Arbitration is a form of dispute resolution and an alternative to conventional litigation. The primary difference between litigation and arbitration is that, in the case of arbitration, the parties do not approach a court of law.
An arbitration is a private method of dispute resolution where the parties have agreed that their dispute will be heard and decided upon by an arbitrator and not a judge in a court of law. Arbitration is often referred to as “alternative dispute resolution” i.e. an alternative to approaching a court. In many respects arbitration and litigation are similar but there are key differences which we will highlight in the course of this article.
Why would a party choose arbitration over litigation?
The legal system of England and Wales and in particular its commercial law has an international reputation for fairness to all parties. It is often the case that parties to agreements, who may not be resident within England and Wales, agree that in the event of disputes English law will apply. The difficulty is when a dispute arises but the cause of action or parties are located outside the territorial jurisdiction of England and Wales. Notwithstanding that English law will apply to the dispute, the parties would not be permitted to approach the English courts.
Arbitration fills this gap by providing a dispute resolution mechanism that is similar in procedure and requirements of fairness to a trial but allows anyone to utilise it.
Arbitration clauses are common in international agreements where the parties are from multiple jurisdictions.
Legal framework for arbitration
The Arbitration Act 1996 is the act of parliament that governs the conduct of arbitrations within England, Wales and Northern Ireland. Scotland has its own rules for regulating arbitrations which are contained in schedule 7 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990.
The Arbitration Act imposes upon an arbitration tribunal a duty to act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting their case and answering that of their opponent. The arbitration tribunal is permitted to adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense and to provide a fair means for the resolution of the dispute.
Aside from these overriding duties an arbitration tribunal has a broad discretion to regulate the conduct of the proceedings before it. This is in contrast to the strict and detailed provisions of the Civil Procedure Rules which apply to litigation.
Who will be the arbitrator?
The arbitrator is usually a very senior lawyer (often a retired judge) who will be appointed by agreement between the parties to hear the case. A unique feature of the arbitration process is that the arbitrator can be assisted by expert assessors to assist in the assessment of complex technical evidence. In ordinary litigation, a judge would not have the advantage of this type of assistance and would have to rely on the evidence of the parties’ own expert witnesses.
Where does the arbitration take place?
Arbitrations can take place anywhere. There are a number of professional organisations which facilitate the hearing of arbitrations. These organisations often have venues that are designed very much like courtrooms for the hearing of an arbitration. Arbitrations can take place in board rooms or spaces rented specifically for the hearing. They could also take place outside of England and Wales.
Who appears at an arbitration?
Some arbitrations are decided entirely on “the papers” and sometimes appearance before the arbitrator is not necessary. In other cases the arbitration will be conducted in a similar manner to an ordinary trial save for the fact that it is not necessary for counsel or solicitor advocates to wear gowns and that the formalities of court are not required to be observed.
What are the advantages of arbitration?
The primary advantage is that the parties to arbitration have an almost free reign to determine the structure and procedure applicable to the proceedings:
- Full control of the process – the parties can, by agreement, determine the conduct of the proceedings. This can lead to a streamlining of the procedure to suit the specific requirements of the case at hand;
- Finality – the grounds for challenging an arbitrator’s decision are severely limited by the Arbitration Act. The decision of the arbitrator is agreed to be final which can bring proceedings which could have continued for years through the court system to a swift conclusion;
- Privacy – arbitrations are closed whereas court proceedings are open to the public. If the subject matter is sensitive such as proprietary technology or trade secrets it would benefit the parties to limit the number of persons who would have access to the evidence before the arbitration tribunal;
- Convenience – in litigation the dates for trials are determined by the Court with little regard for the convenience of the parties. There can often be a long wait for trial dates particularly where a matter requires a number of court days. In the arbitration process dates can be agreed between the parties to those most suitable to them and their witnesses.
What are the disadvantages of arbitration?
In the global economy arbitration, conducted in England, has emerged as the dispute resolution method of choice for a wide range of parties. Despite its popularity there are a number of disadvantages to the process which parties should bear in mind if they are contemplating inserting arbitration clauses into their contracts or becoming involved in arbitration proceedings.
- It requires good faith and agreement between the parties. A court has wide powers under the Civil Procedure rules to punish litigants who are obstructive or dilatory in their conduct of the proceedings. An arbitrator’s powers are not as strong as to find someone in contempt of court;
- The pre-arbitration procedures are often not as clear and direct as those under the Civil Procedure Rules which can lead to delays and unduly long hearings;
- There is limited scope to challenge the decision of an arbitrator. An aggrieved party would have to show that:
- The tribunal lacked substantive jurisdiction;
- there was a serious irregularity in the proceedings which would justify the setting aside of the award;
- The arbitrator erred on a specific point of law.
While there is more flexibility for parties in arbitration proceedings there is a slight difference between the costs of it versus those of litigation. The parties would have to incur the cost of the arbitrator and the venue in which the arbitration is to take place. They would still require legal representation. As with ordinary litigation it is vital that you discuss the estimated costs with your solicitor to ensure that costs of litigation do not outweigh the benefits should you be successful.
The future of arbitration in United Kingdom
Arbitration as a means of dispute resolution enjoys solid support from the Ministry of Justice and the judicial system. It is likely that London will continue to rank as a leading dispute resolution venue. Simple but effective reforms to the Arbitration Act have been proposed by the Law Commission in the hope that it will make London even more attractive to international litigants, these reforms include:
- Allow a summary judgment procedure to resolve cases where the defences raised are weak and manifestly bound to fail;
- Extending the remit of arbitration to include trust law disputes;
- Codification (in similar manner to the Civil Procedure Rules) of offers to settle.
This article is provided by Burlingtons for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact Dominic Holden or write to us using the contact form below.