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BINDING ARBITRATION
In binding arbitration, the neutral’s decision is binding on the parties. Binding arbitrations can be initiated by the parties to a dispute, or triggered by an arbitration clause under the contract from which the dispute arises. Like litigation, binding arbitration is an adversarial, adjudicative process designed to resolve specific issues submitted by the parties. Yet arbitration differs significantly from litigation. There is flexibility, it does not require a strict conformity with rules of evidence and procedure. The proceeding is conducted in a private rather then a public forum. Only limited discovery is generally conducted and arbitration rules usually give the arbitrator the power to rule on discovery requests and disputes.
Disputants choose binding arbitration over litigation in order to have more control over the process. Indeed, Arbitration is often more final than trial because the rights to appeal from arbitration are usually limited.
BINDING ARBITRATION HIGH - LOW
Another form of arbitration is high-low arbitration. In this process the parties negotiate before the arbitration, setting parameters for the arbitrator. They may agree that the arbitrator will decide only the issue of liability: if the defendant is found liable, it will pay a predetermined sum to the plaintiff; if no liability is found, the defendant will pay a predetermined lesser sum to the plaintiff.
Alternatively, the parties may permit the arbitrator to deliver a verdict on liability and damages, while agreeing in advance on minimum and maximum sums. The arbitrator is not forced to choose between two sums but the parties are guaranteed that whatever the arbitrator’s decision, neither party will be liable for a figure outside the agreed range.
BINDING ARBITRATION FINAL OFFER
Each party makes an offer, sealed or unsealed, for a particular sum. The arbitrator must then, after submission of evidence at the hearing, choose between the two figures submitted. The arbitrator is essentially asked to decide which seems to him to be more appropriate based upon the evidence heard at the arbitration. The arbitrator does not have the authority to modify the figures submitted or select another figure. This choice encourages the parties to select as reasonable a figure as possible.
Final offer arbitration sets up different dynamics than high-low arbitration. In high-low arbitration, the parties have an incentive to negotiate a range that leaves room for them to "win". Thus, the plaintiff may want to increase the high end of the bracket. The defendant is driven in the opposite direction. In final offer arbitration, the parties should state reasonable figures, for fear that a grossly inflated or deflated figure will not be selected as a reasonable award.
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