Perceived Bias in Arbitration
How would you feel if you were told that a dispute involving you was going to be decided by a person that is in some way affiliated with the other party, or that your dispute is going to be arbitrated in a forum that is very inconvenient to you? Would you feel that the contract you entered for a completely unrelated business purpose is being used as a weapon against you to disincentivize you from pursuing or protecting your legal interests? Arbitration was created to be an alternative to the lengthy, expensive, and public process of litigation. Some have used the arbitration process as a weapon, instead of as a tool, and perceptions of both clients and lawyers have been tainted by the use of arbitration in such a manner. For many, this misuse of arbitration has changed the very connotation of the word.
In order for arbitration to be considered a viable and desirable alternative to litigation, it is fundamentally necessary that the process be protected from anything providing any impression that the arbitrator is anything other than completely neutral. In situations where arbitration provisions are not negotiated in such a way that this neutrality and fundamental fairness is protected, parties are giving up rights in exchange for what will likely later be viewed as a bad deal. In addition, those contracts that do not protect neutrality promote a negative view of arbitration, as a whole, by both clients and lawyers, who often view arbitration as a process that is embedded with an unfair bias.
Clients are often unaware that they have given up their right to their day in court before a jury of their peers until the dispute arises. Unfortunately, arbitration clauses are often glossed over in contracts as boilerplate and are not considered pertinent to the primary purpose of the contract. When the dispute arises, not being able to have their day in court or have a jury of their peers can cause frustration. Client education and awareness can alleviate some of these issues; however, they do not eliminate all concerns regarding impartiality.
Many lawyers lament being forced to arbitrate a dispute because of a general sentiment that the arbitration process lacks neutrality. Instead, the perception is that one of the parties, usually the party with superior bargaining power, regularly inserts a biased arbitration provision into its contracts. While all negotiating parties attempt to draft their contracts in a manner most advantageous to their cause, the bias perceived is not a balancing of interests in achieving a fair deal. Instead, the bias perceived is the presence of an ace up one party’s sleeve in the event of a dispute. These provisions sometime force disputes to be brought and decided through arbitration with a provider that has the incentive to keep one party happy so that the work continues to flow (i.e. so that the party continues to regularly insert the same arbitration provision into its contracts). In some instances, the contract provides that the arbitration will be conducted by an organization or industry association to which only one of the parties is a member. Unfortunately, selecting an arbitration provider that has close ties to a party inevitably influences many to view all arbitration in the same negative light.
So how can the intended purpose of arbitration, and clients’ interests be protected? It is imperative to keep in mind that arbitration is the product of a contractual agreement.
“It is important to negotiate an arbitration provision with as much attention as other substantive provisions in a contract so as to avoid arbitration from being weaponized, including preventing an arbitration provider that has ties to a party from being selected. Courts strongly favor enforcing arbitration provisions. As such, that which may be perceived as boilerplate can later broil your client. To the contrary, a well-drafted and intently negotiated arbitration provision can return arbitration to its intended purpose, providing your client with a fair and meaningful alternative to litigation.”
Overlooking the arbitration provision without giving it proper attention sets the stage for problems later. Protect neutrality and fairness in the process. When a dispute arises, clients and attorneys should prefer that the dispute be addressed fairly. If they do not, do you really want to be entering into that contract?
Matt Thiry, Esq. is a mediator and arbitrator in Atlanta. He specializes business, fiduciary, real estate and probate. To schedule a mediation or arbitration with Matt, please call 888-305-3553 or visit his online calendar.