Parties to disputes sometimes elect to resolve matters by arbitration rather than court action. Indeed, frequently commercial contracts specify that the parties must resolve disputes by arbitration.
For those unfamiliar with alternative dispute resolution, arbitration means an impartial and independent third party decides how to resolve the dispute. In most cases, the arbitrator's decision is binding and cannot be challenged.
To many of you, arbitration may sound a heck of a lot like court. The key difference is that arbitration usually takes place behind closed doors and the arbitrator's decision must remain secret unless the parties agree otherwise.
Why choose arbitration over litigation?
Many people are attracted to arbitration for the reasons identified above: privacy and secrecy. But there are several other reasons why people might choose arbitration over litigation.
First, people often believe that arbitration is faster and less expensive than going to court. Depending on the nature of the dispute and the type of arbitration proceeding, however, that may not actually be true. The cost of arbitration can vary significantly. For example, ACAS arbitration is free to employers and employees; IDRS schemes are either free or require payment of a registration fee (which is refunded if a party is successful); while other arbitration schemes can be really expensive.
Second, there are certain types of specialist arbitration bodies who might have significant professional expertise relevant to the dispute. For example, a chartered mechanical engineer might also have training as an arbitrator and hold himself out as someone who is available to arbitrate disputes in the construction industry.
The Arbitration Act 1996 governs the arbitration system in the UK. Although the parties have considerable freedom on how to structure arbitration proceedings, the Act stipulates a few mandatory requirements (i.e., regarding immunity, appeals, enforcement, payment of fees, etc) and certain default rules which apply if the parties do not agree other rules before arbitration begins.
Note that arbitration proceedings often take place in accordance with the rules of the applicable arbitration organisation being used, such as the London Court of International Arbitration or the City Disputes Panel . Typically, these organisations will provide ground rules for proceedings, but again with considerable scope for flexibility. These rules are discussed in more detail below.
Where parties participate in arbitration pursuant to the terms of a commercial agreement, these same terms may also dictate how the arbitration process should unfold. For instance, an agreement will often specify an institution whose rules will govern the arbitration, and specify the number of arbitrators, and the procedure for selecting them.
Does the court retain any powers?
Although one idea behind arbitration is that it avoids court proceedings, under the Arbitration Act 1996 the court retains certain powers. For example, the court can grant interim injunctions, make an order requiring evidence to be preserved, and enforce arbitral awards.
Where there is an arbitration agreement, whether as part of a larger agreement between the parties or (perhaps more unusually) as a separate stand-alone arbitration agreement, each party is entitled to a "stay" of court proceedings -- this means court action cannot recommence until the parties conclude arbitration.
A party can also appeal certain matters to the court. For example, a party can appeal to the court if it believes that the arbitral tribunal lacks jurisdiction or if the tribunal has ruled incorrectly on a matter of law (although the parties can agree in advance to exclude a right of appeal on questions of law).
Conduct of arbitration proceedings
As mentioned above, different arbitration organisations apply different rules, but there are some provisions that all abide by. The Rules of the London Court of International Arbitration (the "LCIA Rules") are often used for commercial arbitration, and are a good example of rules that have been tried and tested.
The rules provide for what is essentially an adversarial proceeding, in which one party initiates the arbitration with a Request for Arbitration. The other party is then to provide a Response to the Request for Arbitration within a certain period of time.
After the parties have initiated arbitration in this way, the LCIA will appoint an arbitral tribunal -- giving due regard to any method of nominating arbitrators that the parties have agreed between themselves.
The arbitral tribunal sets the rules for the proceedings themselves. The LCIA provides certain default rules for the submission of written proceedings, which allow for a Statement of Case by the claimant, a Statement of Defence by the defending party (which is to include any counterclaim) and a Statement of Reply by the claimant (which is to include any defence to any counterclaim advanced by the defending party).
The arbitral tribunal fixes the date, time and place for any hearings to be held. It can also require the parties to identify witnesses before a hearing, and appoint experts to report on specific issues.
Moreover, the tribunal can take interim measures, such as requiring a party to make a deposit on account of costs, to provide security to be held against the amount in dispute, and to make a provisional order for the payment of an amount from one party to the other.
In effect, the rules enable the arbitral tribunal to act as an informal court -- which is generally the objective of arbitration.
In many commercial agreements, the parties will include an arbitration clause. It is, however, sometimes worth considering whether this is desirable. For example, a lender who, in the event the borrower defaults in payment, might simply want to be able to sue and get judgment quickly on a promissory note may prefer not to be compelled to arbitrate.
Some standard form agreements (such as an agreement for opening an account with a stockbroker) include what might be regarded as industry-specific arbitration clauses, giving the customer or client little choice but to sign up to them.
Where, however, there is a bespoke commercial agreement the parties will often agree an arbitration clause that sets out details as to how a party can initiate an arbitration, what rules it will follow, where the proceedings will be held, how many arbitrators will be involved and how they will be selected. Usually, the clause will not spell out the rules of the arbitration in detail, but simply refer to the rules of a recognised arbitration organisation such as the International Chamber of Commerce or the LCIA (referred to above).
Getting advice about arbitration
Solicitors who do general commercial work will usually be able to advise you in detail about arbitration clauses and their effect. For advice relating to an actual arbitration proceeding, a solicitor who specialises in litigation will probably be best suited to advise.
Whatever type of advice you require in relation to arbitration, Contact Law can introduce you to a solicitor in your area with the appropriate skills and experience, and will do so at no cost to you.