Arbitration is an effective way of obtaining a final and binding decision on a dispute or a series of disputes, without reference to a court of law. It is a private method of resolving disputes and the jurisdiction of the arbitral tribunal is derived solely from the express or implied agreement of the parties. Parties who agree to arbitrate disputes renounce their right of recourse to the courts of law in respect of any such dispute.
Arbitration differs from mediation and from the courts of law in a number of ways.
Arbitration vs. Mediation
Mediation is a process of facilitated negotiation using a third party (the mediator). It is completely voluntary and any agreement that results therefrom is non-binding and unenforceable until it has been signed by both parties. Arbitration, on the other hand, relies on a third party (the arbitrator or the arbitral panel, usually comprising either one or three people) who listens to arguments from both sides and then renders a decision or award that is both binding and enforceable.
For domestic disputes (disputes where both parties reside or carry out business in the same State), arbitration derives its enforceability from the individual arbitration acts or laws of a given State. For international disputes, arbitration derives its enforceability from the ‘New York Convention’ – United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) – that has been adopted by over 146 countries.
International arbitrations (those between parties who reside or do business in different countries) are carried out in accordance with a set of rules. 85 countries have adopted the UNCITRAL (United Nations Commission on International Trade Law) Arbitration Rules (as revised in 2010) and many other countries have adopted a set of arbitration rules for international disputes that are based largely on the UNCITRAL Arbitration Rules. It is the application of these rules that provide the arbitral structure or process.
Arbitration vs. Court of Law
There are a number of aspects that distinguish arbitration from litigation. Several of the more important advantages are:
Arbitration offers the parties the opportunity to choose a jurisdiction for dispute resolution that is independent and for which the arbitration rules are clear. In effect, arbitration provides a level playing field with neither party benefiting unfairly from ‘home advantage’.
In arbitration the parties are free to choose their own tribunal; in litigation the tribunal or judge is decided by the Court itself.
In arbitration the procedure can largely be tailored by the parties and by the arbitral tribunal so as to meet the law and the facts of the dispute.
Arbitrations, especially international arbitrations, are confidential, whereas litigation becomes a matter of public record the minute it is commenced.
The arbitration decision is not subject to appeal based on the facts; it is only subject to appeal if certain procedural and/or jurisdictional aspects are not addressed properly.
Arbitration is primarily focused on reaching a decision; the courts are primarily focused on ensuring that judicial process is followed.
Unless the parties agree, in arbitration there is no requirement to disclose all relevant information. This may favour the respondent who prefers not to disclose proprietary information or other damaging information unless specifically requested by the claimant.
The Arbitral Tribunal
The arbitral tribunal is generally comprised of either one or three members. Arbitrations regarding smaller amounts (less than $10 million) are usually decided by a single-member panel; larger disputes are generally decided by a three-member panel. If there is only one member, then both parties to the dispute must agree on the selection of the arbitrator. If there are three members, then each party will designate one member and will agree on the third, or it will be selected by some appropriate body. The advantage for having only one member is that it is cheaper and easier to schedule; three-member panels, on the other hand, provide for a more balanced approach to dispute resolution and also allow for the opportunity to include at least one member who is an expert and familiar with the substance of the dispute.
Arbitration is a dispute resolution process that is private. The jurisdiction of the arbitral tribunal is derived solely from the express or implied agreement of the parties. It is flexible and can be adapted to the specific preferences of the parties and is independent of the jurisdictions and courts of law of either of the parties. Most importantly, arbitration derives its global enforceability from the ‘New York Convention’ – United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) – that has been adopted by over 146 countries.