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Arbitration is an alternative to court battles, using a third-party arbitrator to deliver judgment. The cost depends on the number of arbitrators, fees, administrative costs, and fee shifting.
Arbitration is a means of resolving disputes without involving the court system by using a third-party arbitrator to deliver judgment. Many individuals and businesses use arbitration as an alternative to lengthy court battles. The cost of the arbitration depends on several factors usually related to the arbitrator and the proceeding. These expenses include the number of arbitrators, each arbitrator’s fees and salary, administrative costs, and sometimes a contractual clause called a “fee shift”.
The first factor affecting the cost of arbitration is the number of arbitrators present during the proceedings. An arbitrator is common in disputes, and this person takes responsibility for hearing both sides of the argument and making an award. An arbitral tribunal is a setup involving two or more arbitrators who are equally responsible for making the decision. The size of the arbitration pool contributes to the cost because each arbitrator must be paid and expenses increase with each additional decision maker involved in the process.
The arbitration fee is another factor that contributes to the cost of the arbitration. This is usually a flat fee charged by the arbitrator or the company the arbitrator works for. This fee varies widely and does not include payment for the arbitrator’s services.
The actual pay of the arbitrator is another expense during the process. The cost of the arbitration depends heavily on what this individual arbitrator charges for the services. These services are billed by the hour, by the day, week, month, or as a flat rate reflecting all the time and effort involved in the process. The cost may vary depending on the experience of the arbitrator and the complexity of the case.
Administrative fees are another factor that alters the overall cost of the arbitration. All costs associated with renting space to hold the arbitration, documents that need to be filed, and other miscellaneous expenses are factored into this calculation. Typically, the longer an arbitration lasts, the higher the bill due to the additional resources used.
Shifting fees can dramatically change the expense of an arbitration for both parties. Fee shifting is a contractual agreement prior to the commencement of the arbitration that provides that the party determined as the winner of the proceeding shall not pay any arbitration fees and that the losing party shall pay the full invoice. The prevailing party in the arbitration is determined by the arbitrator’s final award. In other cases, the parties to an arbitration often agree in advance to divide the costs equally.
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