- During arbitration, a party can either win, lose, or cease the arbitration proceedings.
Arbitration vs. Litigation
Arbitration is a popular alternative to litigation, and although both processes may seem similar, there are certainly obvious differences between them. The process allows the parties concerned to choose and design the various components of the resolution process that fits their needs and objectives.
Litigation, on the other hand, does not allow such flexibility. Arbitration also lets the parties choose who the arbitrator will be, whereas formal courts do not allow the selection of the judge or jury to be in the hands of the affected parties.
Arbitration and the Process of Dispute Resolution
The diagram below shows the process of arbitration and how a dispute is resolved. Initially, the case is filed by the parties, and an arbitrator is selected. A preliminary hearing is held to understand the entire situation. One of the key aspects of arbitration is efficiency, and most parties want a swift and cost-effective decision-making process.
The discovery process entails requesting information from the parties to make a sound decision. A good arbitrator will keep the discovery process as efficient and cost-effective as possible and limit unnecessary discovery requests.
Discovery is followed by mediation, where a decision is attempted to be made that will be in the best interests of all parties. A post-arbitration brief is a short document drafting the arbitrator’s opinion and facts that support that opinion. Lastly, a final arbitration award is granted, which is normally binding on all parties.
Advantages of Arbitration
- The parties can choose the arbitrator.
- The meetings and deliberations are held privately and are kept confidential.
- The cost of the proceedings is low and can be kept in check.
- There is a greater degree of flexibility and control from the concerned parties.
- The final arbitration award is binding and cannot be revoked easily.
Disadvantages of Arbitration
- If the arbitrator is not experienced or biased, it may lead to an unfavorable outcome.
- Arbitration may not be able to solve complex issues or those related to public law.
- If the process is designed poorly, the costs can go up significantly, and the process may not be as efficient.
- The arbitration awards are not equivalent to a legal outcome.
Potential Outcomes of Arbitration
During arbitration, a party can either win, lose, or cease the arbitration proceedings. Each of the results comes with some gains and losses, as described in the diagram below:
If a person wins the arbitration, they will gain the disputed amount that was being sought. The losses they would need to face are the arbitration direct costs (such as arbitration fees and other expenses) and indirect costs (such as the loss of potential business with the opponent).
If the person loses, they not only lose on the costs but also the amount of the settlement. However, a potential gain they could’ve achieved is that they were able to delay legal consequences (as the same agreement in a formal court would cost them a lot of time and money).
If the arbitration ceases to exist, a potential gain would be a higher settlement amount (if one party was able to influence the opponent). However, the costs of settlement are still faced, and there is also a regret of not being able to meet the originally offered settlement.
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