Arbitration can be useful in settling real estate disputes. (Insiders Outlook).

Arbitration is a time-honored technique for resolving certain types of disputes, ranging from baseball players' contracts to routine workplace conflicts. In recent years, however, arbitrations have become much more common. Arbitration clauses are routinely written into many contracts and corporate executives and in-house counsel in many industries believe that arbitration is less expensive, faster and-often fairer than litigation. Sometimes that's true. But more and more, cases are being put into arbitration that should never have been there. The results are sometimes outrageous.

A well-known international retailer terminated an unprofitable franchisee and, when the franchisee contested the action, the dispute was put into arbitration. Even though the franchisee had never made a profit, he was awarded $50 million for lost profits by the arbitrator. This would never have happened in a court of law.

In a contract dispute involving a claim that delivered merchandise was defective, an arbitrator refused to consider the testimony of one of the plaintiffs because ten years earlier, he had been convicted of income tax evasion -- something the plaintiff freely admitted and which had nothing whatsoever to do with the facts of this particular case or the credibility of the testimony.

A dispute involving defective work on an office building, resulting in windows falling out, took 19 years to resolve in arbitration because there were numerous parties involved -- contractors and subcontractors -- and disputes over whether all of them were covered by a provision in one contract requiring disputes to be arbitrated.

As these three examples illustrate, arbitrations are not necessarily fast, they are not necessarily inexpensive, and they are not necessarily fair. In cases where there is little at stake and where evidence can be heard quickly, arbitration may be the way to go. In a routine contract dispute, for example, where the plaintiff believes he is due $100,000 for the merchandise he delivered and, because it was delivered a day late, the defendant believes he should only pay $50,000, an impartial arbitrator can look at the evidence within a matter of days and probably render a decision quickly.

In the case of international disputes, arbitration is often the best course. This is because the determination of disputes by arbitration generally creates a result that is enforceable anywhere in the world. We address here only domestic cases.

In major matters, however, where the outcome will have a material impact on a business, where the issues involved are complex, or where there is a significant amount of evidence to be reviewed and testimony to be heard, the parties involved should think twice. Arbitration requires the parties to give total discretion to one or three people they don't know. These individuals cannot be overturned if they violate the rules of evidence, or if they allow inappropriate testimony, or even if their ruling is clearly inconsistent with the law. The standard for overturning an arbitration varies from jurisdiction to jurisdiction, but it usually requires something akin to manifest disregard of the law and the facts. That's why less than 1% of arbitrations are overturned on appeal, while approximately one-third of all court decisions are.

Court cases can indeed take a long time. But so can arbitrations. While judges work full-time at being judges, arbitrators have other commitments and must fit the arbitration into their schedules. They may hear testimony for a few days, then, not be able to schedule another date for months. Another few days of testimony, then another delay to accommodate their schedules.

Arbitrators will also allow sometimes long-winded and irrelevant testimony to go on and on. Even if the testimony is speculative, arbitrators are loath to halt it because a failure to allow evidence into the record is one of the few grounds on which arbitration decisions can be overturned.

At the end of an arbitration, the arbitrator rarely writes a decision because, again, spelling out the reasons for a decision might give the parties grounds for appeal.

And injunctive relief may be problematic as well. If someone pirates your patented software and your contract with that person requires disputes to be arbitrated, you will be at a significant disadvantage. Going to court enables you to get an appointment with a judge -- who works full-time at his job -- right away. The judge has the ability to issue a temporary restraining order, preventing the sale of your software immediately until the case can be heard. Or he can schedule a brief hearing, on short notice, if he wants to hear evidence. The same case, in arbitration, would be very different. In some circumstances, before an arbitration panel is appointed, a party may go to court to obtain injunctive relief. However, courts are sometimes loath to act because they don't want to preempt the arbitration. And once the arbitrators are appointed, courts will virtually never intercede. Quick action by arbitrators in such a situation almost never happens -- if for no other reason that because the process of appointin g an arbitrator and scheduling hearings can take months. In the meantime, your pirated software continues to be sold, damaging your business.

And what happens in the event the arbitrator dies, or becomes incapacitated, in the middle of the case? In a court of law, a new judge would be assigned and the case would continue from where it left off. In arbitration, however, the parties would have to start from the beginning with a new arbitrator.

In recent years, there has been careful consideration of alternatives to court proceedings. But, clearly, if the outcome of the case affects the ability of a company to function or stay in business, consideration should be given to those traditional processes and their due process and appellate protections.

The point is this: what if the arbitrator gets it wrong? What if the arbitrator turns out to be biased, or simply ignores the law? In most cases, the parties to the dispute have no more than a brief biographical description of the arbitrators and know nothing more about them before starting the case. The arbitration system makes no allowance for bad decisions or bad arbitrators.

Judges, on the other hand, can be overturned. They know that, whatever personal feelings they may have, they must abide by the law or their decision will be overturned on appeal. That oversight creates an environment that makes for good decisions in most cases. In addition, judges, whether elected or appointed, usually have some record of public activity over the course of their careers, which will make it clear how they go about deciding cases. Prior to trial, everyone can find out about the judge's background. And all parties have the comfort of knowing that, if the future of their company is at stake, and the judge makes a decision they disagree with, they can always appeal. It may take some time, but in the end, there will be a reasonable decision that, while everyone may not agree with, will at least be a decision everyone can understand.