Commercial Arbitration

Arbitration is particularly common in commercial disputes, that is, in disputes between private businesses. Commercial arbitration can be traced back to eighteenth-century England, where merchants preferred it to adjudication, because they could resolve disputes according to their own customs rather than public law. In the United States, arbitration has been commonly used to resolve commercial disputes since the late nineteenth century (Goldberg, Green, and Sander 1985,280–82).

Typical issues that are arbitrated involve problems with delayed shipments, incomplete shipments, quality of goods delivered, or claims of contract violations. Rather than taking the other party to court, businesses often prefer to use arbitration because it is quicker, less costly, and more private. Frequently, an agreement to arbitrate disputes is made in the initial contract, before any disputes arise. In other cases, no such arrangement is made, but the parties agree to use arbitration when the dispute occurs.
Although arbitrators can be found in a number of ways, they are often provided by the American Arbitration Association (AAA), the leading commercial arbitration organization in the United States. The AAA trains and certifies arbitrators and provides lists of qualified arbitrators to anyone requesting arbitration assistance. The parties generally have ten days to examine the list (which contains names and biographical information), cross off any people they consider unacceptable, and indicate their preferences regarding the others. The AAA then uses these preferences to choose an arbitrator who is acceptable to both sides.

The next step is often a preliminary hearing, which may be requested by either party or the arbitrator to clarify the issues, determine contested and uncontested facts, and discuss the exact process that will be used. Often a contract specifies that AAA procedures will be followed, in which case the procedural rules are set. When such a stipulation is not made, arbitrators have considerable flexibility regarding the level of formality of the process; therefore, they often discuss the options with the parties involved.
The next step is the regular arbitration hearing, in which each side presents its case in an effort to prove that its argument is correct and the other is wrong. Parties may represent themselves or may have lawyers represent them. Generally, the procedures are the same as those used in adjudication (though often greatly streamlined and simplified). Each party makes an opening statement, discusses remedies sought, provides witnesses, and makes a closing statement, summing up its position. After both sides do this, the arbitrator considers the evidence and makes a decision, which is binding. Unless requested otherwise by the parties, the decision requires no oral or written justification.
Because it is a simplified version of adjudication, arbitration is often a quicker and less costly way to get the same result. It is also useful when the dispute is highly complicated or technical. Unlike judges, who are usually experts in the law but not in the substantive issue in dispute, arbitrators can be both. Alternatively, a panel of three arbitrators can be chosen, one or two having expertise in the substantive matter of the case, the other having procedural or legal expertise. In such a case, a majority decision must be made by the panel members, and that decision is binding.