During the last several weeks, I have been out of state conducting an arbitration on behalf of a client who lives overseas. The amount of money involved in his claim is many millions of dollars. The basic dispute revolves around shipping contracts for a product coming from the U.S. and going to another country. Ultimately, the parties agreed to arbitrate their claims rather than go to court.

In this month’s column I will be answering some common questions regarding arbitration and some of the pros and cons to the overwhelming growth of this dispute resolution procedure in the last few years.

Q. My employer is asking me to sign a contract that requires any disputes between us go to arbitration instead of court. What is arbitration?

A. Arbitration is like a court case but instead of having a judge or jury decide the dispute, it is resolved by a person or persons selected by the parties. It is kind of like two friends asking one of their friends to help settle an argument between them.

Q. What are the benefits of arbitration?

A. In my opinion almost none. However, advocates of arbitration tout that it costs less than a court case does, decisions are made sooner, it is a more efficient process, and it eases the congestion on overcrowded courts.

Q. Why do you believe there are no benefits to arbitration?

A. First, my experience has shown me that it does not cost less. To the contrary, a filing fee in Harris County District Court is roughly $250 after all service fees are paid. In arbitration, the claimant has to pay a filing fee which is a percentage of the amount he hopes to recover – in the case I am handling, the filing fee was $28,000. Also, arbitration usually takes about as long as any trial but the process is more tedious – not more efficient. Since there is not a court involved, there is no power to subpoena witnesses except in limited circumstances. This makes it difficult to discover what the facts of the case are.

Q. Are there more reasons arbitration is not preferable to a court trial?

A. Yes. In arbitration, everything done to prepare the case must be by agreement of the parties. Usually parties suing each other have a hard time reaching agreements. As a result, if a witness does not want to come to the hearing, a party can not force the other to allow him to take a deposition of that witness so that his testimony can be heard at the hearing. Also, when there is no court supervision, there is nothing to stop the lawyers from playing loose with the rules and engaging in gamesmanship.

Q. Are there any rules in arbitration?

A. There are usually rules of some kind. The parties’ can agree to the rules at any time. Most parties choose to accept rules written by associations that administer arbitrations. For example, the American Arbitration Association is one organization often used by litigants. The problem with these rules is that they are brief and informal and have not been worked out by hundreds of years of court decisions and legislative debates like the rules of civil procedure and other rules followed by courts.

Q. What about evidence? Can the parties put on evidence?

A. Sure. It is just like a trial in that respect. Often there are opening and closing statements and witness testimony. The problem is, however, that the rules of evidence do not apply. As a result, testimony is often heard from experts who would never get qualified in a court of law. Also, witnesses can testify to what other people have said – this is called hearsay – which is normally prohibited in a court. Basically, the arbitrator or arbitrators will hear any evidence placed before them. Also, it is yet unclear whether lying to an arbitration panel has the same legal consequences as lying to a court like perjury criminal charges, for example.

Q. Besides this one contract I don’t ever see things like this so this does not affect me right?

A. Actually, wrong. I bet in the last few months you have received notices that your credit cards now require any disputes you have against them be resolved with arbitration and not a court. In effect, if you do not respond in time, you will be deemed to have agreed with this change and will have effectively waived your right to a jury.

Q. What if I don’t want arbitration?

A. You can write them back and tell them so but they will likely close your account if you do so. Congress and the Texas Legislature passed laws many years ago encouraging the use of arbitration as a way to save taxpayer funds normally spent of new courts. Overtime, I believe that the public, courts, and legislatures will come aware of the pitfalls of arbitration and make a change.

Q. What do I do until then?

A. Until then you can negotiate these clauses out of any contracts you are about to sign. As for the credit cards and those you get with products you buy, write them a letter and decline the clause. If your credit card closes your account, you will normally still have the same amount of time to pay them off, you will just not be able to charge more. If you are like me, that is probably a good thing.

Q. It sounds like this arbitration will affect us all. Is there anything good about it?

A. Sometimes. First, arbitrations are not public so it allows you to keep the dispute quiet. The question is would it have been a good thing for Firestone to have kept their faulty tire problem quiet? Also, arbitrations are occasionally good for business people who have simple disputes relating to shipping dates, quantities, or price. When you have a case where fraud has been alleged, my experience has shown me that arbitration does not have enough teeth at least from a procedure perspective. The parties may still get a just result but it seems to me that it could be a gamble.