Arbitration vs Adjudication: A Critical Analysis - Essay Example

Arbitration vs. Adjudication: A Critical Analysis When examining the evidence in favour of resolving disputes through arbitration - in which parties take their conflict to an impartial third party, who provides them with a resolution (Schellenberg 1996, p 196) - rather than adjudication - resolution of a dispute through the court system - both the identity of the involved parties and the scale of the dispute must be taken into account. I therefore propose to consider the question of arbitration's superiority in three parts: In the first part, I will examine the suitability of arbitration and adjudication as they apply to conflicts involving private citizens; in the second, as they apply to conflicts between companies; and third, as they apply to international disputes and matters of national sovereignty. These three sets of circumstances demand specific considerations and pose their own set of problems. I would like to begin, however, by briefly outlining some important qualifications for a study of these two methods of conflict resolution. One of the most problematic issues that arise when considering the efficacy of arbitration, as compared to adjudication, is the comparative lack of detailed information regarding the involved parties. In fact, as Walter Matti remarks, "the study of the practice of international commercial arbitration is like peering into the dark" (2001, p 919). Such cases by nature tend to be far less publicised than those settled through litigation, and indeed, many of the parties - be they individuals or companies - who seek private arbitration do so precisely because they wish to avoid the risk of having private information made public. The information used to argue either for or against the inherent superiority of arbitration cannot, therefore, be considered exhaustive. At the same time, however, Matti points out that the popularity of arbitration, particularly as a means of resolving international disputes, has increased exponentially over the past thirty years (2001, p 920). Since it may be assumed that the number of cases settled through arbitration would not have increased were arbitration not an effective method of resolution, it can be reasonably concluded that an increasing number of parties find arbitration to be more appealing than adjudication as a means of resolving disputes. In addition, arbitration possesses an inherent degree of flexibility that is not present when going through the legal system: "Unlike judges in public courts, who must follow fixed rules of procedure and apply the laws of the land, arbitrators can dispense with legal formalities and may apply whatever procedural rules and substantive law best fit a case" (Matti 2001, p 920). On the other, this flexibility carries with it considerable risks. Since arbitrators are not bound by legal formalities, they may of course exploit this flexibility, to the unfair advantage a party that cannot appeal to a court for clarification or support (Bonn 1972, p 257). Although this risk is always present, there are nevertheless significant benefits to pursing arbitration. In the case of arbitration as a means of conflict resolution between private individuals, the arguments in favour of arbitration appear to be quite strong. The emotional and financial demands on both the plaintiff and the defendant are considerably reduced, the overall resolution process is conducted in a less stressful environment, and decisions are often rendered more quickly. Arbitration is routinely used as a means of settling disputes between landlords and tenants, divorcing spouses, and accident victims suing for damages (Bonn 1972, p 256). In additional the arbitration process holds additional appeal because, although it is an alternative to the court system, is not entirely cut off from the it - rather, the two systems are complementary since "the provisions of an arbitrator's award can be enforced judicially under common or statutory law" (Bonn 1972, p 256). In addition, Plaintiffs therefore have the additional security of knowing that any decision made through arbitration will be legally enforced, while being spared the complications of a proper trial. This comparatively personal approach also leads to better relations between plaintiff and defendant. As Craig McEwen and Robert Maiman point out in a 1984 article, the central distinction between arbitration and adjudication decisions is the distinction between consent and demand. If parties feel that they have reached a common consensus, which all involved members have been active in shaping, rather than having a decision imposed from above, they are far more likely to comply with decisions, regardless of whether they benefit from them (p 12). A study done in the U.S. state of Maine back this claim, finding that defendants in cases resolved through arbitration were far more compliant with decisions that required them to pay the plaintiffs than were defendants in court-settled cases (McEwen, Maiman 1984, p 11). Furthermore, a 1995 study found that litigants in mediation cases described the arbitration process as longer, and less hurried, and felt that they had more control over the outcomes of their cases. They also consistently described third-party mediators as warmer, more open and more responsive than did litigants involved in adjudication, regardless of whether they were the plaintiff or the defendant (Wissler, p 337). The suitability of arbitration as a means of mediating commercial disputes is, however, somewhat more complicated. Arbitration is used in a variety of instances: to resolve conflicts between disputing companies, but also to resolve disputes between workers (and often labour unions) and private companies, as well as disputes between public sector companies and their employees when strikes bring relations to a standstill (Farber & Bazerman 1986, p 819). While factors such as discretion and rapidity of resolution are certainly taken into consideration, they ultimately play less of a role in the decision to pursue arbitration than they do in cases concerning individuals. Other factors, most notably the clarity of the terms laid out in disputed contracts and the financial stakes involved, carry far more weight. When companies are involved in contract disputes, they are far more likely to consider adjudication if they believe that the terms of their contract are straightforward and leave little room for interpretation; on the contrary, when terms are not stated explicitly, thereby making compliance with them difficult to ensure, companies prefer to pursue arbitration, which allows for greater opportunity to explore the full implications of those terms (Drahozel & Hylton 2003, p 550). In addition, Drahozel and Hylton also found that financial incentives play a significant role in determining companies' choice of conflict-resolution methods. Given that adjudication is often costly and financial returns are not necessarily guaranteed, arbitration - whose upfront costs are lower, and whose potential for overall returns for the plaintiff is higher - holds far greater appeal (2003 p 554). In terms of relations between labour unions and employers, the findings in favour of arbitration are generally quite positive as well: Feuille and Delaney point out that police unions actively lobby for the possibility of arbitration in determining salaries, and that there exists a correspondence between arbitration and higher salaries for police officers (1986 p 229): arbitration places workers on a more equal footing with their employers since potential arbitrators must be approved for impartiality by both sides, and semi-public nature of any awards made ensures that employers cannot be unfairly favoured in the arbitration process. (Feuille & Delaney 1986, p 230). The question of whether arbitration should be used to resolve international disputes is most difficult of all. While there is ample evidence to support the use of arbitration as a valid alternative to adjudication, there are also some caveats. First, the very definition of arbitration takes on new meaning at the international level. While arbitration between individuals and companies may be carried out by a sole, independent arbitrator, international arbitration often, but not exclusively involves quasi-judicial organisations such as The Hague-based Permanent Court of Arbitration of the International Court of Justice. The distinction between adjudication is therefore somewhat murky. Traditionally, there has been some hostility to the use of arbitration as a means of resolving international disputes since often third parties are viewed as usurping the role that should be played by governmental courts. In addition, such bodies' true potential for impartiality is often called into question. As Beth Simmons points out, "dominance of the realist paradigm has discouraged scholars from examining role of arbitration [there is an] assumption that third-party decisions will not be enforced, and that countries will be unwilling to comply with their rulings (2002, p 834). In addition, compliance with third party rulings can be difficult to enforce, and often countries will only willingly comply with them when it suits their own interests (Mitchell & Hensel 2007, p 721). The Kutch-Sind dispute, whose resolution did not involve, the ICJ, provides one example of this concern: the case concerned a dispute between India and Pakistan over an area, known as the Rann, along the India-Pakistan border. As became apparent, the two sides were unable to agree whether the tribunal appointed to resolve the conflict was, in fact, supposed to arbitrate a territorial dispute or merely decide the case based on legal grounds (Untawale 1974, p 826). The resulting dispute over the very definition of the tribunal's role was nearly as complex as the original land dispute itself and dragged on for a number of years. In addition, the situation is further complicated when arbitration is used to resolve international disputes since conflicts between arbitrators' decisions and their interpretations by national courts may arise (Park 1999, p 806). There are, of course, significant advantages to arbitration: antagonistic states are more likely to cooperate with an objective third-party than with an adversary, and conflicts settled by outside parties can greatly reduce potential recurrences of those conflicts. In addition, an increasing number of countries are turning to international arbitration as an effective means of resolving disputes (Simmons 2002, p 834; Matti 2001, p 920). A number of recent cases demonstrate the effectiveness of arbitration, particularly in regard to the ICJ. A recent ICJ Honduran-Salvadoran resolution paved way for bilateral trade between the two countries, and Eritrea and Yemen have recently settled a dispute over sovereignty of the Hanish Islands through an arbitration panel in London (Simmons 2002, p 830). In conclusion, then, for the majority of disputes involving individuals and companies, arbitration holds important advantages over adjudication since it is a less stressful and costly procedure that allows for increased flexibility and better overall relations between disputants. In the case of international border and territorial disputes, however, there are significant drawbacks to arbitration, primarily in terms of ensuring objective decisions, defining the terms under which the arbitration is being conducted, and enforcing decisions. Nevertheless, in cases where impartiality can be guaranteed, arbitration offers an important means of conflict resolution by providing conflicting states with access to a objective party whose decision is more likely to be perceived as fair and that, consequently, is more likely to remain upheld. References Bonn, R 1972, 'Arbitration: An Alternative System for Handling Contract Related Disputes', Administrative Science Quarterly, Vol. 17, No. 2, pp 254-264, viewed 24 March 2009, from Drahozal, CR and Hylton, K 2003, 'The Economics of Litigation and Arbitration: An Application to Franchise Contracts', The Journal of Legal Studies, Vol. 32, No. 2, pp 549-584. Farber, HS and Bazerman, MH 1986, 'The General Basis of Arbitrator Behavior: An Empirical Analysis of Connventional and Final-Offer Arbitration', Econometrica, Vol. 54, No. 4, pp 819-844, viewed 23 March 2009, from Feuille, P and Delaney JT 1986, 'Collective Bargaining, Interest Arbitration, and Police Salaries', Industrial and Labor Relations Review, Vol. 39, No. 2, pp 228-240, viewed 24 March 2009, from Mattli, W 2001, 'Private Justice in a Global Economy: From Litigation to Arbitration International Organization', Vol. 55, No. 4, pp 917-947, viewed 22 March 2009, from McEwen, CA and Maiman, RJ 1984, 'Mediation in Small Claims Court: Achieving Compliance through Consent', Law and Society Review, Vol. 18, No. 1, pp 11-50, viewed 23 March 2009, from Park, W 1999, 'Duty and Discretion in International Arbitration', The American Journal of International Law, Vol. 93, No. 4, pp 805-823, viewed 23 March 2009, from . Mitchell, SM and Hensel, P 2007, 'International Institutions and Compliance with Agreements', American Journal of Political Science, Vol. 51, No. 4, pp 721-737, viewed 24 March 2009, from Schellenberg, JA 1996, Conflict Resolution: Theory, Research, and Practice, State University of New York Press, 1996, viewed 24 March 2009, from Simmons, BA 2002, 'Capacity, Commitment, and Compliance: International Institutions and Territorial Disputes', The Journal of Conflict Resolution, Vol. 46, No. 6, pp 829-856. Untawale, M 1974, 'The Kutch-Sind Dispute: A Case Study in International Arbitration', The International and Comparative Law Quarterly, Vol. 23, No. 4, pp 818-839, viewed 23 March 2009, from Wissler, R 1995, 'Mediation and Adjudication in the Small Claims Court: The Effects of Process and Case Characteristic', Law and Society Review, Vol. 29, No. 2, pp 323-358, viewed 24 March 2009, from Read More