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The Pros & Cons of Arbitration

Ravneet Arora of Hakemi & Ridgedale LLP

The previous post in this blog series highlighted the various pros and cons of litigation. In this month’s post, we highlight the pros and cons of arbitration, which is one of two popular alternative dispute resolution processes, namely arbitration and mediation.

The key difference between arbitration and mediation is that arbitration results in a binding decision made at the end of the process.  In contrast, no binding decision is made at mediation.  Mediation results in a legally enforceable agreement if all parties involved consent to the proposed terms. In arbitration, the decision maker – called an arbitrator – has authority to make a decision that is binding on all parties, subject to review on appeal generally in very limited circumstances. Due to its consensual nature, mediation is generally used as a step within litigation. Since arbitration is closer to litigation in its nature, we focus on arbitration’s pros and cons in this post. We will discuss mediation in some detail in a future post that will also deal with keeping litigation costs down.   

Pros of Arbitration

  • Cost-Effective. Arbitration is generally a much cheaper option than trying to resolve a dispute through litigation in court. As we mentioned in our previous post, litigation can be very costly, whereas arbitration usually comes at a fraction of the cost and can provide similar results. This is due to a multitude of factors, such as not having to go through the normal pre-trial processes resulting in a shorter duration of the process.  These benefits may be marginal if the case is complex, as more complex cases tend to more closely follow a typical litigation process, even if they are arbitrated.  Additionally, the parties incur the cost of hiring the arbitrator (or arbitrators), a cost they do not incur in court.
  • Confidentiality. The arbitration process takes place behind closed doors and away from the public eye, which means that the details of your case are unavailable for public viewing.  If the parties have agreed, the arbitration may be confidential. This can be preferable if your matter deals with issues that you do not want to be made public, such as sensitive financial information or documents.
  • Speed. The speed at which final decisions are reached through arbitration is normally faster than litigation. The court system is notoriously slow in its process, especially when it comes to scheduling court dates. Since arbitration does not involve the courts, it is often a much speedier process.
  • Enforceable Result. In most cases, unless agreed upon otherwise, the final decision of the arbitrator at the end of arbitration is binding and fully enforceable. Arbitration decisions are rarely overturned, allowing both parties to move forward with a sense of finality.
  • Arbitrator Expertise. All parties in an arbitration have the opportunity to help select an arbitrator for the proceedings. This generally results in appointing an arbitrator that has the necessary expertise and knowledge to be able to effectively arbitrate their case. This is not a luxury that the litigation process usually offers as judges, who are assigned to trials without the parties’ input, may not be well-versed in the industry or subject matter that the case is about.

Cons of Arbitration

  • Lack of Appeal Process. The finality that comes with an arbitrator’s decision might also be considered a con as it often means that a party who is disappointed with the final result has no means of recourse. It can be very hard to overturn a decision made in arbitration and as such, arbitration decisions are often fully binding.
  • Possible Limits on Discovery. Obtaining documents and information, particularly from third parties, may be easier in court than through arbitration.  If discovery is particularly important in a case – like in cases where the defendant or a third party has most of the key information – a party may decide that court is the better forum for the dispute.
  • Increased Costs Due to Seat of Arbitration and Number of Arbitrators. Arbitration agreements that require parties to arbitrate in unfamiliar jurisdictions or even in foreign languages can cause significant disadvantages for parties who find themselves in a dispute.  The costs of arbitrating in such circumstances may be prohibitive.  Moreover, some arbitration agreements require a panel of arbitrators.  This can significantly add to costs.
  • Lack of Transparency. Arbitrations are not public and while that may be useful in some cases, in other cases, the lack of publicity may be a disadvantage to one of the parties.  For example, where a plaintiff alleges that a defendant engaged in conduct that would cause adverse publicity for the defendant, a plaintiff may want that claim adjudicated in court.

These are only some of the considerations that may apply in any case and as this discussion shows, whether or not arbitration is more or less attractive than court is a highly fact specific determination.  Litigants should make these decisions carefully and after consulting with their lawyer.

We hope that this post, in conjunction with our last post, will be helpful to you in deciding whether to litigate or arbitrate your matter. Stay tuned for our next post in this series.