Alternative Dispute Resolution (ADR): Arbitration Part I – What Is Arbitration?

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How does arbitration differ from going to court?

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Arbitration is a process by which parties seek to resolve a dispute by utilizing an independent third party to determine the case.

It is a formal, binding process with outcomes enforceable in court.

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Arbitration is a private dispute resolution process where a dispute is resolved by an award made by an independent third party or tribunal panel following the presentation of statements and case material by each party.

It is a formal process subject to rules and laws of arbitration (eg UNCITRAL[1]). It is also a binding process, the outcome(s) being not only enforceable in courts of law but the parties cannot raise the same issue again in further proceedings. In many cases, enforceability is not limited territorially following the New York Convention[2].

An arbitration award is final and may only be challenged (not appealed) on limited, largely procedural, grounds and within a very limited time. However, an arbitration award is not self-enforcing. It requires either the losing party to comply with the decision voluntarily or the winning party to apply to a court for enforcement.

Arbitration is a consensual process chosen by the parties as a means by which to resolve disputes. Agreement to arbitrate disputes must be provided for in writing and is normally included within the business contract between the parties. This should state the appointing authority, tribunal composition, place, language and rules to be applied to regulate the conduct of the arbitration.

A key difference between arbitration and litigation lies in the parties’ ability to control and manage many aspects of the arbitration process. This includes agreement on choice of arbitrator(s), time and place of hearings, language, method of presentation and nature of representation.

The above enables the parties (by agreement) to tailor the arbitration to meet their requirements which can make arbitration a quick, flexible and cost effective (although legal aid is not available) method for resolving disputes. As a result, the outcomes from arbitration are also likely to be more predictable.

By contrast to the above, litigation is non-consensual and, if adopted, the parties cannot choose the judge, hearing date, location or procedures to be followed. In addition, as court hearings are generally public, the parties cannot keep the dispute private. A party also cannot prevent the outcome from being appealed and, importantly, the parties are less able to control the costs of resolving the dispute.

Unlike litigation, arbitration is a stand-alone process specific to the individual dispute. This means that an arbitration award does not form a precedent nor is an award decision required to follow any such precedent. Being private between the parties, another party cannot be joined into the process (as with litigation) unless both parties agree to this.

Do I have to arbitrate rather than go to court?

Most modern contracts now include arbitration provisions.

Under UNCITRAL Model Law, a court may only hear the matter if it finds that the arbitration agreement is ‘null and void, inoperative or incapable of being performed’.

A national court is also limited in terms of its involvement or intervention with the arbitration process (referred to as ‘exclusion of national courts’). Where an arbitration agreement is in place, the court must not hear any matter that is capable of being determined by arbitration (arbitrable dispute).

If a party to an arbitration agreement commences legal proceedings on an arbitrable dispute then the other party may apply to the court to order the parties to deal with the matter by arbitration.


[1] UNCITRAL (United Nations Commission on International Trade Law – www.uncitral.org): (1) UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission 1985, amended 2006 and (2) UNCITRAL Arbitral Rules adopted by the United Nations Commission 1976, amended 2010

[2] The Convention on the Recognition and Enforcement of Foreign Arbitral Awards – www.newyorkconvention.org (the ‘New York Convention’)

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