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How to Make Arbitration Work for Your Business

September 2nd, 2010 Arbitration Agreements, Arbitration Practice and Procedure, Drafting Arbitration Agreements, Nuts & Bolts: Arbitration Comments Off on How to Make Arbitration Work for Your Business By Philip J. Loree Jr.

On September 1, 2010 Gina Passarella of the Philadelphia Legal Intelligencer published an excellent article entitled, “Litigators Losing Love of Arbitration Argue for Trials.”  She quotes prominent, Philadelphia-based litigators, all of whom were critical of arbitration as a supposedly speedy and less expensive alternative to adjudication.  On the same day Ms. Passarella’s article was quoted and elaborated upon in Ashby Jones’ article in the Wall Street Journal Law Blog entitled, “Has Arbitration Become More Burdensome than Litigation?”  Both articles were tweeted and retweeted about on Twitter, and posted in certain LinkedIn groups.

The criticism of arbitration expressed in these articles is not new.  For years people (including I) have said that arbitration can be as expensive or more so than litigation.  People have repeatedly complained about how arbitration has become more like “arbigation,” and how Federal Arbitration Act satellite litigation has proliferated.  Or they criticize arbitrators for substituting rough justice for reasoned, legal analysis.  And so on. 

If you are a business person, or someone at a business whose responsibilities include drafting or approving contracts, you might throw up your hands and declare that your business will never, ever even think about agreeing to arbitrate.  But we think that you would be far better off giving more thought to what it is you desire from a system of dispute resolution, and how best to achieve your goals. 

The criticism expressed in the articles, and in the past, is generally valid, albeit misdirected.  It is directed at “arbitration,” as if arbitration was an institution unto itself, imposed on us by the legal system or perhaps by divine order.   

But, at least in B-2-B contracts negotiated at arms’-length, “arbitration” is not something imposed on the parties; it is something the parties impose on themselves.  We, the parties, are the architects of our own dispute resolution system.  If it turns out we designed or agreed to something reminiscent of Charles Dickens’  Bleak House, we should not blame the non-existent institution “arbitration.”  We should blame ourselves, or, more accurately, whomever drafted or approved the Dickensian arbitration agreement. 

The problems we sometimes associate with arbitration could be avoided if parties would give more thought to the type of dispute resolution they desire, and how any particular arbitration agreement — or agreement to administered arbitration under a set of arbitration provider rules — will likely be interpreted, and by whom.  Perhaps the best thing about arbitration is that parties have a lot of leeway not only to select the decisionmakers for their dispute, but also to design and structure the arbitration so that it suits their needs, and proceeds with as much or as little pre-hearing fanfare as the parties desire.  Within some basic limits, parties can structure their agreement as they see fit, and that can be something from which businesses can reap benefits. 

But many parties apparently are not aware of the extent to which arbitration can be tailored to fit particular situations, or simply do not consider the prospect of a future arbitration to be important enough to invest some modest time and effort into considering what is likely to transpire in the event of a dispute.  The problem is compounded by contract drafters, including attorneys, that simply do not have the requisite arbitration, litigation and arbitration-law experience to make informed judgments about whether the agreement they have drafted is likely to suit the parties’ dispute resolution needs.  I have been involved in a number of arbitrations that would have proceeded more expeditiously, efficiently and effectively had they been conducted pursuant to a well-drafted arbitration agreement, instead of one that was apparently selected without a lot of thought given to the type of proceeding the agreement authorized, and whether it was what the parties wanted.  We have all heard horror stories about arbitrations that would not have been so horrifying had the parties placed some limits on how the proceedings were to be conducted.  

The solution to the problem is relatively easy and not very costly.  Hire an arbitration lawyer with litigation, arbitration and arbitration-law experience to help you draft an effective arbitration agreeement that suits your needs and goals.  Depending on the scope of the project, only a few hours of the lawyer’s time may be needed.  And the return on the modest investment could be substantial in the event a dispute ever arises under the contract.

Your arbitration lawyer should initially focus on finding out from you what you desire from your dispute resolution system, and what it is about court adjudication you wish to avoid.  Depending on what your goals are, he or she may recommend that you opt for court adjudication and perhaps add choice-of-forum and choice-of-law clauses to your contract.  Or he or she may conclude that arbitration can further your goals, and help you draft an arbitration agreement designed to achieve them. 

So if you or your employer or business negotiates contracts with others, and you want more out of dispute resolution than ordinary court adjudication is likely to provide, hire an arbitration lawyer with litigation, arbitration and arbitration-law experience to help guide you along.  You probably won’t incur much in the way of legal fees, and you will be able to take better control of your own dispute-resolution destiny.

         

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