Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. Whilst it is not suitable for every case, there are a number of advantages to using arbitration over court based litigation, particularly where the parties are based in different countries. The advantages of arbitration include:
1. Flexibility: the parties decide on the methods by which the dispute is resolved. They can choose to adopt a pre-existing rule from one of the arbitral bodies (such as the LCIA) or agree their own bespoke procedure.
2. Neutrality: arbitration allows the parties to agree where the dispute is heard (the seat of the arbitration) and which country’s language and law should be applied thereby avoiding litigation in a foreign court applying unfamiliar legal procedures.
3. Enforcement: under the New York Convention (1958) an arbitration awards can be readily enforce in some 150 countries. English court judgements are generally only enforceable in countries with special reciprocal enforcement arrangements.
4. Confidentiality: arbitration proceedings are (invariably) private to the parties. Commercial reputations can be damaged by public litigation. Arbitration provides an alternative.
5. Time/Cost: a well run arbitration will generally be swifter and more cost effective that litigation. The flexibility of the process means the parties can tailor the procedure to their requirements (e.g. limiting the Tribunal to one arbitrator rather than three; limiting disclosure, dispensing with an oral hearing).
6. Finality: English law permits appeals on arbitration awards to the court in very limited circumstances.
7. Brexit: arbitration largely falls outside of the issues Brexit creates (particularly in relation to enforcement) providing businesses contracting now with more certainty as to how potential disputes will be handed.
Arbitration will not always be suitable. Importantly, the arbitral process is contractual, binding only the parties to the contract. Arbitrators’ powers over third parties not party to the arbitration agreement are limited. If a matter of principle is at stake, intended to set a precedent for future matters, litigation is preferable because the Judgement will be a matter of public record.
Whether arbitration will be suitable for your contract will involve careful consideration of which method will best protect your position should things later go wrong. Care must be taken in relation to drafting an arbitration clause to ensure it will be effective otherwise the clause may be challenged leading to further litigation. Expert advice on these issues before the contract is finalised can greatly improve your prospects of success in any subsequent dispute.
If you would like to discuss the issue detailed above, please contact James Cradick (01322 623700) or firstname.lastname@example.org.