Texas Attorney Richard Armstrong takes issue with those who hold that arbitration is a silver bullet to solve the problem of the delays and costs of litigation.
“I have seen too many cases where a contract contained an arbitration clause that was too broad of a brush,” says Armstrong, “leaving little or no room for judicial remedies where it would have been especially appropriate to that case.” One of the starkest examples is the use of an arbitration clause to cover all remedies, including those which an arbitrator is not empowered by law to give, such as injunctive relief.” Armstrong notes that, by entering into such an agreement, a business person may effectively “paint themselves into a corner” by removing all access to the courts in a case where a judge’s unique powers to grant relief are necessary. An arbitrator, for example, has no power to hold a party in contempt, nor to issue— let alone enforce— what is known in common parlance as a “cease and desist” order.
But there are other examples of the shortcomings of arbitration. States Armstrong: “One of the myths perpetrated, and often repeated, is that arbitration saves costs. While this may be true in lower dollar cases with one arbitrator and streamlined procedures, in more complex cases it may not be true at all. With a panel of three arbitrators and many complex issues to be solved, costs can spiral to rival those of a jury trial and easily exceed those of a bench (judge) trial.”
Armstrong additionally points out that, unless the parties voluntarily agreed to submit a particular matter to arbitration and to abide by the decision, the arbitration award must be filed in a court to “confirm” the award as a judgment. There are also some grounds upon which an arbitration award may be challenged by a disgruntled party, costing even more. “The bottom line,” says Armstrong, is that each party needs to carefully consider whether they will actually benefit from arbitration, and if so, under what circumstances.
Rather than slapping it unthinkingly into every agreement, folks should consider leaving it out, knowing that they can always agree to it at any time after an actual dispute arises.”