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Arbitration instead of Court? Be careful what you ask for

Over the past 15 years or so, “arbitration” provisions have appeared with increasing frequency in a wide variety of contracts. For example, declarations of covenants and restrictions recorded for homeowners associations, construction contracts, employment contracts, and commercial leases all may contain arbitration clauses. Arbitration may be a good idea, but you should know what “arbitration” means before you agree to be bound by such a provision.

Many people confuse the terms “mediation” and “arbitration.” Mediation refers to a process whereby a third-party helps facilitate a negotiated settlement between two or more parties. A mediator does not make decisions, does not take evidence, and does not conduct hearings. Parties simply negotiate and the mediator helps foster those negotiations.

Conversely, arbitrations are conducted like regular trials, with a judge-like arbitrator (or arbitrators) making a final decision based upon the evidence presented, and hopefully the law of your jurisdiction. Appeals of an arbitrator’s decision are virtually nonexistent.

Arbitration is expensive. If your contract requires the use of a specific arbitration services, like the American Arbitration Association, the party filing the action must pay a hefty fee to file. The arbitrator receives a fee based upon an estimate of the time needed for all aspects of the trial to come. In a complex, multi-day litigation, the arbitrator’s fee could rise to the tens of thousands. Furthermore, the amount you pay for attorneys’ fees will be similar to fees paid for a regular court trial.

So why arbitrate? Your arbitration trial will be scheduled far sooner than a state court trial, especially in Virginia where the budget fiasco has left many jurisdictions without sitting judges. You can choose an arbitrator with professional experience with the necessary background knowledge of the issues in dispute. For example, in a construction case, the parties can agree to a non-lawyer engineer arbitrator with vast experience in construction projects. The arbitration process is less formal than our regular court system, and it eliminates the possibility of a jury trial.

Arbitration may be the right decision for you. However, make an informed decision after discussing your options with your attorney.

Tarley Robinson, PLC, Attorneys and Counsellors at Law

Williamsburg, Virginia

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John Tarley

John is the firm's managing partner and chairs the firm's small business, zoning, and litigation practice areas.

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Filed under: Business Planning, Common Interest Community, John Tarley, Real Estate Strategies, State & Federal Litigation by John Tarley

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