When it comes to arbitration, corporations typically fall into one of the three categories: those who favor arbitration whenever it is appropriate for a particular transaction, those who will not agree to arbitration unless they have no alternative, and those who have no policy and, therefore, make ad hoc decisions whenever the issue is raised on a particular matter. Often, companies that have developed an anti-arbitration bias have done so because of a single, bad experience. All it takes is one case in which an arbitral tribunal reached an aberrant decision that was significantly deleterious to the company. Because of the very limited grounds for appealing arbitral awards, the company had no recourse and, as result, forswears arbitration companywide.

Thus, the “appeal” issue is somewhat paradoxical when it comes to arbitration. On the one hand, the finality of an arbitral award and the fact that there will be little or no time and money spent on the appeal of awards has historically been seen as a strength of arbitration. Yet others believe that the lack of an appeal makes arbitration too risky. Perhaps this is more readily understandable as a function of the size of the case. One prefers finality in the smaller cases, yet wants some type of recourse in the large dollar cases.

One manner in which some companies dealt with the issue was to include in their agreements provisions that expanded the grounds on which courts could vacate arbitral awards beyond those found in the New York Convention and the Federal Arbitration Act. The courts initially split on the issue of whether such provisions were enforceable. In Hall Street Associates, L. L. C. v. Mattel, Inc., 552 U.S. 576 (2008), however, the Supreme Court resolved the matter and held that parties may not, by agreement, expand on the statutory grounds for challenging arbitral awards.

There is, however, another alternative for those companies that want to have the benefits of arbitration, but also want the ability for some recourse against an arbitral tribunal that makes an incorrect decision. That is, parties can agree to permit some type of appellate review within the arbitral institutions themselves. Thus, for example, the JAMS arbitration rules allow the parties to agree to an Optional Arbitration Appeals Procedure any time prior to an award becoming final. Under that procedure, a panel of three neutrals reviews the evidence presented in the arbitration and may also hear additional oral argument and receive legal briefing. The appeal panel applies the same standard of review that the first-level appellate court in the particular jurisdiction would apply to an appeal from the trial court decision.

CPR also has an arbitration appeal procedure. Under those rules, the appellate tribunal may modify or set aside the award, on the following grounds: “(1) That the Original Award (i) contains material and prejudicial errors of law of such a nature that it does not rest upon any appropriate legal basis, or (ii) is based upon factual findings clearly unsupported by the record; or (2) That the Original Award is subject to one or more of the grounds set forth in Section 10 of the Federal Arbitration Act for vacating an award.” The appellate tribunal does not have the power to remand the award.

There is also another alternative to consider. There are undoubtedly times in which arbitrators make mistakes but, once an award becomes final, the mistake cannot be corrected because it does not rise to the level of one of the grounds for vacating an award under the Federal Arbitration Act. Had the arbitrators provided the parties with the award in draft form and allowed them an opportunity to explain any errors that they believe were being made, these types of mistakes could have been caught. This is an option that arbitrators should be considering on their own, but that parties can also provide for in their arbitration agreement.

In making choices on issues such as these, consideration must be given to the added time and cost to a procedure that is supposed to be speedier and less costly than litigation. However, the larger the amount of dispute, the more willing companies might be to consider these types of options if they prefer arbitration but want to limit the downside of an aberrant decision.