Arbitration is an agreed-upon form of dispute resolution where the parties agree, usually in a formal contract, to arbitrate specified issues. As a creature of contract, it is governed by the terms of the agreement. The Federal Arbitration Act (FAA) or state arbitration statutes can supplement such an agreement. The parties may also amend or supplement an agreement to arbitrate or agree to arbitrate after a dispute has arisen. Compared to a court proceeding involving traditional litigation, arbitration offers a private and more informal resolution method. Arbitration is typically faster and less expensive for the parties. It can be binding or non-binding depending on the terms of the agreement. To be binding, the arbitration clause typically must provide that the decision of the arbitrator is final and can be entered as a judgment in a court. Arbitration can take many forms, limited only by the ingenuity of the parties. Alterity has published Arbitration Rules to assist in this form of dispute resolution, which are subject to the agreement of the parties regarding procedures for selecting an arbitrator(s), timing, evidence, scope, location, governing law, and similar topics. Some examples of forms of arbitration are described in the following paragraphs.
Baseball arbitration is a process in which each party proposes a monetary award to the arbitrator, sometimes referred to as a Best and Final Offer (BAFO). After the final hearing, the arbitrator chooses one award from the submitted awards without adjustment. Baseball arbitration offers each party an opportunity to propose reasonable offers to the arbitrator with the understanding that the ultimate award will be one of the submitted BAFO’s.
Baseball arbitration can be presented in two ways: a night baseball arbitration or a day baseball arbitration. In both types, the parties submit their BAFO to the arbitrator. In a day baseball arbitration, the arbitrator knows the submitted awards and selects the BAFO considered the most appropriate. Alternately, in a night baseball arbitration, the awards submitted by the parties are kept confidential from the arbitrator. When delivering the decision, the award that is mathematically closest to the arbitrator’s award becomes the binding award.
Binding arbitration is a process where the arbitrator’s decision is legally binding and enforceable and cannot be reviewed or overturned by a court, except in rare circumstances. The agreement typically must provide that the award is final and binding and that judgment may be entered by a court of competent jurisdiction.
High-low arbitration is a method of arbitration that enables parties to privately agree to the range of an award, before the hearing and without disclosing it to the arbitrator. In this arbitration process, the arbitrator’s final award will be modified to the specified range agreed between the parties. The arbitrator will determine a final award. If the parties agree to an amount below the arbitrator’s award, it automatically get reduced to the previously determined high figure. If on the other hand the arbitrator’s decision is below the pre-determined minimum, the award will increase to the pre-established low figure. If the award falls within the agreed-upon range, the award set by the arbitrator will be binding.
The following is an example of a high low arbitration:
In an arbitration between Party A and B, if Party A wants $600,000 and B is willing to pay $100,000, their high-low agreement would provide that if the award is below $100,000, Party A will pay at least $100,000; and if the award exceeds $600,000, the payment will be reduced to $600,000.
In nonbinding arbitration, all parties may reject the arbitration award and opt for a trial instead. Parties approach nonbinding arbitrations as an independent analysis of the strengths and weaknesses of a potential lawsuit, with the aim of working toward a settlement. But even in such cases, the arbitration agreement will sometimes require that the award may become binding if the parties agree to it or wait longer than a specified time to ask that the case be returned to court.
In virtual arbitration, frequently used since the end of 2019, the process mirrors traditional arbitration, except all aspects of the proceedings occur online. Virtual arbitrations conduct hearings through video conferencing, and clients can easily share documents securely online. Virtual arbitration offers significant cost savings and greater flexibility for the parties. All Alterity neutrals are equipped to conduct engagements virtually.