Arbitration is an Alternative Dispute Resolution (ADR) procedure whereby parties to a dispute, rather than litigate in court, agree to place their case before an impartial third-party arbitrator who, after hearing the matter, issues a ruling in favor of one of the parties. Arbitration procedures can vary widely depending on the nature of the dispute, the status of the parties and whether the arbitration is mandatory or voluntary. Parties to a voluntary arbitration have considerable latitude, in conjunction with the arbitrator selected to hear the case, to decide how the matter will be heard, including the establishment of any procedural rules that will govern the conduct of the arbitration.
Many commercial as well as some consumer contracts contain mandatory binding arbitration clauses that compel arbitration in the event of a dispute. Some of these contracts designate a forum, such as the American Arbitration Association in the United States, under whose procedural rules the arbitration will be conducted. In the absence of a designated forum, arbitration procedure is determined by the arbitrator, and the parties to the dispute. In certain circumstances, those compelled to arbitration can elect to have the matter decided by a single arbitrator in an expedited hearing. A panel of three arbitrators usually hears more complex cases.
Some industry and self-regulatory organizations provide detailed arbitration procedures that govern the conduct of mandatory binding arbitration conducted in their forums. The rules of an arbitration procedure established are designed to insure that those who are compelled to arbitrate their disputes receive a fair hearing. These rules may include, at the initial stages, the manner in which arbitrators are selected by the parties and the circumstances under which named arbitrators can be challenged, either peremptorily or for cause. Additional arbitration procedures may provide for the exchange of information between the parties prior to the hearing, as well as the manner in which any pre-hearing disputes will be resolved.
Certain forums specify rules that govern the arbitration procedure of the hearing itself. These rules stipulate whether opening or closing statements are allowed, how evidence is presented, and the right of a party to cross-examine an opposing party’s witnesses. Arbitration procedures at some forums can vary depending on the nature of the dispute. Some forums, such as the American Arbitration Association, have a distinct arbitration procedure for consumer, labor, construction, and employment disputes.
Since arbitration is designed to provide for the quick and cost-effective resolution of disputes in general, arbitrators are usually not bound by the formal rules of civil procedure or formal evidentiary rules applicable in court proceedings. Arbitrators are empowered to disallow extraneous evidence or evidence that is clearly irrelevant to the issues they are deciding. In general, most courts pay deference to the decision of an arbitrator. In the absence of corruption, fraud, or manifest disregard of the law on the part of the arbitrator, most awards are upheld and can be enforced by the prevailing party in a local court of competent jurisdiction.
