The best method for resolving any dispute is by direct negotiation or mediation. Resolution by the decision of a third party is second best.
If the dispute is to be resolved by the decision of a third party, one has the alternatives of traditional litigation or arbitration.
Traditional litigation involves a decision by a judge or jury. It is preferable in limited circumstances. Arbitration involves a decision by an arbitrator or panel of arbitrators. It is just as effective, much more efficient and less costly than traditional litigation in many instances.
Traditional litigation and arbitration are similar in that both involve the use of an independent third party (judge, jury or arbitrator) to whom each party presents evidence and arguments.
The third party makes a binding decision. Otherwise, traditional litigation and arbitration significantly differ. In litigation, where the hearing is to be held, by whom it`s conducted, when held and the rules of discovery and evidence are controlled by statute, court rules and court decisions.
In arbitration, the parties determine when, where and by whom the hearing is to be held and the rules of conduct. Arbitration tends to be significantly less formal, more private, more expeditious and less costly than traditional litigation. A few examples of actual cases will illustrate these differences.
A policyholder sued his insurance company in chancery court to collect for water damage to his home resulting from pipe leakage. A question arose as to whether this type of loss was covered by his policy.
After several months, the court decided that the policy did cover the loss. The parties were then confronted with a delay of several months before having a trial to determine the extent of monetary damages to which the policyholder was entitled.
The parties then chose arbitration. An arbitrator was retained who scheduled the hearing at the convenience of the parties less than three weeks after being hired. The parties submitted written information to him in advance of the hearing. The hearing lasted one hour. The written decision was rendered the next day. The parties could have submitted the initial question of policy coverage to an arbitrator making the entire dispute subject to arbitration.
A disgruntled car owner sued a car dealer for alleged breaches of warranty and faulty repairs. The circuit judge explained to the parties that the condition of his docket was such that they should not expect a trial for several months, and that they should seriously consider arbitration. The parties agreed, hired an arbitrator and had a three-hour hearing. The decision came shortly thereafter.
The federal agency regulating household goods carriers requires those carriers to furnish arbitration of loss and damage claims if desired by the customer. The evidence of the claimant and the carrier are submitted in writing by mail to an arbitrator who makes the decision without a hearing.
In all of the above instances, the proceedings were private and concluded months before a trial would have been held in court.
The cost to the parties was less than they would have experienced had they resorted to traditional litigation because the informality of arbitration proceedings generally reduces the preparation time for hearing and the length of hearings.
Although attorneys were involved in the first two examples, it is reasonable to conclude that hundreds, perhaps thousands, of dollars of expenses, including attorneys` fees, were saved through the use of arbitration. These savings far exceeded the expense of the arbitrator`s fees.
Harold D. Miller Jr. is a member of Butler, Snow, O`Mara & Cannada PLLC of Jackson. He is chair of the firm`s ADR Group; chair of the ADR Committee of the Mississippi Bar; and an adjunct professor at the Mississippi College School of Law teaching ADR.