Arbitration is a popular alternative to courtroom litigation, and given its well-established track record for reducing legal costs, it’s easy to see why. However, those reduced costs depend upon it being used properly. If arbitration is mishandled, it can actually end up costing just as much as—if not more than—litigation.
Here, we’ll discuss some common arbitration pitfalls as well as how to best avoid them.
Pitfall 1: Trying to Win at All Costs
One of the strengths of arbitration is it allows disputes to be resolved in a collaborative manner. As such, taking a litigious “win at all costs” approach to arbitration will often run counter to the nature of the arbitration. Under these circumstances, it will tend to look more like litigation than arbitration, complete with the associated expenses.
On the other hand, the more persistently collaborative your approach to arbitration, the more likely you’ll be to reach a resolution that serves the interests of both parties at a minimal cost. It takes a willingness to compromise, but it helps to frame the dispute in terms of how much it might cost both parties rather than focusing on who is right or wrong.
Pitfall 2: Having No Predetermined Rules
While arbitration is less formal than courtroom litigation, it does still need set rules in order to fulfill its purpose. Those rules may include items such as how an arbitrator or panel will be chosen, procedures for hearings, what information should be exchanged prior to hearings, etc.
It’s best to have these rules—or at least a set of procedures and guidelines—set forth and agreed upon early in the business relationship. They shouldn’t be put off until a dispute arises and tensions start running high since that will only prolong the process.
Pitfall 3: Neglecting Preparation
When done well, arbitration streamlines many of the preliminary phases inherent in litigation, but it still requires a certain amount of preparation. Neglecting this preparation can hamper negotiations and extend the time taken to reach a resolution. Some of the preparations needed for optimal arbitration include:
- Analyze and organize facts
- Interview people
- Outline items that need to be discussed
- Determine who needs to be present at the hearing
- Create a risk-loss assessment for the case
- Create a list of potential solutions
The last two items are particularly helpful since they help direct the discussion toward finding a mutually beneficial solution rather than reverting to an adversarial mindset.
Pitfall 4: Using Unqualified Arbitrators
Finally, it’s vital to use qualified arbitrators at your hearings. The ideal arbitrator should have experience with the issues involved in the dispute and be fairly impartial so as to make their ruling more likely to be accepted. Outlining a list of desired qualities with the opposition can help when choosing an arbitrator, as can creating a shortlist of individuals who have those qualities to choose from.
In addition to choosing a good arbitrator, having a good attorney on your side is also vital to successful arbitration. If you’re involved in a business dispute, contact Hart David Carson LLP today for a free consultation.