Arbitration is defined as a consensual course of action in which parties to a dispute agree to resolve their differences by the appointment of an independent third party acting in a judicial manner, whose decision is binding. This action is an alternative to seeking redress through the courts.
ARBITRATION ACT 1996
The Arbitration Act 1996 governs arbitration in England, Wales and Northern Ireland. It covers arbitrations on or after 31 January 1997.
The Act provides a definition of the objectives of Arbitration – ‘to obtain the fair resolution of disputes by a impartial tribunal without unnecessary delay or expense’. The Act gives the arbitrator the duty to act fairly and impartially between the parties, giving each a reasonable opportunity to put his or her case and to counter the case of their opponent. It also gives the arbitrator the duty to adopt procedures which are suitable to the case and will avoid unnecessary delay or expense in order to resolve matters fairly.
ADVANTAGES OF ARBITRATION
SPEED AND COST
The Act states that it is the duty of the arbitrator to resolve disputes without unnecessary delay or expense. It is a priority to make the arbitration process as quick and cheap as possible.
This is facilitated by the fact that the procedure and timetable for arbitration is not rigid and can be tailored to the requirements of the case and the needs of the parties.
Depending on the case however the costs of arbitration may in some cases be greater than the costs of proceeding to court, where for instance the arbiter’s fees and venue hire costs are high. Choice of arbitrator also has a bearing on the costs. For example if the chosen arbitrator deals with a dispute under ICC arbitral institution rules, the likelihood is that the approach of the arbitrator to the question of costs will be much the same as a judge operating under the Civil Procedure Rules.
Arbitration provides greater flexibility than court proceedings because the parties can choose an arbitrator of their choice, thereby ensuring that the person is suitably qualified for the case. It also allows an arbitrator to be removed more easily from a dispute than a judge from a judicial case, if any of the parties object to the appointment of a particular arbitrator. Arbitration also provides flexibility regarding procedures as the parties themselves can decide on the procedures to be followed.
Unlike court proceedings arbitrations are intended to be private affairs. Therefore proceedings are only open to the parties involved unless the parties agree otherwise. However there are some circumstances where confidential documents can be used outside of the arbitration process.
In many instances it is easier to enforce an arbitration award than a court judgment in a dispute where there is an international element. This is because the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958(the New York Convention) has been ratified by over 160 countries. Outside of the EU where English court judgments are easily enforced, arbitration is a real viable alternative.
Enforcing arbitration awards in England, Wales and Northern Ireland is usually done through the common law by claiming breach of contract resulting from the other party’s failure to comply with the terms of an award.
These advantages make arbitration a very attractive method for resolving disputes especially those with an international dimension.
AGREEMENT TO ARBITRATE
The parties must agree that a present or future dispute between them will be resolved by arbitration. This agreement is usually in the form of an arbitration clause in the main contract. In any case the agreement to arbitrate must be in writing. It should confirm the venue and the ‘seat’ of the arbitration which is the geological and legal jurisdiction to which the arbitration is to be tied. This will determine the procedural law of the arbitral process and the degree to which the courts may intervene. It should also confirm the rules that will govern the arbitration. The parties may draft their own rules or use the rules provided by the seat of arbitration, by those created by the United Nations Commission on International Trade Law (UNCITAL) or by the rules of a recognised arbitration institution. The agreement will also confirm the language that the arbitration will be conducted in if the dispute is an international one.