Arbitration is a non-judicial process for the resolution of disputes where an independent third-party (often an expert in the particular field) makes a binding decision. The arbitrator plays a similar role to that of a judge, though arbitration procedures are often less formal and designed to suit the parties' needs.
Some things to keep in-mind when considering arbitration to determine the matter:
1. The parties must agree to arbitration
Arbitration is consensual and cannot be commenced without all of the parties' consent and willingness to participate.
The parties may simply choose to refer their dispute to arbitration. However, often the basis for the parties to arbitrate is found in the commercial agreement or lease itself if it contains an arbitration clause. Ensure you check the contract to see if contains such a clause.
2. Choose where to arbitrate
The contract may state that the law governing the agreement is of one particular jurisdiction, but that arbitration can take place in another. Choosing your jurisdiction is of material importance when looking at the choice of procedural law, the location of the parties and any material property, and the availability of expert arbitrators.
3. Choose your expert
Parties are generally able to specify that the arbitrator has particular knowledge and expertise in the relevant field, or are a member or a recognised industry or trade body.
Arbitrators have the same legal authority as a judge and can also have professional expertise. Again, this is distinct from court proceedings, where a judge may not have particular knowledge of the subject-matter and is instead reliant on the evidence of any experts.
4. The parties have control over the process
As it is a consensual process, the parties are in much greater control compared to traditional court proceedings (where parties are often reliant on the judiciary's availability).
Note however that arbitration relies on the good faith and co-operation of the parties. While the courts have various powers to apply sanctions for non-complying parties, an arbitrator does not have equivalent powers.
5. Arbitration is private
All evidence, hearings and the award are confidential, which is a key advantage to many commercial parties. Unlike court, members of the public and journalists are not able to find out about the arbitration or attend the hearing.
6. No automatic costs recovery
The parties can agree to give the arbitrator the powers to make a costs award so that the losing party is required to pay the winning party's costs or, they may simply agree to share the costs of arbitration.
Although arbitration may result in a more favourable cost recovery than would be achievable in court, it should not be assumed that the process is overall less expensive than court proceedings.
7. Arbitration gives certainty
The decision of the arbitrator will be final, unless either party chooses to appeal the decision where open to do so. The parties can agree in the arbitration agreement that neither party has permission to appeal.
8. Grounds for challenging the decision
A party wishing to appeal an award, must show:
i) No jurisdiction;
ii) Serious irregularity in the procedure; or
iii) The arbitrator erred on a specific point of law (where legal error appeals are allowed by the parties).
9. A quicker and more efficient process
In comparison with traditional court proceedings (which can often take a number of years to conclude) arbitration is seen as a quicker, more efficient means of dispute resolution. Arbitrator's fees can be fixed and, uniquely, sometimes decisions can be made on 'papers alone' (i.e. with no formal hearing). The arbitration process is therefore much more geared to individual parties' requirements, where costs can be managed more efficiently
10. Enforcement of the decision
One of the key advantages of arbitration is that awards can typically be enforced worldwide in most countries with greater ease than registering and enforcing a court order.
This means that the route to enforce an award is often simplified, cheaper and has a greater prospect of success. In a post-Brexit world, the ability to enforce a UK arbitral award in the EU is currently much more straightforward than enforcement of court judgments and is a real advantage of arbitration.
If you have any concerns or questions about choosing arbitration to decide your dispute or how an arbitrator's decision might impact your business, please do not hesitate to get in touch with our Litigation team or your usual Brodies' contact.
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