In the past, resolving contract disputes between sophisticated parties meant spending years litigating in the court system, including having to go through extensive discovery, motion practice, and trial, and then an appeal.  But with the advent of arbitration, now, more than ever, parties are including arbitration provisions in their contracts as a way of resolving their disputes outside of the court system in a more time efficient and economical manner.

New Optional Appellate Arbitration Rules

Until recently, parties who elected to resolve their disputes through arbitration could rely on the finality and the binding nature of the arbitral decisions.  However, as of November 1, 2013, the American Arbitration Association (AAA), one of the most widely used arbitration institutions, is providing parties the ability to participate in an optional arbitral appellate process, whereby decisions can be reviewed based upon errors of law that are “material and prejudicial” and/or factual determinations that are “clearly erroneous”.

As with the traditional arbitration process, at the core of the Optional Appellate Arbitration Rules is the fundamental principal that the agreement of the parties governs the action.  Therefore, a party may not unilaterally appeal an arbitration decision.  The new appellate procedure will only apply when the parties to a dispute agree to its application by contract or stipulation.

Optional Appellate Review Process

The appeal will be heard and determined by an “Appeal Tribunal” comprised of either one or three arbitrators chosen by the parties or selected by the AAA.  Since the Appellate Tribunal will not rehear the case, the parties must compile a record on appeal and submit appellate briefs.  Although the AAA anticipates that the appellate process can be completed in about three months, the cost and time associated with compiling a sufficient record on appeal, submitting appellate briefs, and paying the administrative fees in addition to the fees and costs of the appeal, are issues that merit careful consideration when determining whether to agree to this brand new, and yet untested method of dispute resolution.

In sum, considering the additional time and expense associated with the Optional Appellate Review process, it will likely be used primarily by parties involved in very large and complex cases. Whether the other major alternative dispute resolution institutions will choose to follow the AAA’s lead on the appeals process remains to be seen, but it will likely be a topic of much discussion at the International Council for Commercial Arbitration’s (“ICCA”) biennial Congress being held in Miami in April 2014.