The Case Against Arbitration: Do the Doubters Have a Point?

Recently, the American Arbitration Association (AAA) obtained feedback from a number of its primary users throughout the United States that have traditionally used arbitration extensively as a dispute resolution mechanism. Although the AAA received many compliments and accolades, the results also reflected concerns about arbitration that have become more widespread. These can be distilled into three general perceptions: (1) arbitration is becoming more and more like ordinary litigation; (2) it is becoming as expensive as—if not more expensive than—litigation, in large part because of the high fees that arbitrators charge to conduct a case; and (3) in some circles, there is a lack of trust that arbitrators will be willing to make hard, albeit legally justified, decisions, particularly in complex cases. These results are also reflected in a recent survey concerning international arbitration, reported in the January 2011 edition of “Inside Counsel” magazine. Over 50% of in-house counsel interviewed in that survey said they have been “disappointed with arbitrator performance.”

Are these criticisms justified? To answer this question with any degree of accuracy requires some dissection of the factors at play in a complicated arbitration proceeding. As a starting point, one basic premise of arbitration does not seem to be in doubt, at either the international or the domestic level: for better or worse, arbitration remains a method of dispute resolution that carries with it more undefined and uncertain elements than litigation. The arbitration rules—in both international institutions (such as the ICC or the LCIA) and U.S. domestic institutions (such as AAA or JAMS)—have become somewhat more detailed over the years, but they are still purposely very general, allowing considerable flexibility for the tribunal to conduct the arbitration and for the parties to present their positions. The virtue of this somewhat loose structure is that it creates and defines the intended spirit of arbitration—a dispute resolution mechanism not bogged down by the formalities of litigation, which allows the parties and the tribunal to tailor the process in a fair and cost-efficient way, resulting in a reasoned award that, generally, will be more analytical and comprehensive than its judicial counterparts.