12. What are the procedures for carrying out an arbitration?
The rules and procedures applicable to an arbitration depend on the jurisdiction. Some jurisdictions rely upon common law to supply the rules applicable to arbitrations. In these jurisdictions, judges often draw heavily upon model laws or other influential sources in the development of the law. Historically, common law arbitration jurisdictions have far less developed procedural rules. Notably, these jurisdictions vary in the degree to which they support the arbitration process. Other jurisdictions pass statutes controlling the arbitration process. In such jurisdictions, the general procedure for carrying out an arbitration proceeding is as follows:
• Subject Matter of the Arbitration – The dispute may be a question of fact, law, or a mixed question of fact and law. There is a great deal of controversy surrounding what issues the arbitrator has the ability to decide. The arbitration agreement should be clear about the extent of the arbitrator’s authority.
⁃ Note: The arbitrator exceeding her authority is the most common grounds for challenging arbitration awards.
• Choosing Arbitrators – In voluntary arbitrations, the parties choose the arbitrator(s) to decide the dispute. In most cases, arbitration involves three arbitrators, which allows for a majority vote on the matter. There are numerous methods the parties can employ in selecting arbitrators. In some cases, an arbitration agreement will outline the procedure.
⁃ Note: Mandatory arbitration may identify or provide a limited pool of certified arbitrators. Otherwise, the parties have latitude in choose an arbitrator. Most jurisdictions do not require that arbitrators have any special training.
⁃ Example: Each party may select one arbitrator and those arbitrators select the third arbitrator. The parties will seek to select experts with experience in the particular industry and with knowledge of the customs and practices.
• Submit to Arbitration – Arbitration begins by the parties “submitting” their dispute to the arbitrators. Submission is simply the act of contacting the arbitrators and providing them with the dispute information and setting up a time to have an arbitration proceeding. Submitting a dispute to arbitration authorizes arbitrators to make a decision that binds the parties and resolves their dispute. In mandatory arbitrations, many jurisdictions require that the parties submit the matter to arbitration within 6 months of the dispute arising.
• Agreement with Arbitrator(s) – In voluntary arbitration, the parties must enter into an agreement with the arbitrators to resolve the dispute. The terms of the arbitration agreement and the dispute are passed on to the arbitrator. The parties may propose the rules governing the arbitration. In most cases, however, the arbitrator will agree to arbitrate the matter based upon model arbitration procedural rules. Mandatory arbitration may have formalized documents or procedures for this purpose.
⁃ Note: Many arbitrations employee the rules provided in the Federal Arbitration Act.
• Arbitration Proceeding – The arbitration procedure follows a semi-formal format with the arbitrators controlling the process. Often the arbitrators will orchestrate the arbitration similarly to a trial. The judicial rules of evidence and procedure do not apply, so the arbitrators have a great deal of latitude. They look beyond strictly legal criteria to other factors that bear on the proper resolution of a dispute. They can look at such factors as the state of the law, fairness, productivity, consequences on morale, and whether tensions will be heightened or diminished. Of note, they can generally request any evidence from the parties that is necessary to arrive at a decision.
⁃ Note: The arbitrator will often follow a form of model arbitration rules in holding the proceeding. Mandatory arbitrations will always follow the procedure proscribed by the law or court mandating arbitration.
• Award – Arbitrators do not issue a judgment, as in civil trials. Rather, they decide the matter and hand down an “award” in favor of one party or the other. The arbitration agreement and the rules employed by the arbitrators may limit the amount or type of award the arbitrators can issue. Generally, the arbitrators do not need to set forth findings of fact, conclusions of law, or reasons for the award. The arbitrators may, however, be required to elaborate on their reasoning if required by statute or arbitration agreement. If so, the arbitrators generally provide the reasoning for their decision in the form of an “opinion letter”. This opinion letter becomes part of the award. Regardless of the reasoning, parties are generally bound by the arbitrator’s decision.
• Enforcement – Courts will generally enforce arbitration awards either through contract law or through recordation and recognition as a judgment. Enforcement of arbitration awards is discussed in greater detail in a separate section.
• Discussion: What differences do you see between the arbitration and mediation process? What differences do you see between the arbitration and litigation process? Do you think it is wise for businesses to include arbitration clauses in contracts? Is it wise for individuals?
• Practice Question: You work for ABC, Inc. ABC is involved in arbitration of a major business dispute. Your boss wants you to attend the arbitration and provide evidence to the arbitrators. Concerned that you perform well, you begin researching the arbitration process. In a short memo, explain the process for carrying out an arbitration.