Arbitration: A Way Forward to a New Dispute Resolution?



At its core, arbitration is a form of dispute resolution. Arbitration is the private determination of a dispute by an independent third party. An arbitration hearing may involve the use of an individual arbitrator or a tribunal. A tribunal may consist of several arbitrators, though some legal systems insist on an odd number to avoid a tie. One and three are the most common numbers of arbitrators.

The disputing parties hand over their power to decide the dispute to the arbitrator(s). Arbitration is, thus, similar to court action (litigation), and generally, just as final and binding (unlike mediation, negotiation and conciliation, which are non-binding).


General Principles of Arbitration:

➔ The object of arbitration is to obtain a fair resolution of disputes by an impartial third party without unnecessary expense or delay.

➔ Parties should be free to agree on how their disputes are resolved, subject only to safeguards necessary for the public interest.

➔ Courts should not interfere.


Arbitrators, or Tribunal Members, are commonly appointed by one of three means:

  1. Directly by the disputing parties (by mutual agreement, or by each party appointing one arbitrator)

  2. From existing tribunal members (each side appoints one arbitrator, and then the arbitrators appoint a third)

  3. By an external party (the court or an individual or institution nominated by the parties)

While nicknamed the "businessman's method of resolving disputes", arbitration is governed by state and central laws. Most states have provisions in their civil practice rules for arbitration. It provides a basic template for the arbitration and procedures for the confirmation of an arbitrator's award (a document that gives and explains the decision of an arbitrator). This procedure gives an award the force and effect of a judgment after a trial in a court. In addition, many states have adopted the Uniform Arbitration Act, despite some having individual rules for arbitration.


Classification of Arbitration:

  1. Commercial Arbitration is the most common of disputes. Just as it sounds, it is a dispute between two commercial enterprises.

  2. Consumer Arbitration surrounds disputes between a consumer and a supplier of goods or services.

  3. Labor Arbitration involves the settlement of employment-related disputes. This form of arbitration can be divided into two main categories: Rights Arbitration and Interest Arbitration.

Rights Arbitration (a.k.a. Grievance Arbitration) deals with the allegation that an existing collective agreement has been violated or misinterpreted. Various legislatures require that the parties who enter into a collective agreement set out a procedure for handling disputes and differences. The idea is that parties should be obliged to meet at different steps in their specific grievance procedure to review and discuss the injury. However, the fact is that the parties themselves cannot resolve any disputes, and for this reason, arbitration is necessary so that the matter may be determined. Thus, typical arbitration awards deal with a complaint that a collective agreement has violated a specific matter.

Interest Arbitration (a.k.a. Contract Arbitration) is usually imposed by a statute and involves adjudication on the terms and conditions of employment to be contained in a resulting collective agreement. Since statutes usually prohibit a legal strike or lockout, these contract disputes must be resolved somehow, in this case, by interest arbitration.

For example, collective bargaining in a new agreement covering firefighters or hospitals may break down into an irresolvable deadlock. The contractual matters still in dispute between the parties would be put to an interest arbitrator or tribunal for a ruling and determination, forming the relevant provisions of the collective agreement between the two parties.

The kinds of labour disputes taken to an arbitrator are as many as the wide range of decisions and actions that affect employers, employees, and trade unions. For example, liability can span from cents to millions, and there can be a solitary griever or a union of grievers.

It is also worth noting that some labour disputes employ "med/arb" to resolve their differences instead of straight arbitration. Med/arb takes place when disputants agree from the start that if mediation fails to result in an agreement, the mediator, or another neutral third party, will act as arbitrator and be empowered to reach a binding decision for disputants.


Advantages of Arbitration

Supporters of arbitration hold that it has a multitude of advantages over court action. The following are a few examples:

  1. Choice of Decision Maker: For example, parties can choose a technical person as arbitrator if the dispute is technical, so the evidence is easily understood.

  2. Efficiency: Arbitration can usually be heard sooner than it takes for court proceedings to be heard. The arbitration hearing should also be shorter in length, and the preparation work is less demanding.

  3. Privacy: Arbitration hearings are confidential, private meetings in which the media and members of the public cannot attend. The final decisions are not published, nor are they directly accessible. Thus, it is beneficial to the employer who does not want his 'dirty laundry' being aired.

  4. Convenience: Hearings are arranged at times and places to suit the parties, arbitrators, and witnesses.

  5. Flexibility: The procedures can be segmented, streamlined or simplified, according to the circumstances.

  6. Finality: There is, in general, no right of appeal in arbitration. (Although, the court has limited powers to set aside or remit an award).


Drawbacks of Arbitration

It is only appropriate to mention some of arbitration's most commonly perceived drawbacks after having cited the advantages:

  1. Cost: One or both parties will pay for the arbitrator's services, while the court system provides an adjudicator who does not charge a fee. The fees for an arbitrator can be hefty. For example, for several claims up to $100,000, the minimum fee for a single arbitrator is $2,000. The maximum fee can reach 10% of the claim.

  2. However, supporters of arbitration argue that this should be more than compensated for by the potential for the increase in the efficiency of arbitration to reduce the other costs involved.

  3. Splitting the Baby: Thomas Crowley states that because of the relaxation of rules of evidence in arbitration and the power of the arbitrator to do equity (make decisions based on fairness), the arbitrator may render an award that, rather than granting complete relief to one side, splits the baby by giving each side part of what they requested. Thus, both parties leave the table feeling that justice was not served.

  4. No Appeal: Unless there is evidence of outright corruption or fraud, the award is binding and usually not appealable. Thus, if the arbitrator makes a mistake or is incompetent, the losing party usually has no remedy.

  5. Narcotic/Chilling Effects: These are two related concepts, which many theorists, including David Lipsky, believe to be inadequacies of interest arbitration. Chilling occurs when neither party is willing to compromise during negotiations in anticipation of an arbitrated settlement. Two measures commonly used to weigh this effect are:

➔ The number of issues settled during negotiations versus the number of issues left for arbitration,

➔ A comparison with the management's and union's initial offers. (chilling occurs when the two parties take extreme positions and are unwilling to budge)

The narcotic effect refers to the increasing dependence of the parties on arbitration, resulting in a loss of ability to negotiate. Standard methods of assessing the narcotic effect are the proportion of units going to arbitration over time and, perhaps more importantly, the number of times an individual returns to arbitration over a series of negotiations.


Typical Steps in an Arbitration:

The process of arbitration differs with cases. The following is a list of the general steps in arbitration. However, it should not be viewed as an exhaustive list.

  1. Initiating the Arbitration: A request by one party for a dispute to be referred to arbitration.

  2. Appointment of Arbitrator: Arbitrators may be appointed in one of three ways:

➔ Directly by the disputing parties

➔ By existing tribunal members (each side appoints one arbitrator, and then the arbitrators appoint a third)

➔ By an external party (the court or an individual or institution nominated by the parties)

  1. Preliminary Meeting: It is a good idea to have a meeting between the arbitrator and the parties, along with their legal counsel, to look over the dispute in question and discuss an appropriate process and time.

  2. Statement of Claim & Response: The claimant summarises the matters in dispute and the remedy sought in a statement of claim. It is needed to inform the respondent of what needs to be answered. It summarises the alleged facts but does not include the evidence through which facts are to be proved. The statement of response from the respondent is to admit or deny the claims. There may also be a counterclaim by the respondent, which requires a reply from the claimant. These statements are called the 'pleadings.' Their purpose is to identify the issues and avoid surprises.

  3. Discovery and Inspection: These are legal procedures through which the parties investigate background information. Each party is required to list all relevant documents, which are in their control. It is called 'discovery.' Parties then 'inspect' the discovered documents, and an agreed-upon selection of documents are prepared for the arbitrator.

  4. Interchange of Evidence: The written evidence is exchanged and given to the arbitrator for review before the hearing.

  5. Hearing: The hearing is a meeting where the arbitrator listens to oral statements, questions witnesses, and clarifies any information. Both parties are entitled to put forward their case and be present while the other side states theirs. However, a hearing may be avoided if the issues can be dealt with from the documents.

  6. Legal Submissions: The lawyers of both parties provide the arbitrator with a summary of their evidence and applicable laws. These submissions are made orally at the hearing or in writing as soon as the hearing ends.

  7. Award: The arbitrator considers all the information and makes a decision. An award is written that summarises the proceedings and give the decisions. The award usually includes the arbitrator's reasons for the decision.



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