What are the demerits of Arbitration?

Demerits of Arbitration:

The importance of arbitration was accepted by almost the entire international community. However, the reason for the growth in popularity was kindled by the advantages that arbitration has over adjudication or other forms of dispute resolution. Arbitration is used in labor disputes, business and consumer disputes, and family law matters. Most contracts include an agreement of both parties to the arbitration process. However, there are a few drawbacks of the arbitration as well which make it less difficult to apply in such situation.

Lack of formal evidence process

One of the most important drawback to the process is the lack of a formal evidence process. This lack means you are relying on the skill and experience of the arbitrator to sort out the evidence, rather than a judge or jury. No interrogatories or depositions are taken, and no discovery process is included in arbitration. In courts of law, all facts having rational, probative value are admissible unless excluded by some specific rule. A witness may be questioned as to any fact or information within his knowledge which may be relevant to the disputed issue being tried. However, whether in a court of law or an arbitration, accepting evidence “for what it is worth” generates at least two problems. First, advocates must know “what it is worth” so they can decide what evidence they must rebut. Second, and perhaps most important, while evaluating the testimony, the arbitrator needs standards to guide him in determining what weight is to be given to evidence. Parties have a right to know what general standards an arbitrator uses in this critical determination of what evidence is worth. It has been suggested that properly understood legal rules of evidence have their foundation in reason, common sense, and necessity, and that perhaps the rules for the admissibility of evidence in court trials may be re-molded into rules for weighing evidence by arbitrators, even if no evidence is absolutely excluded as inadmissible. In general, the courts have refused to admit evidence improperly acquired in violation of the constitutional protection against illegal search and seizure. The issue in arbitration cases tends to relate to information which the company regards as confidential, such as inter-office memos, production records, etc.

Lack of Appellate forum

The lack of a formal appeals process and the usually binding nature of the process also draws a demerit of the arbitration process. If you are a party to binding arbitration and you want to protest the decision of the arbitrator, you may not be able to do so unless there is some reason to believe the arbitrator acted with malice or was biased. There is no right of appeal even if the arbitrator makes a mistake of fact or law. However, there are some limitations on that rule, the exact limitations are difficult to define, except in general terms, and are fact driven. Many people opt for binding arbitration because it is supposedly faster and cheaper, and binding thus final.  Some people have to arbitrate their matters that they cannot settle amongst themselves, because there are issues that they cannot try before a court given the court’s mandatory obligation to report certain matters to the proper authorities (e.g. taxing authorities). While many people seek the finality of a binding result, many others are concerned that because an arbitrator is human, she/he could make a mistake.  Accordingly, they want the ability to appeal the matter to a reviewing body of some sort.

This make the arbitration a dangerous and harmful for the parties as there could be in case of any error or mistake a final decision in which there is appellate forum. However, there is still clause and the process to review the decision in case of any such default or mistakes but still those limitations are not enough to regulate the process of the arbitration and deal with the matter of appeal as well as that would defeat the idea of the quick remedy as arbitration. So generally people has to choose between the regular litigation that do have an appeal option as well and there are different stages and long time before the final decision and the arbitration which would take less time and would final decision without giving any party the right to appeal and both parties have to waive their right before coming into the arbitration.

Competency and biasness of Arbitrator

It could be the most important drawback of the arbitration as there is very much less check and balance on the arbitrator and its act. The biasness and competency of the arbitrator is very much important in order to get a just decision which is actually the idea of the arbitration. The arbitrator could be influenced at any stage of the arbitration and there is no proper way to look up to him. The competency could be seen incompetent to understand the meaning of the proposition and that could lead to a unjust decision by him just looking up to the general points of the case rather than looking into the technicalities of the case. Unknown bias and competency of the arbitrator unless the arbitration agreement set up the qualifications or the organization that administers the arbitration, has pre-qualified the arbitrator. Even the power to challenge the competency during the trial is also a right which could delay the trial as well which defeats the purpose of the arbitration .Any party could use it to further delay the process. So in this way the arbitration could lose its purpose as well.

Regulating laws and Principles 

Regular legal system has number of laws and subordinate laws as well proper procedure and mechanisms to hold the justice system properly. It gave the parties all the rights and imposed duties on them which developed over the time and after came into force after hundreds of years development. However, arbitration looks into the general terms and principles to hold its decision. Such as taking evidence and holding a debate over the issues could be disputed and parties could eventually forced into a compromise with the other party. This could lead to the destruction of the system.

Cost efficiency:

 While arbitration is generally a more cost-efficient legal settlement option, it might not make sense in cases when you have to pay for arbitration services and your representatives in the arbitration process. Mostly in such cases where money is not involved or only a minimal amount of money is in dispute. In such case the arbitration could be more expensive which defeat the idea of arbitration. Or in any such case where more than one arbitrators involved t=and you have to pay for them separately as well as you could also lose your rights in the arbitration if you don’t plead clearly without have a legal assistance. So you have to pay for the legal assistance to lawyers as well which is not cost efficient at all. In this way, the arbitration process became costly and its main purpose which is to get a decision in cost effective manner.

The costs of the arbitration include

  • the fees of the arbitral tribunal;
  • the travel and other expenses incurred by the arbitrators;
  • the Administrative Fee and expenses of the Institute; and
  • the legal and other costs incurred by the parties in relation to the arbitration, if such costs have been claimed and to the extent that the arbitral tribunal considers that the amount of such costs is reasonable.

Unless otherwise agreed by the parties, the costs of arbitration shall in principle be borne by the unsuccessful party.

Costs in arbitration usually fall into two broad categories: (i) costs of the arbitration (i.e. the costs of the tribunal and institution (if any)), and (ii) legal costs. The approach to these costs adopted in international arbitration largely mirrors that in English litigation in so far as costs are generally recoverable by the successful party. Commonly, the “costs of the arbitration” are awarded in full, whereas the legal costs may be reduced on the grounds of “reasonableness”. However, when it comes to the tribunal assessing these costs, this tends to be a far less forensic exercise than in costs proceedings in English litigation.

Private hearings in Arbitration

 The fact that arbitration hearings are not public may put one side at a disadvantage. Public hearings are very much important to make the ends of the justice to meet because that made the litigants and the decision makers accountable and make sure that the proceedings are according to the laws and regulations. So one of the drawback of the arbitration could be consider as the private hearings of the arbitration which make the doubt in the final decision of the arbitrator. In case of any arbitrator biasness there could be injustice on the end of any party and there would be no proof because of the private hearings.

May have no choice

Often the contract in dispute contains a broadly worded mandatory arbitration clause. Many lease agreements and employment contracts, for example, contain mandatory arbitration provisions, as do operating agreements and other types of business contracts. Unless both parties waive arbitration, most states will compel arbitration at the request of any party.

Limitation of arbitration awards

 Arbitrators can only resolve disputes that involve money. They cannot issue orders compelling one party to do something, or refrain from doing something (also known as injunctions). For example, Arbitrators generally cannot change title to real property. Of course this is subject to the specific language of the arbitration clause. Some of the procedural safeguards designed to protect parties in court may not be present in ADR, such as the liberal discovery rules used in U.S. courts, which make it relatively easy to obtain evidence from the other party in a lawsuit.

There is no guaranteed resolution

With the exception of arbitration, alternative dispute resolution processes do not always lead to a resolution. That means it is possible that you could invest the time and money in trying to resolve the dispute out-of-court and still end up having to proceed with litigation and trial before a judge or jury. However, you will certainly better understand the other side’s position.

Although alternative dispute resolution through arbitration is one of the most prevalently ascribed to methods for resolving disputes between individuals and parties, there are some arbitration disadvantages such as described above. Additionally, some disputes may not prove best resolved through arbitration either. Arbitration, itself, is a process of two parties mutually agreeing to allow a third, impartial party to make a decision regarding an outstanding dispute. The decisions from an arbitrator are legally binding and are enforceable in the court of law per the Federal Arbitration Act, as well as numerous state and local laws following the federal legislation. Unless in cases of corruption, fraud, or other circumstances that would affect an arbitrator’s ability to remain impartial, almost all arbitration rulings are final. Additionally, the courts may rule against the decision and rulings of an arbitrator if the decision is egregiously against one party without basis.

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