Depending on the situation, arbitration may or may not be preferable to traditional litigation. But if you wait to address that issue until after a dispute arises, you’re already operating at a disadvantage. Because each business relationship is different, forward-thinking companies consider several key factors at the contracting stage to determine whether a given contract should include an arbitration provision, and if so what terms will best promote the company’s business interests. And if a dispute arises, smart companies turn to experienced arbitration litigators who know how to work the process to their advantage. Henry Chalmers and Allen Hirsch, litigators in Arnall Golden Gregory’s Alternative Dispute Resolution and Arbitration Practice and certified arbitrators with the American Arbitration Association, have deep experience guiding clients as they evaluate whether to agree to mandatory arbitration, crafting arbitration agreements that best promote the clients’ business goals, representing clients as plaintiffs and defendants in arbitrations, and presiding as arbitrators over other parties’ disputes. Below, they address key questions that you should ask yourself if you want to take control of the arbitration process.
1. Should my company include a mandatory arbitration provision in a contract it’s negotiating?
This may be the single most important decision you make to ensure that future disputes are resolved in a way that best serves your business interests. And it’s a decision that has to be made when the contract is being negotiated, not after it’s signed. To make the right decision, you need to ask yourself what a dispute is likely to look like if the contractual relationship falls apart. Some factors may favor arbitration, others may not. The nature of the agreement and the business relationship should guide you in making this important decision. Some factors to consider:
- Cost. Arbitration is usually less costly than litigation. If the other party does not have ample resources to sustain prolonged litigation, but you do, consider not including an arbitration provision and using the threat of costly litigation to leverage a favorable resolution.
- Speed. Arbitration generally takes less time than litigation. Decide if a quick resolution of a likely dispute would be to your advantage or disadvantage and let that influence your decision.
- Finality. Unlike litigation, arbitration decisions are generally non-appealable. This is another “speed” factor to consider.
- Privacy. An arbitration provision can require confidentiality. If that’s important to you, require arbitration. If publicity would damage your opponent, consider not including an arbitration provision.
- Limited discovery. Discovery is usually much narrower in arbitration. Determining which party could better handle the costs and hassles of broad discovery will help you decide whether to require arbitration.
- Remedies. Arbitration provisions can limit available remedies and waive others. Afraid of punitive damages? Arbitrate and bar punitives. Are you more ikely to be the one seeking punitives? Force litigation.
- Emotion element. Unlike jurors in litigation, arbitrators are usually trained attorneys. If one side is likely to have a more emotionally-appealing position, and the other a more legally-compelling position, the one with the emotional case would prefer litigation. Which are you likely to be?
- Informality. Evidentiary rules are often relaxed in arbitration. If you’re likely to need hearsay evidence to support your position in a dispute, opt for arbitration.
2. If I decide to include an arbitration provision, what should it contain?
The key take away is: Never blindly cut and paste an arbitration provision from another contract. Arbitration is not a one-size-fits-all proposition. Every business relationship is unique, and terms that work to your advantage in one situation may hurt you in another. Instead, to draft an effective arbitration provision evaluate its key elements on a case-by-case basis.
Some factors to consider:
- Mediation. Requiring mediation before a party may pursue arbitration could lead to a quick, less-costly resolution.
- The forum. Decide where you want any arbitration to be held, then lock that into the contract.
- The law. If a particular state’s laws will be more advantageous to you in a likely dispute, require that all disputes be resolved under that state’s law.
- The rules. Know which alternative dispute organization’s rules would serve you best and designate them in the contract.
- The panel of arbitrators. Determine how many arbitrators you want and what specialized knowledge or experience they need to have.
- Confidentiality. If it’s important to you, require it. If you think you may want to use the documents you discover or the final award in future disputes with this or other parties, leave it out.
- Discovery. Think ahead and figure out whether you would prefer broad or narrow discovery in a future dispute, then make that an affirmative term in your arbitration provision.
- The award. Decide whether you want to limit the scope or type of damages available, and whether you want the arbitrators to make written findings of fact and conclusions of law. Those parameters can be established in the contract.
3. Once in arbitration, what can an experienced arbitration litigator do to help me take control of the proceeding?
If you’ve followed steps 1 and 2, above, you’re already in a much better position should a dispute arise. And when an arbitration arises, a seasoned arbitration litigator will know how to seize additional opportunities to give you an even greater advantage.
Some examples include:
- Utilizing the court system. Just because you’ve agreed to arbitration doesn’t always mean the courts are out of reach. In some instances, you can get the courts involved to your benefit without breaching the arbitration provision.
- Selecting arbitrators. Sometimes, selecting the best panel of arbitrators can be more a matter of instinct than litigation science. If the attorney representing you also has experience as an arbitrator, you’ll have a sharper instinct on your side.
- Exploiting discovery. There’s a lot of play in the joints when it comes to arbitration discovery. Experienced counsel can exploit these opportunities to your advantage.
- Guiding the hearing. Evidentiary rules can often make or break the best of cases. Arbitrators have more leeway than judges in deciding how to apply the rules, and skilled arbitration litigators can influence those decisions.
- Post-award proceedings. Arbitration decisions are not appealable, right? Not always. Do your attorneys know where the openings lie? They should.
4. Two key takeaways.
If you only remember two things:
- Invest time on the front end: Before you negotiate or sign a contract, consult with an arbitration attorney to make sure that (a) you make a fully informed decision on whether to include an arbitration provision, and (b) any provision you include puts you in the best position possible should a dispute arise
- Not just any litigator will do: Arbitration is its own creature. Just because an attorney is a good and experienced litigator doesn’t mean he or she will know how to make the most out of the unique procedural practices and opportunities that exist in arbitration. To get the most out of the process, you need someone who is experienced at arbitration litigation.