7/27/2019 Arbitration, Business Law

1/4

THE ADVANTAGES AND DISADVANTAGES OF ARBITRATION AS A

MEANS OF SETTLING COMMERCIAL DISPUTES

Arbitration is a dispute resolution process in which the disputing parties present

their case to a third party intermediary (or a panel of arbitrators) who examine all

the evidence and then make a decision for the parties. This decision is usually

binding. 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. Arbitration is

generally not as formal as court adjudication, however, and the rules can be

altered to some extent to meet the parties needs.

As in court-based adjudication, arbitration outcomes are typically win-lose, not

win-win. Thus, the arbitrator usually decides that one side was right and the other

wrong. They do not often go out of their way to develop new approaches for

meeting the interests of both sides simultaneously, as a mediator would do,

though if a win-win solution is apparent, the arbitrator would probably

recommend it.

Arbitration has several clear advantages

First, it is more flexible. The disputants can usually choose their own

arbitrator, who can be an expert in the topic in dispute, which a judge

seldom is. This makes arbitration especially useful in complex, technicalcommercial disputes

7/27/2019 Arbitration, Business Law

2/4

The results of arbitration are achieved on a much shorter timeline and

usually much quicker than litigation, especially since the result is binding

and not open to appeal as litigation is, this helps a lot in settling disputes.

The proceedings are private so outsiders do not learn about the issues.

This avoids the disclosure of trade secrets and potentially embarrassing

information.

Costs are much lower with arbitration and this makes it one of the most

convenient ways of settling disputes because of the affordability of the

process. It makes all and sundry able to capable of settling disputes with

arbitration.

Rules of evidence are less strict, making it easier to get to the truth

5. There is less emotion, making it easier for the parties to deal with each

other going forward

The informal settling of a conference room instead of the courtroom may

help preserve the business relationship and increases the level of

confidentiality.

Where the investor has a choice between arbitration and a lawsuit,

arbitration can have significant advantages. Simplified procedures, such

as the lack of formal pleading rules, the absence of most pretrial motions,

and simplified discovery can substantially reduce the cost of obtaining a

decision

Most observers believe that the success of arbitration depends on its

finality. The typical labor contract or submission agreement provides that

arbitration decisions, called awards, are final and that they bind the

parties. This is understood to mean that neither party has the right to

7/27/2019 Arbitration, Business Law

3/4

appeal the result to a court and that both parties understand that they are

bound to the result whether they like it or not. In the labor arena, this

quick resolution removes the threat of a strike and insures that production

will continue.

Arbitration also has disadvantages which also make it difficult in settling disputes

and these are the following:

The disadvantages of arbitration stem from the same characteristics.

Arbitration is adversarial, thus it generally does nothing to create win-win

solutions or improve relationships. Often it escalates a conflict; just as

court-based adjudication is likely to do.

In addition, arbitration takes decision making power away from the parties.

This results in a resolution of the current conflict, but does nothing to help

the parties learn how to resolve their own conflicts more effectively in the

future, as does mediation. Other people also fault arbitration for being too

informal and potentially unjust. Only the courts, with their carefully

regulated procedures can provide justice, some observers believe.

In arbitration, the arbitrators have no legal jurisdiction to bring into the

arbitration preceding all parties to the dispute; therefore, it can be difficult

to resolve the entire dispute

There is no right to traditional discovery. Therefore, most discoveries are

voluntary between the parties, and this usually does not work

well.

The rule for the exchange of exhibits in advance of the arbitration hearing

is also a source for problems. Customers must produce their exhibits and

7/27/2019 Arbitration, Business Law

4/4

witness list to the opposing side in advance, whereas rebuttal exhibits and

rebuttal witnesses need not be identified in advance.

Another disadvantage of arbitration in settling dispute is that neither party

has the right to appeal the result to a court and that both parties

understand that they are bound to the result whether they like it or not.