Masaryk University – Law Faculty
October 2011
Class III
A. How does Arbitration work?
– Contract designates an organization that will
administer the arbitration
– Professional arbitrators are designated, sometimes with
special experience: For example:
 Arbitrators with certain technical expertise
 Arbitrators who are fluent in English and Czech
 Arbitrators who have been approved by an organization
– Arbitrators are not employees of an organization but
are private professionals, usually lawyers, who are
associated with an organization.
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 Arbitrators are best for technical fields like:
– Construction disputes (architects or engineers)
– Scientific areas such as patents or intellectual property
– Other specialized fields where judges will not understand
the technical issues
 There can be one arbitrator or a panel of three.
– Panels of three guard against an unfair arbitrator, but are
more expensive.
 Place of arbitration is usually identified:
sometimes, it is in the location of the opposite
party to the one asserting the claim.
 Unlike a court action, the parties must pay for the
costs of the arbitrator(s) and administrative costs.
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 Arbitrators must apply the law; they cannot
“make it up” or just “do what they think is
fair”
 But what law applies?
 For example, if the dispute is between a
company in the Czech Republic and a company
in the U.S., does Czech law or U.S. law apply
– Contract can specify which law applies.
 Selection of place of arbitration may also
control which law applies, so important to
consider when preparing the contract.
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 Arbitration happens quickly: less time than a court action
(usually).
 Cost of the hearing is usually less than for litigation.
– But the parties must pay for the arbitrators.
 Arbitration “Hearing” – like a trial.
 Documents and witnesses are produced for arbitrator(s) to
consider.
 Witness may not be as “available” as they would be in a
court action because of more limited power to compel
attendance.
 Arbitration decision is usually required in a particular time
period, normally 30 days.
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 Appeal is very limited
– Typically only for claimed violations of procedure that makes
the process seem corrupt or improper
– Such as:
 Arbitrator(s) had private meetings with one of the parties
 Arbitrators did not disclose a business relationship to one of
the parties
 Arbitrators exceeded their authority
– Different from the kinds of legal errors that can be reviewed
on appeal of a trial:
 For example, in court cases: the trial judge misunderstood
the law or failed to follow the legal code or, in U.S., failed to
follow binding precedent
 Arbitration review is much more limited than if a trial were
reviewed by an appeals court.
 Arbitration review takes place in court.
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 Now, you have an “award” but you don’t have the money yet
 How is the award enforced?
 Arbitration award is recorded in court and considered like a
judgment.
 Collect from the bank account.
 Why would you want to arbitrate?
– Speed
– Cost
– If you don’t trust the court system
– If you think the arbitrators’ specialty (technical experience) is useful to
resolving your dispute.
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 What steps can be taken to assure the integrity
of the arbitrators?
 Use recognized, international organizations
who screen the arbitrators for qualification and
integrity
 Build in restrictions so that arbitrators don’t
have direct contact with the parties, except at
conferences or the Hearing, when all parties are
present
– Administrative personnel screen all contacts
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 Arbitrators are paid for their time: the more
time they spend, the more money they are
paid.
 Is this good or bad? Or both ?
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 When selected, arbitrators must disclose any
prior contacts they have had with any of the
parties or, if known at the beginning, the
witnesses.
 Selection of arbitration location is important: it
may control:
– Whether witnesses can be compelled to appear
– Whether to apply, for example, U.S. law or Czech law in
deciding who wins
– Which law can be applied to enforce an award - (collect the
money) or prevent use of information.
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B. Mediation - What is it and how does it work?
 Mediation is a voluntary process to try to resolve a
dispute that occurs during and as part of the more
formal dispute-resolution process
 May be – often is – used in litigation and, less
often, in arbitration.
 Non-binding: if there is no agreement during the
mediation, the mediator has no power to enforce a
result
– Completely voluntary
– Confidential; statements made cannot be used outside the
mediation.
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 Who is the mediator?
– Someone agreed to by both sides, and who is not
related to either side.
– Some one who is trusted to be a person of integrity
who will evaluate the claims of both sides, the
strengths of their cases and will try to reach an
agreement.
– Some one who understands the dispute: if it involves
a technical area (scientific, financial), it helps if the
mediator specializes in that area.
– Someone who understands the law that would be
applied if the mediation does not succeed.
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 Timing: Most effective when each party knows about
the other party’s case.
– What can my opponent show about my case?
– How good does my case look to a neutral party who would act
like a judge?
 How does it work?
– Parties must agree to mediation, though some courts may
also require it.
 Parties must agree on the mediator and place of
mediation.
 All parties must agree that what is said in the
mediation cannot be used later if the mediation does
not resolve the case and the law suit or arbitration
continues.
– Why have such an agreement?
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 Mediation often takes a full day;
 Most effective if the mediator receives in
advance of mediation a statement outlining
each side’s case.
 Key evidence is presented, informally.
 The parties (clients) and the attorneys are
present with the mediator.
– The public is excluded. Why?
– Is this contrary to “transparency”?
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 What is a “successful” mediation?
– The dispute is resolved – “settled”.
– There is certainty.
• Business does not like uncertainty
– The cost is known.
– Usually, the result is not as much as either party had
hoped for.
– If both sides are unhappy, the settlement is good.
– The cost of the dispute (attorney’s fees) end.
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 What does the mediator do to bring about a
solution in the mediation?
– Evaluate the case presented in outline form.
– Explain to the parties how a judge would likely see
the case.
– Make each side understand the other side’s case.
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 What is the result? Either:
(1) An agreement is reached, put in writing and
money is paid, and the law suit or
arbitration is ended; or
(2) The mediation does not resolve the dispute;
and the law suit (litigation) or the arbitration
resumes; and
(3) No one may use statements made during the
mediation when proving its case for the law
suit or arbitration.
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 What is the advantage, what is the disadvantage of
mediation?
 Advantage: Can resolve the dispute more quickly
than a trial and bring certainty to the parties.
 Disadvantage: The mediation costs money and
takes time. If it is not going to work, then the
money and time have been wasted because the law
suit or arbitration will continue anyway.
 Therefore: Mediation makes sense at the right time
and if both parties are ready to try to settle without
getting all of what each wants.
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