Project Emesh 6 - The Lowdown on Arbitration

Author's note - Please see the previous Project Emesh post HERE as a preface for this one.

So far, we have learned that in today’s age, a Din Torah is binding arbitration and not Jewish adjudication.

 

What is the significance of this fact?

We need to know what arbitration really is in the outside world. As such, for most of our discussion in this post, I will be talking about common arbitration in the secular world.

 

In my previous post, we discussed the primary distinction between court litigation (adjudication) and arbitration. The first thing we said is that, in arbitration, the sides mutually agree to allow the arbitrator to settle the dispute to his – the arbitrator’s – liking. In essence, they are giving the arbitrator the power of a judge. But, in some ways, the arbitrator has more power than a judge. 

How so?

By common universal law, an arbitrator’s ruling cannot be challenged by either side. 

Why not?

Because both sides agreed to listen to whatever he said. If they agreed to listen to him, that’s what they need to do. It doesn’t matter if he is right or wrong or if his ruling does not concur with local laws. This is as long as it does not blatantly contradict or violate the local laws.

What this means is that, by default, a decision by an arbitrator is not subject to an appeal before any outside body. It is final. A court cannot overrule the decision of an arbitrator by discrediting the merits of his decision. A court can only intervene on the ruling of an arbitrator for technicalities, such as in the following cases:

• The arbitrator violated the conditions of the Arbitration Agreement in his case.

• The arbitrator violated the common laws of arbitration – for example: the arbitrator did not allow one of the sides to evaluate or respond to evidence brought by the opposing party.

• The ruling can be deemed to be overtly unjust or unreasonable – for example: if an arbitrator blatantly ignores or contradicts the clearly stated terms of a contract that is being disputed.

• The arbitration directly involves a party who is not a party to the arbitration – for example: if an award is reimbursed by insurance or the dispute involves property which is co-owned by a spouse or partner who did not consent to the arbitration.

• The arbitration award exceeds the amount that is under dispute.

If one of the above happens, the aggrieved party can go to court to request that the arbitration be totally vacated. The court may agree and vacate, or send the case back to arbitration with instructions to remedy the complaint and proceed accordingly. Nevertheless, the standard right to appeal that is part of adjudication in most countries does not apply to arbitration. 

There are several other standard features that are a part of court litigation that are not standards of arbitration. However, many of these can be implemented in arbitration with the mutual agreement of all three parties. Remember that at this point, I am discussing common secular arbitration. Here is a short list:

Appeals

As previously mentioned, there is no automatic right or method to appeal a ruling. It is always possible for one to request the arbitrator to review the ruling and to change it, but this is up to the arbitrator. It cannot be demanded. Also, he will be reviewing his own ruling. There will not be a “fresh set of eyes”.

Even a review comes with restrictions. It may be surprising that, once an arbitrator gives a ruling, he is very limited on how and for how long he can make changes and what kind of changes he can make. Basically, the aggrieved party has a limited time to request a review (this is the same with appeals) and the arbitrator has a limited time to change his ruling. Moreover, in general, he cannot fully vacate his own ruling. He can only confer modifications, corrections, and fill in things he omitted.

 

Still, because there is not any oversight on arbitration, an arbitrator can overturn his own ruling and it will stand as long as the newly aggrieved party does not challenge him in court. This really applies to all of the shenanigans an arbitrator can pull off. He can bend the rules of arbitration and, so long as nobody challenges him in court, it will stand. We will see later how all this plays out in Beis Din.

In any case, if all parties agree, a system of appeal can be specified in the Arbitration agreement.

Grounds for Award (Transparency)

In court, a judge must present the legal grounds (reasons) for his ruling. There are two reasons for this. One is to justify that the ruling complies with the local law. Included in this is the need to clear up potential contradictions with other court rulings in similar cases. The other reason is to enable the aggrieved party to appeal to a higher court if they claim the law was misapplied (and when they discover contradictions in court rulings of similar cases).

Neither of these reasons apply to arbitration. Arbitration does not need to comply with local law. Also, there is no standard right to appeal. 

Despite this, some jurisdictions do indeed require an arbitrator to ground his ruling as the default. I would assume this is for just plain transparency. This requirement can only be disregarded if the parties agree to waive the grounds in the Arbitration agreement. 

In many others, the default is that the arbitrator does not need to ground his ruling unless (a) the Arbitration agreement specifies that he needs to ground his ruling or (b) the Arbitration agreement allows for some system of appeal. 

In Israel, the default is that the Arbitrator does not need to ground his ruling as long as they did stipulate it or agree to allow for appeals. As a rule, all Batei Din rely on this default, yet they still insert this waiver into their Arbitration agreements. 

Why?

Because the Shulchan Aruch says that they do need to ground their rulings. The Batei Bin want you to waive this Halachic requirement.

This is a long discussion and a major problem. We will discuss it in a future post.

Protocols or Court transcripts

Courts record the proceedings in court protocols. These records are very useful. There is no requirement for this feature in secular arbitration. However, this is one thing that is a standard in Halachic arbitration (i.e., Dinei Torah) because it is a tradition of Beis Din and is noted in Choshen Mishpat 13:3.

Summations

Summations are vitally important. I intend to devote a full post on this subject later. This is a standard feature of court litigation but there is no requirement to allow summations in arbitration. As such, an impatient arbitrator can bar the sides from presenting summations. I think it is necessary to stipulate for allowing summations in every arbitration agreement. You certainly won’t find them in a standard Beis Din agreement.

Discovery (or Disclosure)

This is another feature that is standard in court litigation and is totally expendable in arbitration. Discovery can be a double-edged sword. It can hurt one side or the other more than it helps them, so some parties may prefer to be without them. Either way, an arbitrator is authorized to subpoena any side to present documents in question.

Witness Testimony

This is a sticky one. On the one hand, an arbitrator has the authority to regulate or manage how evidence is presented. As such, he may make his own rules (unless otherwise stipulated) and disallow calling witnesses. On the other hand, one core tenet of arbitration is that each side must be allowed to present whatever evidence he has to prove his case. In other words, an arbitrator cannot really bar a party from bringing live witnesses, but he might try to get away with it. If he does, the only way to fight it is to bring the case into court.

Just like documents, an arbitrator indeed has the power to subpoena non-party witnesses to arbitration. However, it is very difficult for an arbitrator to sanction a witness who doesn’t comply. So, if you need a witness who may be reluctant to show, you can’t depend on arbitration to make sure it happens. 

In Dinei Torah, if they want to subpoena a religious person who respects Beis Din, a frum Jew is required to show up (if he is in the vicinity), but if you need a reluctant non-Orthodox or non-Jewish person to testify, a Beis Din won’t have much clout.

Third party involvement

Court litigation does not need to concern itself if a judgement affects a third party such as insurance, an employer, a business partner, or current or ex-spouse. In all likelihood, they will be either involuntarily named as a party or invited to the litigation. In arbitration, only the sides in dispute have agreed to this process, not any outsiders. You cannot name an outsider as a third party to an arbitration against their will. Thus, if the case must involve a third party who doesn’t want to join in, the arbitration cannot proceed. Hence, if you want to sue a person who is insured, it cannot be done via arbitration unless, for some reason, the insurance company consents to arbitration.

Expenses

In court litigation, it is standard to figure in to the final judgement reasonable legal expenses such as court costs, attorney’s fees, and compensation for witnesses. As such, a claimant who is smug about his case can hire a reasonably priced lawyer to represent him and hope to get compensated if he wins. In secular arbitration, all this is up to the arbitrator. He may or may not award expenses. 

As mentioned in a previous post, many arbitrations end up in imposed settlements or compromises so there is no justification to award expenses to either side even if they spent a wad on lawyers (or toanim). Similarly, many people who go to arbitration do so to settle the dispute based on logic, but not based exclusively on the law. As such, they have no need for a lawyer since the letter of the law is not the determining factor.

Batei Din typically refrain from ever awarding expenses. You may want to engage a toen or a lawyer but, unlike secular court that expects representation, Beis Din is not interested that you have one. In their eyes, you don’t need one. So, don’t expect to ever get a penny of compensation for them. 

Enforcement

Secular courts can enforce their rulings. Arbitrators cannot. The only way to get an arbitration award enforced is by going to court to certify the ruling. Then it can be enforced just like any court ruling. 

The other side is given the right to respond to the certification request. Although it is not easy to do, he has the opportunity to challenge the ruling and try to get it overturned or vacated. This can become a second court battle, and the winning party might need to engage a lawyer, and may actually lose. Even if he doesn’t lose, which is normally the case, the whole process is exhausting, time-consuming and could cost some money. Winning arbitration and collecting is not always Easy Street. 

Costs

This can go either way. Often, the sides opt for arbitration because it is less expensive than litigation (or they think it will be). This is especially the case if they do not plan to hire lawyers. However, by secular arbitration, more often, it is the opposite.

 

Most court litigation involves a standard court fee and processing and nothing more. Court judges are employed by the State and are not paid for their time by the litigants. The big money is in legal representation, but even for this, the winning side is usually at least partially compensated. One side benefit of all this is that a judge has no incentive to drag out the proceedings.

Arbitrators are private citizens and they usually charge very impressive fees for their time. The more arbitrators there are, the more it costs. The more time it takes, the more it costs. Thus, in the secular world, it is very typical that arbitrators will drag out the cases in order to get paid more money. In some cases, it is deviously intentional. In others, it is sub-conscious, but it is human nature that even affects the most honest of us. 

As such, a lengthy arbitration can cost way more than court. Add to this lawyers or toanim, if applicable, where they are also paid for their time and are in no hurry to get the case resolved. And don’t forget enforcement, if needed. For these expenses, it is questionable if they will see any of it back. Secular arbitration can easily cost more than the money in dispute. 

Incidentally, the same thing applies to mediation. Mediators are also private citizens who take sizable fees for their time and can cost each side a bundle. But there is a big difference. In mediation, the parties in dispute call the shots. Each party has the right to spontaneously terminate the mediation at any time for any reason. If anyone feels that the mediator is dragging things out or is no longer cost effective, they can unilaterally terminate and cut their losses. Likewise, the running meter incentivizes the sides to get down to business and resolve their issue the sooner the better.

In arbitration, the arbitrator calls the shots. Once the agreement is signed, they are beholden to the arbitrator until the end. Neither side can back out unilaterally. If he prolongs it, they are stuck. What’s more, hurrying the procedures may not be in their best interests because haste makes waste.

Baruch Hashem, the Batei Din know that religious Jews are bound to Halachic arbitration and do not have an option for secular court under regular conditions. As such, they endeavor to make the costs for Dinei Torah as low as possible. 

The dayanim are usually working pro-bono or are paid sparingly for their time by the kehillah or organization that is sponsoring their Beis Din. As a result, costs are low for the litigants. Unfortunately, working for little or no pay often causes the dayanim to get very impatient to hurry the case along and, as we already said, haste makes waste. 

So now, after this very depressing list of drawbacks, why would anyone opt to go to arbitration?

And…is it good for the Jews or bad for the Jews?

We will save this for an upcoming post.