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excerpted from material 1993 by the American Arbitration Assn
People want to do business, not argue about it.
In the world of trade and commerce, however, disputes are inevitable. Parties might disagree as to their individual rights and obligations no matter how carefully a contract is written. This can lead to delayed shipments, complaints about the quality of merchandise, claims of nonperformance of contracts, and similar misunderstandings and, even with the best of intentions, parties often perform less than they promise.
Those disputes seldom involve great legal issues. On the contrary, they concern the same evaluation of facts and interpretation of contract terms that business persons and their attorneys are accustomed to handling every day. Consequently, when differences arise from day-to-day commercial affairs, parties often prefer to settle them privately and informally, in the businesslike kind of way that encourages continued business relationships. That is the function of commercial arbitration.
Arbitration is referral of a dispute to one or more impartial persons for final and binding determination. It is private and informal, designed for quick, practical, and economical settlements. Parties can exercise additional control over the arbitration process by adding specific provisions to their contracts' arbitration clauses or, when a dispute arises, by modifying certain of the arbitration rules to suit a particular dispute. Stipulations may be made regarding confidentiality of proprietary information used; evidence, locale, number of arbitrators; and issues subject to arbitration, as examples. The parties may also provide for expedited arbitration procedures, including the time limit for rendering an award, if they anticipate a need for hearings to be scheduled on short notice. All such mutual agreements will be binding on the AAA and the arbitrator. The AAA has also developed special Supplementary Procedures for Large, Complex Disputes for cases in which the disclosed claim of any party is at least $1,000,000.
Prior to the initial hearing in a case, the AAA may schedule either an administrative conference with the parties or a preliminary hearing with the arbitrators and the parties to arrange for such matters as the production of relevant documents and the identification of witnesses, and for discussion of and agreement by the parties to any desired rule modifications. AAA administration is guided by the decisions that the parties make about how to handle such sensitive issues as privacy of proceedings, confidentiality, trade secrets, evidence, proprietary information, and injunctive relief.
The rules and procedures for using the Commercial Arbitration Tribunal of the American Arbitration Association are described on the following pages.
Mediation can be used as an alternative to arbitration in appropriate cases. Parties may submit their dispute to an impartial mediator who assists the parties in reaching a settlement but does not have the authority to make a binding decision or award. Submission forms and the Commercial Mediation Rules are available for this purpose from any AAA office. Also, to facilitate an expeditious settlement, the AAA offers parties to a pending arbitration the opportunity to mediate their dispute under its mediation rules with no additional administrative fee.
How to Initiate Arbitration
The First Step - the Agreement to Arbitrate
The most important step in initiating arbitration is the agreement to arbitrate. This agreement can be of one of two kinds: it could take the form of a future-dispute arbitration clause in a contract or, where the parties did not provide in advance for arbitration, it might take the form of a submission of an existing dispute to arbitration. The AAA will, without charge, attempt to get all parties to agree to arbitration of such a dispute.
The parties can provide for the arbitration of future disputes by inserting the following clause into their contracts.
Standard Arbitration Clause
Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
Arbitration of existing disputes may be accomplished by the use of the following.
We, the undersigned parties, hereby agree to submit to arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules the following controversy: (cite briefly). We further agree that the above controversy be submitted to (one)(three) arbitrator(s). We further agree that we will faithfully observe this agreement and the rules, that we will abide by and perform any award rendered by the arbitrator(s), and that a judgment of the court having jurisdiction may be entered on the award.
Regardless of how the agreement to arbitrate was reached, filing of a claim with the AAA along with the appropriate filing fee, as provided in the schedule appearing below, and serving the defending party are all that is required to set machinery for arbitration into motion. Upon receiving the initiating papers together with the filing fee, the AAA assigns to the case one of its staff members, whose official title is case administrator and who, from that point onward, is at the disposal of the parties, expediting administration and assisting both sides in all procedural matters until the award is rendered. Pursuant to the rules, the parties and the AAA may use facsimile transmission, telexes, telegrams, or other written forms of electronic communication to give the notices required by the rules.
The American Arbitration Association will supply a Demand for Arbitration (to be signed by the demanding party) A Submission to Dispute Resolution (to be signed by both parties) forms free of charge on request but arbitration may also be initiated through ordinary correspondence, provided that all of the essential information is included.
Special attention is sometimes required to determine in which state and city hearings are to take place. If the place of arbitration has not been designated in the contract or the Submission to Dispute Resolution, or if the parties have not otherwise notified the AAA of their agreement on locale, it will designate the city in accordance with its rules. Among the factors considered are: locations of the parties, locations of witnesses and documents, the location of sites or the place of materials, relative costs to the parties, the place of performance of the contract, laws applicable to the contract, places of previous court actions, if any, and the location of the most appropriate panel of arbitrators.
The Second Step - Selection of the Arbitrator
To serve the business community with arbitrators representing all fields of specialization, the American Arbitration Association now maintains a National Panel of Arbitrators of more than 50,000 individuals throughout the United States and the rest of the world. Usually nominated by leading figures in their industries, trades, or professions, arbitrators are added to the panel after careful checking of qualifications and reputations.
Commercial arbitrators generally contribute their services in the smaller cases that take only a day of their time. In larger, more prolonged cases, the parties will agree to payment of a fee as provided in Section 50 of the rules. When appointed by the AAA, they serve under its Commercial Arbitration Rules and their conduct is guided by the Code of Ethics for Arbitrators in Commercial Disputes, a copy of which is sent to them upon their appointment to a case. Arbitrators deserve the same respect and courtesy given to all who dedicate themselves to the public good. Parties can show their appreciation to the arbitrators and at the same time serve their own best interests by presenting their cases in an expeditious and orderly way, thereby facilitating the task of the arbitrator.
Unless the parties have indicated another method, the AAA uses the following simple and effective system for selecting the arbitrator.
1. Upon receiving a Demand for Arbitration or a Submission to Dispute Resolution, the case administrator sends each party a copy of the same specially prepared list of proposed arbitrators to resolve the controversy. In drafting the list, the case administrator is guided by the nature of the dispute. Biographical information on each arbitrator accompanies the list.
2. Parties are allowed ten days to study the list, strike names to which they object, and number the remaining names in the order of preference. In a single-arbitrator case, each party may strike three names on a peremptory basis. On a multiar-abitrator case, each party may strike five names on a peremptory basis. Additional information about the proposed arbitrators is available through the administrator. While the AAA makes every effort to keep its information current, each party is encouraged to do further research on the persons suggested. If administration is under the Expedited Provisions of the rules and all parties have requested a list, they are allowed seven days to study the list of five proposed arbitrators, strike two names on a peremptory basis, and number the remaining names in order of preference; absent such a request, arbitrators are appointed directly.
3. When these lists are returned to the AAA, the case administrator compares indicated preferences and makes note of the mutual choices. Where parties are unable to find a mutual choice on a list, the AAA has the power to made the appointment without submitting additional lists, although additional lists may be submitted at the request of both parties.
4. If the parties cannot agree on an arbitrator, the AAA will make an administrative appointment, but in no case will an arbitrator whose name was crossed out by either party be appointed.
Panels with Party-Appointed Arbitrators
Under some arbitration clauses in use, each party to a dispute appoints one arbitrator (who might or might not be a member of the AAA's National Panel of Arbitrators) and the two select a third arbitrator from the AAA's panels in accordance with procedures just described in steps 2-4. To avoid the danger that a compromise award might have to be rendered for the sake of a majority, the parties sometimes provide, and the AAA recommends, that the third arbitrator be permitted to render the award alone when a unanimous award is not possible. This may be done by the parties in their agreement to arbitrate or in a later stipulation.
It is recommended that the neutral arbitrator ascertain from the party- appointed arbitrators the nature and extent of any relationship between the arbitrators and the parties that appointed the arbitrators and whether there will be any direct communication between such arbitrators and the parties that appointed them.
The Third Step - Preparation for the Hearing
The case administrator consults all parties and arbitrators to determine a mutually convenient day and time for the hearing. If the parties cannot agree, the arbitrator is empowered to set dates.
Note that, in this as in all other administrative matters, the case administrator manages details and arrangements. This has a twofold advantage: it relieves the arbitrator of the burden and eliminates the necessity of direct communication between the parties and the arbitrator except at the hearing. By specifically forbidding communication with the arbitrator, except in the presence of both parties, AAA rules avoid the danger that one side will offer arguments or evidence that the other has no opportunity to rebut.
At the request of any party or at the discretion of the AAA, an administrative conference with the AAA and the parties and/or their representatives will be scheduled in appropriate cases to expedite the proceedings. There is no administrative fee for this service.
In large or complex cases, at the request of any party or at the discretion of the arbitrator or the AAA, a preliminary hearing with the parties and/or their representatives and the arbitrator may be scheduled by the arbitrator to specify the issues to be resolved, to stipulate uncontested facts, and to consider other matters that will expedite the arbitration proceedings. Consistent with the expedited nature of arbitration, the arbitrator may, at the preliminary hearing, establish (i) the extent of and a schedule for the production of relevant documents and other information, (ii) the identification of all witnesses to be called, and (iii) a schedule for further hearings to resolve the dispute. For purposes of arbitrator compensation, the preliminary hearing will be considered the first day of service.
Occasionally, a party needs to postpone a scheduled hearing. When this is necessary, the party seeking postponement should first contact its adversary to obtain their consent, as well as alternate hearing dates, before contacting the case administrator. If the adversary does not consent to the postponement, the case administrator should be so advised. The administrator will, in turn, coordinate having the arbitrator decide whether the hearing should be postponed, as the rules provide. In no event should the parties contact the arbitrator directly. Please note the postponement fee set forth on page 18.
Since the arbitrator will make the award on the basis of the facts and exhibits presented at the hearing, it is essential that the parties or their representatives prepare for arbitration carefully.
1. Assemble all documents and papers that you will need at the hearing. Always make photocopies for the arbitrator and the other party. If documents that are needed are in the possession of the other party, ask that they be brought to the arbitration. Under some state arbitration laws, the arbitrator or another person has authority to subpoena documents and witnesses. A checklist of documents and exhibits will be helpful toward your orderly presentation.
2. If it will be necessary for the arbitrator to visit a building site or warehouse for on-the-spot investigation, make plans in advance. The arbitrator will have to be accompanied by representatives of both parties, unless they specifically authorize that the investigation be conducted without their presence or unless one party fails to attend after being notified.
3. Interview all of your witnesses. Make certain that each one understands the whole case and particularly the importance of his or her own testimony within it.
4. If there is a possibility that others, not on your regular list of witnesses, might have to appear, alert them to be available on call without delay.
5. Make a written summary of what each witness will prove. This will be useful as a checklist at the hearing and will help make sure that nothing is overlooked.
6. Study the case from the other side's point of view. Be prepared to answer the opposition's evidence.
7. If a transcript of the hearing is needed, the parties are responsible for making the arrangements and notifying the other parties of such arrangements in advance of the hearing.
The right to representation in arbitration by counsel or another authorized person is guaranteed by the rules of the American Arbitration Association. A party who desires to be represented should notify the other side and file a copy of the notice with the case administrator at least three days before the hearing. When arbitration is initiated by a representative or when the respondent replies through a representative, however, such notice is deemed to have been given.
The Fourth Step - Presentation of the Case
Arbitration hearings are conducted somewhat like court trials, except that arbitrations are less formal. Arbitrators are not required to follow strict rules of evidence. They must hear all of the evidence material to an issue but they may determine for themselves what is relevant. Arbitrators are therefore inclined to accept evidence that might not be allowed by judges. This does not mean, however, that all evidence will be considered of equal weight.
Direct testimony of witnesses is usually more persuasive than hearsay evidence, and facts will be better established by documents and exhibits than by argument only.
It is customary for the claimant to proceed first with its case, followed by the respondent. This order may be varied, however, when the arbitrator thinks it necessary. In any event, the ``burden of proof'' is not on one side more than the other; each party must try to convince the arbitrator of the correctness of its position and no hearing is closed until both have had a full opportunity to do so.
That is why it is equally the responsibility of the claimant and the respondent to present their cases to the arbitrator in an orderly and logical manner. This includes:
1. An opening statement that clearly but briefly describes the controversy and indicates what is to be proved. Such a statement lays the groundwork and helps the arbitrator understand the relevance of testimony to be presented.
2. A discussion of the remedy sought. This is important because the arbitrator's power is conferred by the agreement of the parties. Each party should try to show that the relief that it requests is within the arbitrator's authority to grant.
3. Introduction of witnesses in a systematic order to clarify the nature of the controversy and to identify documents and exhibits. Cross examination of witnesses is important, but each party should plan to establish its case by its own witnesses.
4. A closing statement that should include a summary of the evidence and arguments and a refutation of points made by the opposition.
Above all, a cooperative attitude is essential for effective arbitration. Overemphasis or exaggeration, concealing of facts, introduction of legal technicalities with the objective of delaying proceedings, or, in general, disregard of ordinary rules of courtesy and decorum can have an adverse effect on arbitrators.
After both sides have had an equal opportunity to present all of their evidence, the arbitrator declares the hearing closed. Under AAA rules, the arbitrator has thirty days from that time within which to render an award, unless the agreement provides otherwise. If the case was administered under the expedited provisions in the rules, the arbitrator has fourteen days within which to render an award.
The award is the decision of the arbitrator on the matters submitted to him or her under the arbitration agreement. If the arbitration panel consists of more than one arbitrator, the majority decision, under AAA rules, is binding. The purpose of the award is to dispose of the controversy finally and conclusively. It is made within the limits of the arbitration agreement and it rules on each claim submitted. Arbitrators are not required to write opinions explaining the reasons for their decisions. As a general rule, AAA commercial awards consist of a brief direction to the parties on a single sheet of paper. Written opinions can generate attacks on the award because they identify targets for the losing party. In some cases, both parties will request an opinion or the arbitration agreement provides for one. The AAA then has no objection. Usually, however, the parties look to the arbitrator for a decision, not an explanation.
The power of the arbitrator ends with the making of the award. An award may not be changed by the arbitrator, once it is made, unless the parties agree to restore the power of the arbitrator or unless the law provides otherwise.
When the parties agree to request a clarification or interpretation of a disputed ruling, the agreement must be in writing. Such an agreement is filed with the AAA, which then proceeds to make the necessary arrangements with the arbitrator. In some jurisdictions, the law permits arbitrators to clarify or modify the award upon the request of a party. The administrator will provide copies of the state arbitration law upon request.
The services of the AAA are generally concluded with the transmittal of the award. Although there is voluntry compliance with the majority of awards, judgment on the award can be entered in a court having appropriate jurisdiction if necessary.
Large, Complex Case Procedures
Recognizing that large, complex commercial arbitrations often present unique procedural problems, the AAA, working with attorneys, arbitrators, and industry advisory groups, has developed special Supplementary Procedures for Large, Complex Disputes. The overall purpose of these procedures is to provide for efficient, economical, and speedy resolution of larger disputes. Cases are administered by senior AAA staff. The procedures provide for an early administrative conference with the AAA and a preliminary hearing with the arbitrators. Documentary exchanges and other essential exchanges of information are facilitated, as is preparation of a statement of reasons accompanying the award. The procedures apply when the disclosed claim of any party is at least $1,000,000, if all parties agree or a court or a governmental agency orders their use. They are meant to complement the applicable rules that the parties have agreed to use and may be modified by the parties.
In order to serve the parties in international arbitrations best, the AAA devised the Supplementary Procedures for International Commercial Arbitration, which may be used in conjunction with various sets of arbitration rules. These procedures do not supersede any provision in the applicable rules but merely codify various procedures that are used in international arbitrations. Among the more interesting features are provisions governing consecutive hearing days, language of the hearings, and opinions. The thrust of the procedures is to expedite international commercial arbitrations and to keep them as economical as possible. In a case involving a panel of U.S. non-nationals, for instance, the AAA attempts to appoint resident foreign nationals in order to minimize travel expenses. Pursuant to the Commercial Arbitration Rules, a request for a foreign-national arbitrator must be made by the time set for the appointment of the arbitrator as agreed by the parties or set by the rules. In March, 1991, the AAA also promulgated International Arbitration Rules.
The AAA's administrative fees are based on service charges. There is a filing fee based on the amount of the claim or counterclaim, ranging from $500 on claims below $10,000 to a maximum of $5,000 for claims in excess of $1 million. In addition, there are service charges for hearings held and postponements and a processing fee for prolonged cases. This fee information allows the parties to exercise control over their administrative fees. The fees cover AAA administrative services; they do not cover arbitrator compensation or expenses, if any, reporting services, or any postaward charges incurred by the parties in enforcing the award.
The following charges are based on filing and service fees. Arbitrator compensation, if any, is not included in this schedule. Unless the parties agree otherwise, arbitrator compensation and administrative fees are subject to allocation by the arbitrator in the award.
A nonrefundable filing fee is payable in full by a filing party when a claim, counterclaim or additional claim is filed, as provided below.
Amount of Claim Filing Fee
Up to $10,000 $500
Above $10,000 to $50,000 $750
Above $50,000 to $250,000 $1,500
Above $250,000 to $500,000 $3,000
Above $500,000 to $1,000,000 $4,000
Above $1 million $5,000
When no amount can be stated at the time of filing, the minimum filing fee is $1,500, subject to increase when the claim or counterclaim is disclosed.
When a claim or counterclaim is not for a monetary amount, an appropriate filing fee will be determined by the AAA.
The minimum filing fee for any case having three or more arbitrators is $1,500.
Expedited Procedures, outlined in sections 53-57 of the rules, are applied in any case where no disclosed claim or counterclaim exceeds $50,000, exclusive of interest and arbitration costs. Under those procedures, arbitrators are directly appointed by the AAA. Where the parties request a list of proposed arbitrators under those procedures, a service charge of $150 will be payable by each party.
For each day of hearing held before a single arbitrator, an administrative fee of $150 is payable by each party.
For each day of hearing held before a multiarbitrator panel, an administrative fee of $200 is payable by each party.
There is no hearing fee for the initial hearing in cases administered under the Expedited Procedures.
A fee of $150 is payable by a party causing a postponement of any hearing scheduled before a single arbitrator.
A fee of $200 is payable by a party causing a postponement of any hearing scheduled before a multiarbitrator panel.
On single-arbitrator cases, a processing fee of $150 per party is payable 180 days after the case is initiated, and every 90 days thereafter, until the case is withdrawn or settled or the hearings are closed by the arbitrator.
On multiarbitrator cases, a processing fee of $200 per party is payable 180 days after the case is initiated, and every 90 days thereafter, until the case is withdrawn or settled or the hearings are closed by the arbitrators.
Suspension for Nonpayment
If arbitrator compensation or administrative charges have not been paid in full, the AAA may so inform the parties in order that one of them may advance the required payment. If such payments are not made, the arbitrator may order the suspension or termination of the proceedings. If no arbitrator has yet been appointed, the AAA may suspend the proceedings.
Hearing Room Rental
The Hearing Fees described above do not cover the rental of hearing
rooms, which are available on a rental basis. Check with our local
office for availability and rates.
This file was prepared from material copyrighted by, and is posted with
the permission of, the American Arbitration Association. For more info
visit the AAA's web site at http://www.adr.org
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