Disadvantages of Arbitration

Arbitration is a procedure that parties to an agreement may use in order to resolve their disputes outside of the courts.  

Litigating in court is often an expensive, time-consuming and emotionally draining experience.  In order to avoid this, many parties to a contract agree to arbitrate, rather than litigate, through a contractual provision called an arbitration clause.  

An arbitration clause compels the parties to resolve any disputes that they might have through arbitration. This way, the parties are contractually bound not to sue each other, but to instead settle their disputes without judicial involvement.

Like everything else, arbitration can have its disadvantages as well.

1. No Right to Appeal

If the arbitration is binding, then once the arbitrator makes a ruling, the decision is final and non-appealable.  In court, if a party doesn’t like the judge’s ruling, it may be appealed.

2. No Right to Discovery

In court, the parties are entitled to a discovery process.  This is where they request documentation and information from the other side, who must generally exchange such requested information.  With arbitration, there is no automatic discovery process. Whatever discovery process will be used must be detailed in the parties’ arbitration clause.

3. Arbitrary Decisions

Arbitrators may exercise wider discretion than a judge or jury.  Because of that, their decisions may be completely unpredictable.  If the decision is binding, you are stuck with it, regardless of how arbitrary it may be.

4. Lack of Formality

Although arbitration’s lack of formality is often helpful, it may also lead to a ‘wild west’ situation where it seems like there are no rules.  Because of its lack of rules, sometimes arbitrations may be dragged out for far longer than anticipated. When this happens, the streamlined process disappears and the costs may equal or surpass those of going to court.

The decision whether to opt for arbitration over litigation is an important one.  Factors such as time, expense and the experience and reputation of the arbitrator must be carefully considered.  Additionally, whether the arbitration will be binding upon the parties is an important decision with enduring ramifications.  

If you are entering into a contract that contains an arbitration clause, you should certainly have an attorney available to assist you with the contract review and preparation.  Should you find yourself in this position, contact the Greenbaum Law Firm, P.A. to schedule a consultation today.

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Greenbaum Law Firm, P.A.

The Greenbaum Law Firm, P.A. is a boutique, client-centric law firm concentrating in the areas of business and corporate law, contracts and agreements, and real estate. Our unique approach to the practice of law consists of positioning our clients at the center of the legal practice and pursuing their objectives in the most efficient and transparent manner.

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