What is the Purpose of the Arbitration During a Contract Dispute?

Arbitration is a common method for litigating contract disputes and is often used in lieu of going to court. Generally speaking, arbitration is like a private court. It is used when two parties have a dispute and wish to avoid the lengthy and expensive process of litigation in a public court of law.

If you’ve ever been injured by a product or service, you may have to submit your complaint to arbitration. In arbitration, you and the other party agree to allow an arbitrator or panel of arbitrators to hear and decide the case. The arbitrators are not sitting judges; they are usually lawyers or retired judges. The decision is binding for both parties and is typically final and cannot be appealed.

The frequency with which arbitration is used to resolve contract disputes depends on a few factors, including the types of contracts involved, the nature of the dispute, the amount of money or other considerations at stake, and the preference of the parties.

How Does Arbitration Work?

Arbitration is a method of dispute resolution used as an alternative to going to court to resolve a dispute. In arbitration, the parties to the dispute agree to submit their argument to a neutral third party for a binding decision. The neutral third party is called an arbitrator.

The arbitration process begins with the parties submitting their dispute to the arbitration organization. The arbitration organization will then appoint an arbitrator to hear the case and render a final decision.

An arbitrator holds hearings to consider the evidence from both sides, from which they form their decision. This decision is binding and cannot be appealed. The decision of the arbitrator will be the final resolution of the dispute.

Arbitration generally offers a more informal setting than a courtroom, allowing the parties to present their case in a relaxed, semi-formal atmosphere. It may occur by Zoom or in-person in a conference room or law office.

While an arbitration case is a less expensive and less intrusive way to solve a problem, it’s also important to consult legal counsel on the best way to present your side of the dispute to ensure your rights are properly represented. Arbitration is very different from court, and it usually favors corporations over individuals.

Example of Arbitration in Lieu of Litigation

In 2020, thousands of customers accused Intuit of duping them into buying their Turbo Tax software online after registering for free. However, customers discovered that fine print in the website’s terms of service there was a class action waiver and arbitration provision that required them to submit their complaints individually for arbitration.

Turning the tables on Intuit, the customers soon turned to a campaign of flooding the company with over 100,000 arbitration claims. Once overwhelmed with thousands of individual cases, Intuit tried and failed in an attempt to move the cases into small claims court, hoping many complaints would be rejected. Eventually, Intuit tried to form a class action case so they could settle all the cases all at once.

However, several courts refused to let Intuit out of their arbitration commitments, forcing the company to eventually complete a “mass arbitration” settlement that refunded customers what they paid for the product and also provided them access to their products for free. The class action settlement proposal from Intuit would have only paid about $2.10 to each customer who was harmed.

While arbitrations are usually better for corporations than for the individuals they harm, this example shows are smart lawyers can use arbitration against big companies.   

How to Maximize Your Chances of Success in Contract Dispute Arbitration

Although arbitrations are more informal than court, that does not mean you should attempt to navigate an arbitration without a lawyer. Arbitration is just different from court, not easier. There are different rules and timelines that your lawyer will be aware of.

A Nix Patterson arbitration attorney may be able to help you with your arbitration. The arbitration specialists at Nix Patterson can review your contracts, evaluate your case, and help you build a strong argument for your arbitration hearing. Contact us for a free consultation today.

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