What Are Common Misconceptions About the Arbitration Process?

Authored By Mediator Experts
Published: April 18, 2024

Arbitration, often lauded for its efficiency and confidentiality, is a complex process rife with misconceptions, as revealed by a seasoned Franchise Mediator and a Senior Legal Counsel, among others. To dispel these myths, we’ve assembled insights from industry experts along with additional answers that underscore the nuanced reality of arbitration. From speed of the process to rules of evidence, join us as we address and clarify seven common misunderstandings.

  • “Arbitration Is Never Required by Law”
  • “Arbitration Always Leads to a Quicker Resolution”
  • “Arbitration Values Peace Over Merit”
  • “Arbitration Is a Public Process”
  • “All Arbitrators Have Specialized Knowledge”
  • “Arbitration Is Always Less Expensive”
  • “Arbitration Follows Formal Rules of Evidence”

“Arbitration Is Never Required by Law”

Many lawyers and the general public are completely uninformed about the arbitration process and have no idea of the pros and cons of using arbitration as an alternative dispute resolution process.

Arbitration is a process that is required by some laws and in many consumer contracts. However, it can also be agreed to by the parties as a means of resolving disputes rather than proceeding through the usual judicial process.

The process of arbitration is set out in an arbitration agreement or contained as a separate section of a contract. Many consumer disputes are required by statute or contract to be resolved through arbitration. The parties can specify many elements of the process, including how the arbitrator will be selected, number of arbitrators, specific experience of the arbitrator, location, governing law, key dates, how evidence will be introduced, procedural rules, number of days, appeal rights, costs, nature of the decision, confidentiality, and scope of authority. In addition, the parties can specify that the rules and procedures of a particular arbitration organization may govern. In the United States, many arbitrations are governed by the rules and procedures of the American Arbitration Association, which has hundreds of qualified members who can be designated depending on areas of experience. In Canada, organizations like ADR Chambers can be designated.

A major advantage of arbitration over the judicial process is that the parties can agree on a fixed timetable for various steps in the process and thereby avoid the usual delays and backlogs in the judicial process. However, while the costs of the judicial process are borne by the courts, the costs of arbitration are paid by the parties or by order of the arbitrator in the arbitrator’s decision. The arbitration agreement may specify that the arbitrator can assess costs and on what basis.

Another advantage of arbitration is that the agreement may require that a class action cannot proceed through arbitration. As well, the arbitrator may be given exclusive jurisdiction to hear and decide jurisdictional and procedural motions, thereby eliminating scheduling delays and excessive costs.

Without even realizing it, we are often agreeing to be bound by arbitration in certain disputes through car rental agreements, electronics purchases, employment contracts, bank documents, warranties, credit card disputes, parking lot receipts, hospital stays, and limitations of damage.

“Arbitration Always Leads to a Quicker Resolution”

A common misconception about arbitration is that it always leads to a quicker resolution than traditional litigation. However, several factors, such as the complexity of the dispute requiring extensive review and procedural issues like disputes over interpretation, can contribute to delays. To address these challenges, parties can take proactive steps, such as carefully drafting arbitration agreements to clarify the scope of issues and establish streamlined procedures. Additionally, selecting arbitrators known for efficiency and establishing clear timelines can help keep the process on track. Open communication and cooperation between parties are also crucial for minimizing delays, along with proactive resolution of scheduling conflicts. Overall, while delays in arbitration are definitely possible and do occur, parties can mitigate them to a certain extent by implementing strategic approaches in order to manage the dispute resolution process effectively.

“Arbitration Values Peace Over Merit”

Arbitration, though referred to as ‘Alternative Dispute Resolution,’ is often seen as a mere mechanism prior to seeking actual legal remedies before a court of law. The most common misconception clouding the minds of people concerning arbitration is ‘Whether it will yield a practical legal solution or just split the baby to keep the peace?’ It is still believed that arbitrators will not judge a case on its merits but will try to maintain peace by flushing out the truth. Another issue seen with arbitration is whether the award will hold true or will easily be squashed aside by courts. These issues lead to problems with making arbitration a success.

“Arbitration Is a Public Process”

One common misconception about arbitration is that it is a public process; however, it is often a private affair. The discussions, evidence presented, and the final decision are typically confined to the parties involved and do not become a part of public record. This privacy is one of the fundamental differences between arbitration and litigation in court.

It can be a particularly important factor for businesses or individuals who wish to keep their disputes and their details out of the public eye. Remember to consider confidentiality when choosing between arbitration and other legal processes.

“All Arbitrators Have Specialized Knowledge”

There’s a prevailing thought that arbitrators will have expertise relevant to the dispute at hand, but this isn’t always the case. Parties often have the opportunity to select an arbitrator with specialized knowledge, but there is no guarantee they will do so or that the selected individual will have the depth of expertise needed.

In some situations, the arbitrator may be a generalist or have a background in legal procedure rather than the specific subject matter of the dispute. It’s vital to ensure that your arbitrator has the appropriate expertise before proceeding with arbitration.

“Arbitration Is Always Less Expensive”

The assumption that arbitration is always less expensive than traditional litigation can be misleading. Although arbitration can sometimes save costs, there are scenarios where the fees for the arbitrators, administration, and other expenses related to the arbitration process can add up quickly. In addition, if multiple arbitrators are needed or if the arbitration takes longer than anticipated, costs can rise significantly.

Carefully assess potential costs and compare them against other dispute resolution methods. When budgeting for dispute resolution, consider all potential expenses of arbitration.

“Arbitration Follows Formal Rules of Evidence”

A significant misconception about arbitration is that it will mirror court proceedings with formal rules of evidence. Unlike court trials that follow strict rules about what evidence can be presented and how, arbitration can be more flexible. Arbitrators can allow a wider range of evidence and are not always bound by formal rules.

This flexibility might benefit some parties but could pose challenges for others. Always clarify the rules of evidence in your arbitration agreement to ensure a fair and effective process.

Frank Zaid
Franchise mediator, arbitrator, business operations consultant, expert witness, ADR Chambers

Sounak Sarkar
Legal Counsel, M3 (India)

Tanvi Trivedi
Senior Legal Counsel

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