Parties to a contract may agree to have their disputes decided by a private, paid neutral arbitrator or panel of arbitrators instead of having their disputes decided by a judge in public court proceedings. The terms of an arbitration agreement vary from contract to contract and control how the arbitration proceeds. Arbitration is typically binding, less formal and resolved more quickly than litigation, and often (though not always) less expensive than going to court. The following article provides an overview of the arbitration process and things to keep in mind if you are considering arbitration as you negotiate a contract or are already subject to an arbitration agreement.

Arbitration agreements come in all shapes and sizes and can be customized to fit the type of contract and/or the types of parties involved. The language of the arbitration agreement controls the proceedings. For example, an arbitration agreement might address: (1) what claims may be arbitrated; (2) whether there are pre-requisites to filing a claim; (3) how the parties notify each other of claims; (4) what organization will administer the arbitration; (5) who the arbitrator will be; (6) the number of arbitrators; (7) how arbitrators will be selected; (8) the location of the arbitration and whether hearings may occur by telephone or videoconference; (9) the governing law; (10) whether a particular set of arbitration rules will be used; (11) whether the arbitration will be decided by documents only or in a live hearing; (12) the length of the arbitration; (13) whether discovery is allowed and, if so, whether it is limited; (14) what damages or other remedies are allowed; (15) who will pay the costs of the arbitration; (16) whether attorney’s fees are recoverable; (17) what type of award is desired; (18) whether the proceedings are confidential; and (19) whether there are any exceptions to the agreement to arbitrate.

Arbitration proceedings are typically private and confidential, involving only the parties, witnesses, and arbitrator(s) deciding the dispute. For that reason, many businesses prefer arbitration over court proceedings which are open to the public and accessible through state and federal court filing systems. It should be noted, however, that the parties to the contract may provide in their arbitration agreement that the proceedings are not confidential or that the confidentiality of the proceedings may be waived or limited based on the circumstances.

Many arbitration agreements specify what organization will administer the arbitration. There are a host of professional organizations that administer arbitrations and provide parties with access to a list or roster of trained and qualified arbitrators, including the American Arbitration Association (AAA)-International Centre for Dispute Resolution (ICDR), International Chamber of Commerce International Court of Arbitration (ICC), Judicial Arbitration and Mediation Services (JAMS), Judicial Arbiter Group (JAG), and others. If the parties to an arbitration agreement do not specify what organization will administer the arbitration, they may nevertheless agree to use one of those organizations or may hire a private, independent arbitrator. Arbitration administrators charge fees to administer the case which must be paid by the parties per the arbitration agreement or administrator’s rules.

Arbitrators are neutral trained professionals with subject-matter expertise who determine arbitration disputes. An arbitration agreement may identify who will arbitrate the parties’ dispute, whether one or more arbitrators will decide the matter, and/or how the arbitrator(s) are to be selected by the parties or the administrative organization. If more than one arbitrator is to decide the dispute, the group of arbitrators is called a “panel.”

A “claimant” is the party asserting claims against the other party or parties to a contract. Arbitration is typically commenced by filing a “Demand for Arbitration” with a private arbitrator or an administrative organization and serving a copy of the Demand for Arbitration on the other party. In the Demand for Arbitration, the claimant gives a brief description of its claims, attaches the parties’ agreement to arbitrate, and requests the matter to be heard by an arbitrator or panel of arbitrators.

A “respondent” is the party against whom claims are made. A respondent may file an answer to the Demand for Arbitration and/or its own Demand for Arbitration in which the respondent asserts claims against the claimant.

Arbitration is intended to be less formal, less expensive, and decided more quickly than traditional litigation in state or federal court. For this reason, discovery is generally limited unless, of course, the parties’ arbitration agreement alters the general limitation on discovery or there is good cause for allowing discovery.

Most arbitrators conduct a preliminary hearing shortly after the Demand for Arbitration is filed to better understand the parties’ dispute and to schedule the case. During the preliminary hearing, the arbitrator and the parties will discuss when and how the case will be decided, what rules and laws govern the proceedings, determine whether discovery, motions, and briefs will be allowed, whether the arbitration will be decided on documents only or after a live hearing, set case deadlines, schedule the arbitration hearing, and address any other concerns the parties may have.

Each party will be allowed to present its claims, defenses, evidence, and legal arguments at an arbitration hearing conducted by the arbitrator. Some arbitrations are “documents only” arbitrations in which each side files a written submission setting forth its claims, defenses, evidence, and legal arguments. Other arbitrations are live hearings in which each side presents witnesses, documents, and legal arguments in support of their positions. Live hearings may take place by telephone, videoconference, or in person.

Following the arbitration hearing, the arbitrator(s) will enter an award. The parties’ arbitration agreement may provide for the type of award the parties desire such as a simple award or a reasoned award. The type of award to be issued may also be determined by the arbitrator(s) and the parties during the preliminary hearing or arbitration hearing. The final award is binding on the parties and ends the arbitration proceeding.

There is no automatic right to an appeal of an arbitration award like there is in federal or state court. The finality of an arbitration award is seen as one of the advantages of arbitration. That said, the parties may agree by contract to a method for privately appealing an arbitration award and some administrative organizations provide options for appeal if the parties mutually agree to use those. The Federal Arbitration Act as well as some state arbitration acts (depending on which applies) allow parties to ask a court to modify or vacate an arbitration award, but the grounds for doing that are extremely limited and such requests are rarely granted.

In the United States, the Federal Arbitration Act as well as some state arbitration acts (depending on which applies) allow a party to ask a federal or state court to confirm the arbitration award and convert it to a judgment that can be enforced like any other court judgment.

BHGR’s ADR Group has significant experience handling complex domestic and international commercial, construction, and employment arbitrations. In addition to representing clients in arbitrations, several of BHGR’s attorneys also serve as private arbitrators as well as arbitrators with the AAA-ICDR, which is the largest private global provider of ADR services in the world.