Understanding The Pros And Cons Of Alternative Dispute Resolution

Alternative dispute resolution (“ADR”) has been gaining momentum as an alternative

to litigation over the past decade. Most major corporations insist on it, in one form or
another, in every contract they execute. ADR can take on many forms, including
negotiation, mediation and arbitration. All ADR methods have pros and cons that
should be considered before making them a part of a company’s legal process.

Independent Negotiation
This is the least formal ADR tactic available and the most common. Most disputes
begin with negotiations, in an attempt by the parties to avoid ill-will and court costs.

Pros: Cons:
●  Inexpensive ● Can be a stalling tactic

● Faster than any other means of resolution ● No guarantee of a resolution

●  More private than court ● Power imbalances may go unchecked

● Flexible ● No guarantee of good faith

●  Risk-Free – parties can always escalate ● Lack of neutral 3rd party reduces
chance of agreement of complex, multi-
● Potential for continued working relationship party disputes

Mediation
Mediation is sometimes required by contract and is occasionally a mandatory pre-
litigation step in some jurisdictions. Mediation is an informal process wherein the
parties meet in front of one or more mediators, also known as “neutrals,” in an attempt
to sort out the needs and desires of the parties and reach a resolution. Mediation may
be either binding, or nonbinding. In binding mediation, the recommendation of the
mediator or agreement of the parties is binding on all parties. In non-binding
mediation, if the parties do not reach a resolution or do not agree with a mediator’s
recommendation, they may escalate the matter to the courts or to arbitration.

The three stages of the mediation process.

a) Stage 1: Introduction and establishment of credibility
b) Stage 2: Steering the negotiation process
c) Stage 3: Movement towards a final settlement.

Pros: Cons:
●  Confidential ●  If claim could be settled in small claims
court, mediation may be prohibitively
●  Generally less expensive than trial expensive

●  Faster resolution, compared to going to court ●  Incompetent mediators may hinder

resolution
●  Parties may choose a mediator with
substantive knowledge of the dispute ●  All parties’ rights may not be
adequately protected
●  3rd party neutral can help overcome
impasses and alleviate emotional situations ●  Legal precedents not created

Arbitration
Arbitration is typically binding in nature, though not always. This is set in contractual
negotiations. However, given the expense of arbitration proceedings, it is generally futile
to agree to non-binding arbitration when either party may decide to litigate a nyway after
going through the time and expense of arbitration.

Pros:
● Private Cons:
● Faster than litigation ● Successful outcome may be dependent on
quality of mediator
● Parties can design the process
● Unsatisfactory outcomes may not be
●  Sometimes less expensive than trial addressed by a judge
● Confidential Process ●  Lack of cooperation by a party may extend
●  More formal process than mediation – time and expense
compels decorum ● Lack of legal precedents in matters that
● Parties can choose substantive expert(s) to should be addressed once and for all
serve as arbitrator(s)
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 A. What is Arbitration?

Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or

more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties
opt for a private dispute resolution procedure instead of going to court. Its principal
characteristics are:

 Arbitration is consensual
Arbitration can only take place if both parties have agreed to it. In the case of future disputes
arising under a contract, the parties insert an arbitration clause in the relevant contract. An existing
dispute can be referred to arbitration by means of a submission agreement between the parties. In
contrast to mediation, a party cannot unilaterally withdraw from arbitration.

 The parties choose the arbitrator(s)

Under the WIPO Arbitration Rules, the parties can select a sole arbitrator together. If they choose
to have a three-member arbitral tribunal, each party appoints one of the arbitrators; those two
persons then agree on the presiding arbitrator. Alternatively, the Center can suggest potential
arbitrators with relevant expertise or directly appoint members of the arbitral tribunal. The Center
maintains an extensive roster of arbitrators ranging from seasoned dispute-resolution generalists to
highly specialized practitioners and experts covering the entire legal and technical spectrum of
intellectual property.

 Arbitration is neutral
In addition to their selection of neutrals of appropriate nationality, parties are able to choose such
important elements as the applicable law, language and venue of the arbitration. This allows them
to ensure that no party enjoys a home court advantage.

 Arbitration is a confidential procedure

The WIPO Rules specifically protect the confidentiality of the existence of the arbitration, any
disclosures made during that procedure, and the award. In certain circumstances, the WIPO Rules
allow a party to restrict access to trade secrets or other confidential information that is submitted to
the arbitral tribunal or to a confidentiality advisor to the tribunal.

 The decision of the arbitral tribunal is final and easy to enforce

Under the WIPO Rules, the parties agree to carry out the decision of the arbitral tribunal without
delay. International awards are enforced by national courts under the New York Convention,
which permits them to be set aside only in very limited circumstances. More than 140 States are
party to this Convention.
WIPO = means the World Intellectual Property Organization (Effective from June 1, 2014)
https://www.wipo.int/amc/en/arbitration/rules/

B. Arbitration is a method of resolving disputes without going to court. Sometimes an attorney

will recommend arbitration to a client as the best means to resolve a claim. In arbitration, the
dispute is submitted to a third party (the arbitrator) who resolves the dispute after hearing a
presentation by both parties. The presentation may be just documents submitted to the
arbitrator by each side. More often, in addition to the documents submitted, each side will make
an oral argument in person. Usually each side will have an attorney to make the oral argument for
them. Occasionally the presentation also includes witnesses who testify.
https://www.allenandallen.com/arbitration-advantages-and-disadvantages/
Advantages
There are numerous advantages to arbitration as a way to resolve a case.

1. The parties to the dispute usually agree on the arbitrator, so the arbitrator will be
someone that both sides have confidence will be impartial and fair.
2. The dispute will normally be resolved much sooner, as a date for the arbitration can
usually be obtained a lot faster than a court date.
3. Arbitration is usually a lot less expensive. Partly that is because the fee paid the arbitrator
is a lot less than the expense of paying expert witnesses to come and testify at trial. (Most of
the time the parties to arbitration split the arbitrator’s fee equally). There are also lower
costs in preparing for the arbitration than there are in for preparing for a trial. Partly this is
due to the fact that the rules of evidence are often more relaxed than in a trial, so that
documents can be submitted in lieu of having a witness come to trial and testify. For
instance, if a claimant has several doctors who are out-of-state, the cost of bringing them to
trial or going out-of-state to take their depositions may be prohibitive for trial, but in
arbitration you can usually use just their records and reports.
4. Unlike a trial, arbitration is essentially a private procedure, so that if the parties desire
privacy then the dispute and the resolution can be kept confidential.
5. If arbitration is binding, there are very limited opportunities for either side to
appeal, so the arbitration will be the end of the dispute. That gives finality to the arbitration
award that is not often present with a trial decision.

Disadvantages
There are, however, also some disadvantages to arbitration as a method of resolving a
dispute.

1. If arbitration is binding, both sides give up their right to an appeal. That means there is
no real opportunity to correct what one party may feel is an erroneous arbitration decision.
2. If the matter is complicated but the amount of money involved is modest, then the
arbitrator’s fee may make arbitration uneconomical. It may be cheaper to try the case
before a judge in General District Court, where medical evidence can be presented by
affidavits instead of paying the doctor to testify. However, the amount that can be awarded in
that court is currently limited to $15,000.00.
3. Rules of evidence may prevent some evidence from being considered by a judge or a
jury, but an arbitrator may consider that evidence. Thus, an arbitrator’s decision may be
based on information that a judge or jury would not consider at trial.
4. If certain information from a witness is presented by documents, then there is no
opportunity to cross-examine the testimony of that witness.
5. Discovery may be more limited with arbitration. In litigation, Discovery is the process of
requiring the opposing party — or even a person or business entity who is not a party to the
case – to provide certain information or documents. As a result, many times arbitration is not
agreed to until after the parties are already in litigation and discovery is completed. By that
time, the opportunity to avoid costs by using arbitration may be diminished.
6. If arbitration is mandatory or required by a contract, then the parties do not have the
flexibility to choose arbitration only when both parties agree. Mandatory arbitration
allows one party to force the other party to use arbitration. In situations where the arbitrator is
reliant on one party for repeat business [1], then the potential for abuse is present and the
advantage of impartiality is lost [2].
7. The standards used by an arbitrator are not clear, although generally the arbitrator is
required to follow the law. However, sometimes arbitrators may consider the “apparent
 fairness” of the respective parties’ positions instead of strictly following the law, which
would result in a less favorable outcome for the party who is favored by a strict reading of
the law. Although this issue has been present since antiquity (Aristotle said “? an arbitrator
goes by the equity of a case, a judge by the law, and arbitration was invented with the express
purpose of securing full power for equity.” [3], this consideration is often overlooked in
evaluating the applicability of arbitration.

In sum, arbitration is a very useful tool for resolving disputes, but careful consideration has to be
given as to whether it is applicable to or preferable in a particular dispute. Your attorney will
advise you if it is appropriate in your case

C. ARBITRATION PROS AND CONS

The advantages and disadvantages of using arbitration as a method to resolve a legal dispute are
arguably in the eyes of the beholder. For this reason, many of the items in the list below appear
both as pros and as cons. However, the list below explains some of the general views of
arbitration, both positive and negative, along with how a party's perspective can play into the
equation.

Arbitration Pros

 Cost: Historically, arbitration has often been seen as a cheaper way to resolve disputes, on
average, than litigating in court. However, this is not always the case, as described in the
Cons section below.

 Speed: With some exceptions, arbitrations tend to follow more specific and defined timelines
toward resolving a dispute, and arbitrators do not always face crowded work and caseloads,
resulting in quicker final decisions.

 Fairness: Often arbitrators are selected by agreement of both parties, by a third party
arbitration service, or via an outlined method where input is allowed from both parties. This
means that in many cases, no single party controls who the arbitrator (or abitrators) will be.

 Finality: For the most part, it is very difficult to appeal arbitration rulings, even if glaring
mistakes have been made by an arbitrator. This finality can be a positive factor in relation to
ending a dispute, one way or the other, and allowing the parties to move on.

 Simplified procedures: Litigation can involve mounds of paperwork, multiple hearings,

depositions, subpoenas, and similar processes. An arbitration may eliminate some or many of
those time-consuming and expensive tools of litigation.

 Confidential: Arbitration hearings do not take place in open court and transcripts are not part
of the public record. This can be very valuable for parties in some cases.

Arbitration Cons

 Cost: The cost factor can also appear as a "con" because arbitration does not always reduce
the costs of resolving a legal problem. This is because arbitration can vary in complexity and
 can take many forms, some of which may actually be more likely to increase the costs versus
litigation. As one example, arbitrations can be binding or non-binding. In non-binding
arbitrations, the final decision or award in the case is not "binding" and the parties are free to
take their issue back to court, essentially adding the cost of litigation to that of the prior
arbitration.

 Fairness: Consumers may have legitimate concerns about the fairness of being dragged into
arbitration over what might otherwise be a minor issue that could be resolved in small claims
court. Also, companies favoring arbitration may be more familiar with specific arbitrators, as
well as the process in general.

 Speed: Just like they aren't always cheaper, arbitrations are not necessarily always faster than
litigation. This is particularly possible in cases with multiple parties, multiple arbitrators, and
complicated legal disputes.

 Location: Within the same small print in a contract that can require consumers to arbitrate
their issues, there can also be language specifying exactly where an arbitration will take
place. This location can sometimes be very inconvenient to the average consumer, as it could
even be in another state, raising the cost and requiring time off from work.

 Finality: As noted above, it is very difficult to appeal arbitration rulings, even if an arbitrator
has made a blatant mistake. Although not common, this can sometimes result in what may be
seen as an unfair result (certainly from the losing party's perspective!), with only a small
chance that a court can step in to correct it.

 No jury: From most consumers' and individuals' points of view, having a jury of their peers
is an important right not easily given up. Arbitration does away with juries entirely, leaving
matters in the hands of an arbitrator, who essentially plays the role of both judge and jury.