What is arbitration?
Arbitration is a process that involves a neutral third party making a final decision to resolve a dispute. This third party is called an 'arbitrator'. They are impartial and do not take any sides.
During an arbitration hearing, both sides present their arguments and the arbitrator carefully considers all the evidence presented. After evaluating everything, the arbitrator makes a final decision based on the evidence and arguments presented by both parties.
What is the difference between arbitration, mediation, and conciliation?
Arbitration, mediation, and conciliation are all types of ADR. Each is valuable in different situations.
Arbitration is a more formal type of ADR, involving a tribunal process and a binding decision being made by the arbitrator. Most types of commercial disputes can be arbitrated.
Mediation and conciliation are less formal procedures that focus on facilitating communication to resolve disputes. Conciliation involves using evaluative methods to make recommendations, whereas mediators tend not to make any proposals for a settlement. Conciliation is mainly used for employment disputes and mediation is usually used for family or personal disputes (eg between a trader and a consumer).
For more information, read Alternative dispute resolution.
What is the arbitration process?
The Arbitration Act 1996 largely regulates arbitration proceedings in England and Wales, while the Arbitration (Scotland) Act 2010 largely regulates arbitration proceedings in Scotland.
The arbitration process fairly formal. It’s run via a tribunal with either a single arbitrator or a panel of 3 arbitrators. The arbitrator(s) decide on procedural and evidential matters. Often, disclosure of documents will be required and there can be cross examination of witnesses, but proceedings will generally be shorter and less formal than litigation proceedings (ie traditional court cases).
The arbitrator makes a firm decision on a case based on the evidence presented by both parties.
It is important to note that you cannot go to court later if you disagree with the outcome of an arbitration.
What is the arbitrator’s role?
An arbitrator is a nominated independent third party who should be experienced in handling the arbitration process. Their role is similar to that of a judge in that they will listen to both sides of a dispute and come to a decision. However, they will also encourage collaborative communication instead of an adversarial approach.
Although no specific qualifications are necessary to act as an arbitrator, some legal experience is useful, as is industry knowledge if the dispute involves technical matters.
How an arbitrator will be appointed depends on the rules that were selected or set out when the parties agreed to use arbitration to resolve any disputes.
Is an arbitration decision legally enforceable?
Any decision (ie arbitral award) made by an arbitrator during arbitration proceedings is legally binding in the same way as a court judgment would be.
Furthermore, the UK’s ratification of (ie promise to adhere to) various international conventions means that any arbitral awards made in certain foreign countries are usually enforceable in the UK and vice-versa. This applies to any country that has signed a relevant international convention. The most prominent such convention is the New York Convention, which more than 160 states have signed up to. This means that arbitration is a very useful dispute resolution method for disputes of an international nature (eg between businesses in 2 different countries).
How to choose arbitration to settle disputes
Arbitration is voluntary, so both sides must agree to settle applicable disputes using arbitration. This may be done within an agreement between the parties (eg in an arbitration clause in a commercial contract) or in a separate arbitration agreement. It may be done at the time the relationship between the parties is formed (eg by commercial contract) or later on (eg when a dispute arises). The parties should also agree in advance that they will abide by the arbitrator's decision.
Arbitration clauses are contractual clauses that require arbitration to be used if a dispute arises in relation to the contract. Although such clauses are not compulsory, they can help the parties to avoid unnecessary litigation and are particularly recommended in the case of cross-border contracts (ie between businesses in different legal jurisdictions).
Arbitration agreements are distinct, standalone contracts in which parties agree to settle certain disputes via arbitration (eg any disputes arising under a commercial contract that these parties have already formed together).
If statutory rights or obligations are involved, an arbitration clause or agreement will generally be trumped by the relevant regulations. For example, employees may not be able to give precedence to an arbitration clause in their Employment contracts if they cannot contract out of their statutory employment law rights.
What are institutional arbitration and ad hoc arbitration?
The parties’ agreement to use arbitration may include an agreement to arbitrate using a specific institution and that institution’s rules (eg the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), or the London Maritime Arbitrators Association). The selected institution is usually appointed to facilitate the arbitration process and to appoint the tribunal (ie the arbitrator or panel) that is to make an award. This manner of arbitration is referred to as ‘institutional arbitration’.
If a specific institution is not agreed upon in this way, arbitration will instead be carried out as ‘ad hoc arbitration’. Such arbitration will be carried out in accordance with an agreed upon set of rules, for example, the Arbitration Act 1996 rules or the United Nations Commission on Trading Law Arbitration rules (UNCITRAL). This sort of arbitration is generally more flexible, but can come up against more issues (eg a lack of certainty over how a tribunal is to be appointed).
Whether institutional or ad hoc arbitration is used, any arbitral award made will usually be binding - although it may be more difficult to enforce awards from ad hoc arbitration in some countries.
When is arbitration most appropriate?
The arbitration process can be beneficial in disputes that require an understanding of technical knowledge and where privacy is essential (eg to avoid disclosure of commercially sensitive information). They’re also useful if there is an international element to a dispute.
