Arbitration is a form of dispute resolution conducted by agreement of the parties. It can be used to resolve almost any kind of dispute, but is most often employed in cases that have a business or financial dimension. In arbitration, the parties select either a single arbitrator or a panel of three arbitrators to hear their case, consider the evidence presented and the relevant law, and render a binding decision called an “award.”
Arbitration is private and confidential. The parties can select their arbitrator(s) on the basis of their professional reputations and expertise in the subject-matter of the dispute. The arbitration process is more flexible and less formal than litigation in court, and therefore often requires much less time than litigation. And, unless the parties agree otherwise, they may generally have access to the same remedies in arbitration as they would in court. For a description of the economic benefits of arbitration, see question 4 below (“What Does Arbitration Cost?”).
Although arbitration can be conducted under the auspices of a sponsoring organization (these are “administered” or “institutional” cases), that’s not required, unless the parties expressly agree to it. Many arbitration proceedings are therefore conducted by the parties under rules they negotiate among themselves. These are called “ad hoc” cases. Because sponsoring organizations take charge of all, or nearly all, aspects of administering the proceeding, they charge a variety of filing and administrative fees. The costs of an administered arbitration proceeding are therefore usually higher than those of an otherwise similar ad hoc case. To avoid the necessity of devising detailed arbitration rules for a single case, many parties to an ad hoc case adopt the rules of a respected neutral organization that doesn’t administer arbitration cases, but merely encourages use of arbitration and offers its expertise in supplying model ad hoc rules.
An alternate set of ad hoc arbitration rules for business cases, tailored to the needs of smaller businesses, can be downloaded from this website - see the Wisconsin Model Arbitration & Mediation Rules.
In general, the parties to an administered arbitration proceeding will pay the sponsoring organization an initial filing fee, analogous to a court filing fee, to commence the case. The filing fee is most often determined by a sliding scale depending upon the dollar amount of the dispute – the larger the amount in dispute, the larger the fee. Typical filing fees range from hundreds of dollars to thousands. These fees, as well as related case administration fees, which likewise can run from hundreds to thousands of dollars, can be avoided, either in whole or in substantial part, by parties who elect to use an ad hoc arbitration proceeding.
Whether the case is administered or ad hoc, the parties will need to pay the fees and expenses of the sole arbitrator or panel of three arbitrators chosen for the case. Arbitrators’ fees may be set as a fixed fee, or instead as an hourly or daily rate, and will vary depending upon the nature of the dispute and the experience and reputation of the arbitrator(s). Arbitrators may charge for all, or instead, only some, of the time they devote to a case. Some will charge for travel time or study time or administrative time or deliberation time as well as hearing time. Some will charge for various categories of their time at a rate different from their rate for actually hearing the case. The arbitrator’s fees and expense policies should be discussed between the arbitrator and the parties at the time the arbitrator is selected.
The parties to an arbitration proceeding must also pay their separate legal costs, in the form of attorneys’ fees and related out-of-pocket expenses, if they’re represented by legal counsel. Depending upon the governing law and the terms of any contract that may be involved in the case, it may be possible for a prevailing party to recover some or all of its expenses, including attorneys fees, arbitrators’ fees and case filing and administration fees, from the opposing party(ies) as part of the arbitrators’ award.
Even if the case is administered by a sponsoring organization, it’s most often true that the substantial time savings normally associated with arbitration will result in substantial cost savings to the parties who elect arbitration over litigation in the courts.
To commence an arbitration proceeding, it’s only necessary that the parties agree to arbitrate a defined dispute. This is normally done in writing.
An agreement to arbitrate may be arrived at before a dispute arises or afterwards. If done beforehand, the agreement is called a “pre-dispute arbitration agreement” (or a “pre-dispute arbitration clause,” if it’s inserted in, and made a part of, a business contract between the parties).
An agreement to arbitrate a dispute that has already arisen between the parties is called a “submission agreement.” A submission agreement is necessary when there is no pre-existing written contract between the parties.
A pre-dispute arbitration agreement (or clause) may take the following form:
Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration under the arbitration rules of [here insert the name of a sponsoring organization or a reference to appropriate ad hoc rules, such as the Wisconsin Model Arbitration Rules], and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
An arbitration submission agreement may take the following form:
The undersigned parties hereby agree to submit a dispute that has arisen between them with regard to [here briefly describe the nature of the dispute] to binding arbitration according to the rules of [here insert the name of a sponsoring organization or a reference to appropriate ad hoc rules, such as the Wisconsin Model Arbitration Rules], and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
Once an agreement to arbitrate is reached, it’s only necessary for the parties to file a notice of the commencement of arbitration with the pertinent sponsoring organization, as provided in its rules, and pay its required filing fee, or, in the case of ad hoc arbitration, to select one or three arbitrators for the case pursuant to the rules under which they’ve agreed to proceed.
A capable arbitrator has training and experience in arbitral law and procedures, civil trial practice and the subject-matter of the dispute. These skills can be measured by, for example, academic degrees, years of professional litigation service or practice in a relevant profession, qualifying training credentials, and a record of writing and teaching in the field. A good arbitrator also has a reputation for professionalism, integrity, impartiality and decisiveness. These traits can be demonstrated by such things as membership and leadership in professional organizations that are devoted to dispute resolution and adhere to a published code of conduct. Finally, an arbitrator should display sound judgment and judicial temperament. These qualities can be shown, in part, by the number of sponsoring organizations with which the arbitrator is associated, and by the arbitrator’s length of service on the panels of such sponsoring organizations.