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A brief guide to arbitration

9 December 2013

Introduction

Arbitration is an alternative to litigation; another route for parties to resolve their disputes. In arbitration a dispute is submitted (further to an agreement between the parties) to a tribunal of one or more arbitrators, who will make a binding decision on the dispute. That decision is enforceable and given with established legal principles.

Arbitration can be an attractive way to resolve disputes for a variety of reasons, which are considered below.

Why choose arbitration?

The principal reasons why arbitration can be seen as appealing to parties are:

  • Enforcement: Decisions are enforceable in most jurisdictions under the New York Convention and other similar legislation. The grounds to refuse enforcement under these pieces of legislation are very limited.
  • Confidentiality: Arbitration is generally confidential, in contrast to most proceedings brought through litigation.
  • Choice: Parties are able to choose where the arbitration takes place, can select the arbitrators, and can tailor the dispute resolution process to suit them and/or their industries.
  • Appeals: Parties are often less able challenge decisions, which can provide more certainty.
  • Cost: Although it is now widely recognised that arbitration can be expensive (especially when compared to procedures such as mediation), there are cases where arbitration will be a more cost-effective route for the parties to take.

The arbitration agreement

An arbitration agreement is often found as a clause in a contract, but can be a standalone document. A well-drafted arbitration clause will clearly set out the law and the “seat” which will govern the arbitration. Depending on the preferences of the parties it may also deal with other points such as whether any particular institutional arbitration rules will apply and how the arbitrators should be chosen.

The seat, rules and institutions

The seat of the arbitration is the country in which the arbitration has its juridical base and the country whose laws will dictate how the arbitration will work. Where the seat of the arbitration is England and Wales, and the agreement is otherwise silent, the procedural rules of the Arbitration Act 1996 will apply. Note that the seat is not necessarily the same as the law governing the main agreement, or where the hearings will take place. 

In the arbitration agreement the parties can elect for the rules of particular arbitral institutions to apply. These institutions may or may not be then used for the arbitration. If they are used then fees will apply. How the fees are calculated vary between institutions. Prominent institutions include the International Chamber of Commerce (the “ICC”) and the London Court of International Arbitration (the “LCIA”).

The Tribunal

Under the arbitration agreement a method for choosing the arbitrators that make up the tribunal is normally specified. Arbitrators are not generally required to have any particular qualifications, though this can be specified. If the parties do not or cannot choose the arbitrators, it is common for them to elect for a third party to do so for them.

The involvement and the decisions taken by the tribunal will depend heavily on the rules under which it must operate. However, the Arbitration Act 1996 imposes mandatory duties on arbitrators to:

  • act fairly and impartially between the parties, giving each party a reasonable opportunity of putting their case and dealing with their opponent’s case, and
  • adopt procedures suitable to the circumstances of that case, avoiding unnecessary delay or expense, to provide a fair means for resolving the dispute.

Involvement of the courts

The involvement of the courts in the arbitration process may be necessary in certain instances. Their involvement is limited by law, though they can be crucial in instances such as appointing arbitrators where the parties cannot agree on them and in granting relief such as freezing injunctions where there are concerns about assets being dissipated. The court may also be involved in the enforcement of awards and making orders relating to arbitrators’ fees.

Summary

Where appropriate, arbitration can provide parties with an extremely effective way of handling disputes. It is important to consider whether an arbitration clause is appropriate, when drafting agreements between parties.

For more information please contact Duncan Elson, Partner

T: +44 (0)1483 25 2579

duncan.elson@crsblaw.com