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Unpublished Paper
Stiffing the Arbitrators: The Problem of Nonpayment in Commercial Arbitration
ExpressO (2015)
  • Brian Farkas
  • Neal M. Eiseman
Abstract
Commercial arbitration is a creature of contract; the parties are there because they choose to be, either including an arbitration clause in their written agreement or, after a dispute developed, electing to avoid litigation all together. Arbitration also comes with an up-front cost non-existent in litigation: the arbitrators. Taxpayers pay for their state and federal judges, but the parties themselves pay for their arbitrators. But what happens if one party refuses (or is otherwise unable) to pay the arbitrator? If the arbitrator then refuses to proceed, as is likely, should the dispute revert to court, in derogation of the prior agreement to arbitrate? Other questions arise: What are the paying party’s options if the arbitration is terminated due to nonpayment? By agreeing to resolve their disputes by arbitration (and not litigation), have the parties irrevocably waived their right to proceed in court, except to confirm or vacate the arbitration award? There are no clear, uniform answers. Different arbitration providers promulgate their own rules and the few state and federal courts that actually have addressed the issue of arbitrator non-payment are not in accord. We begin with an examination of the current rules of four preeminent alternative dispute resolution (“ADR”) providers: the AAA, JAMS, NAM, CPR, plus some analogous international rules. We follow with a review and analysis of the reported case law. Lastly, we conclude with a policy proposal: Where a commercial party fails to pay for its share of arbitrator compensation and the proceeding is terminated as a result, that, in and of itself, constitutes a default on the merits of the parties’ underlying dispute, thereby entitling the paying party to proceed in court to an inquest on damages. This remedy, we assert, should be available not only because it is fair and appropriate, but also to deter recalcitrant parties from looking to game the system by breaking their promise to pay for the cost of their arbitration.
Keywords
  • arbitration,
  • mediation,
  • contracts,
  • dispute resolutions,
  • litigation,
  • courts
Publication Date
January 12, 2015
Citation Information
Brian Farkas and Neal M. Eiseman. "Stiffing the Arbitrators: The Problem of Nonpayment in Commercial Arbitration" ExpressO (2015)
Available at: http://works.bepress.com/brian_farkas/1/