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Arbitration: The way forward?

Having explained to a few of the team that I recently became a member of the Young International Arbitration Group highlighted what can be described as a common problem within the legal system… the lack of knowledge regarding Alternative Dispute Resolution (ADR). In particular, I want to focus on Arbitration. This piece will not be diving into the Arbitration Act 1996 and the technical elements of arbitration, merely, a general outline of what arbitration is and its advantages.

Arbitration can be described as a ‘private’ means of Litigation. In particular, it would seem to be more appealing to commercial entities, and is particularly prominent in commercial disputes. Crucially, it has a number of advantages over its better known counterpart.

Usually, arbitration clauses are included in contracts or agreements between the parties, which would outline the aspects of the arbitration that are agreed. It is common practice for the parties to then decide on the finer details at a later stage, such as when a dispute arises. This is not always the norm as parties are free to enter into an arbitration after the dispute arises to avoid going to court. This would be on the proviso that both parties agree to arbitrate. Without such consent, no arbitration can take place, resulting in legal proceedings being lodged within the court system.

The first advantage is that most arbitrations will have some form of confidentiality clause attached to them. Court proceedings, on the other hand are in the public domain. This can be damaging to large organisations on the basis that information outside of the public’s knowledge may come to light in court. At first, this may seem trivial to some, but the potential damage that can be caused is significantly larger. For example, this may have some repercussions on the company’s trade or even their performance on the stock exchange. This goes further in that it is also likely to save commercial relationships, whereas court proceedings are fairly acrimonious.

As alluded to earlier, parties are able to set the rules that apply to the arbitration. This can include the number of the arbitrators, how they are selected, whether the law of a particular jurisdiction will apply and whether a certain organisation (such as the LCIA) can be used to ‘administer’ the arbitration. In the latter scenario, such organisations will usually provide a list of potential arbitrators and have a few non-negotiable rules but are usually fairly flexible otherwise. Owing to this flexibility, arbitrations generally (but not always) have a dual advantage in that they are quicker than court proceedings, and do tend to be cheaper. This, however, would depend on the circumstances of the dispute and a number of other factors including: the complexity of the issue(s) and the number of arbitrators.

Further, experts within that field can preside over the arbitration. This would clearly be advantageous for those in niche areas, or those which require significant technical expertise in order for the fundamentals of the dispute to be clearly understood. The ability to get to the root of the problem and to understand the practical repercussions makes arbitration a significantly more attractive option to litigation, where the judge would usually be an expert of the law in that area.

Enforceability is usually a key consideration when deciding how to proceed with a dispute. If the parties decide that the law of England and Wales is to be used as the law that governs the arbitration, the decision of the arbitration panel can be enforced in the same way as an order of the High Court. In the case of an award from a jurisdiction other than that of England of Wales, enforceability is not a large issue. The party is a signatory to, and has ratified the New York Convention; it will be incorporated into the domestic law of that jurisdiction. This will allow the party who wishes to enforce the arbitral award to enforce it through the courts of the second jurisdiction.

Overall, it is clear that there is a swing in favour of arbitration over the court system. As stated, there are a number of advantages brought to the table by arbitration that litigation would otherwise be unable to. Whether there will be a further swing in favour of arbitration over the court system is something that only time will be able to tell.

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