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A short introduction to Arbitration

View profile for Jonathan Haydn-Williams
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Definitions :

A simple definition :  A  private court

A detailed definition:  A consensual, private, dispute resolution technique, governed by statute, by which a neutral tribunal, acting fairly and judicially, makes a decision which binds the parties (but only the parties).

Pros and Cons:

See table on page 3 below.

 Arbitrability:

Disputes may not be arbitrable if they involve a decision which may need to be enforceable against persons other than the parties e.g. a dispute over registration in a public register.

Arbitration in England and Wales

Governed by the Arbitration Act 1996 (“AA”).

AA  section 1:

  1. “the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;
  2.  the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;
  3.  …the court should not intervene except as provided by this [statute]”.

Some AA provisions are mandatory e.g. power of court to remove an arbitrator (section 24).

Others are non-mandatory in that parties may agree how to deal with the matter in question e.g. procedural and evidential matters (section 34).

Arbitration internationally

Well accepted as a means of resolving business disputes that cross national borders.

Every arbitration has to have a “seat” in a chosen country.  Usually subject to the arbitration laws of that country.

Arbitration awards are enforceable in the majority of countries with which UK has trading links, usually under the 1958 New York Convention.  (Compare with court judgments, which are easily enforced within EU and some other European states, but may be more difficult to enforce elsewhere).

Arbitration agreements

Usually included in a contract, but may be entered into after a dispute has arisen.

An arbitration clause is severable or even a contract in its own right.  As such, it survives the termination of the contract.

Can either adopt the rules of an institution or draft an “ad hoc” clause. Well known institutional rules include:

  • London Court of International Arbitration (LCIA)
  • ICC Court of Arbitration
  • ICDR (International Centre for Dispute Resolution)[1]
  • UNCITRAL (UN Commission on International Trade)

 An “ad hoc” clause should specify the seat of arbitration and method of appointing the arbitrator(s). The advantage of institutional rules is that such matters, and other procedures, are already provided for in the rules.

If the contract incorporates by reference any terms contained in another document and those terms include an arbitration clause, ensure you make specific reference to the arbitration clause – otherwise, under English law, it may not be effectively incorporated.

[1] The international wing of the American Arbitration Association (“AAA”).

Pros and cons of litigation and arbitration

(This table is not specific to England and Wales or any other jurisdiction, but gives a broad overview of the common advantages and disadvantages of litigating or arbitrating disputes. The exact position will vary from jurisdiction to jurisdiction and specific advice should be sought from a lawyer qualified in the relevant jurisdiction).

Court Litigation

Arbitration

Usually publicUsually private   – confidentiality is often a reason for choosing arbitration[1]
No say in choosing the judge(s).   Judge(s) will usually be from the state where the court is located.Have a say in the choice of   arbitrator(s). An arbitrator does not have to be a lawyer (but often is). Can   be from any country.
The judge(s)’ and court’s services   are usually free or low costThe arbitrator(s)’ services (and any   related administration services) have to be paid for
All or most disputes can be resolved   through the courtsSome disputes may be incapable of   resolution by arbitration e.g. as to entries in public registers
Choice of procedures is limited and   they are likely to be more formalProcedures can be tailored to the   particular dispute and can be flexible and informal.  Even institutional rules can be varied. A   compromise can be struck between different legal systems
Other parties can be joined into the   proceedingsOther parties cannot usually be   joined without their consent
Often, only local lawyers have right   of audienceUsually, any lawyers have right of   audience
No choice of languageThe language(s) of the proceedings   can be chosen by the parties and/or arbitrator(s)
Interim relief e.g. asset freezing   orders usually availableArbitrators generally have less   power to grant interim relief, but courts may be able to grant it pending the   outcome of arbitration
A one or two stage appeal process   usually existRights of appeal are more limited   and can often be excluded by agreement

Speed of   outcome depends on the particular case and the skill of those handling it

Cost depends   on the particular case. Arbitrators’ fees and administration costs may   increase the cost of arbitration, but the flexibility of arbitration may   result in reduced party costs

Both are intended to result in   binding and enforceable decisions.  As regards cross-border enforcement, judgments of courts within the EU are   readily enforced in other EU located courts. Elsewhere in the world,   arbitration awards are often more easily enforced across borders than court judgments (e.g. as between UK and USA)