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Step 7: Adjudication or Arbitration

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Primary Content Source: Ahmed Masood (Lecturer in law at University of Leicester)

 

Arbitration

This note is only concerned with domestic arbitration and not international arbitration. The main Act of Parliament which governs arbitration is the Arbitration Act 1996 which can be found at: http://www.legislation.gov.uk/ukpga/1996/23/contents.

 

What is arbitration?

Arbitration is a private method of resolving disputes and it is an effective and efficient way for parties to resolve their disputes and to get a binding award without having to go to court.

There is no universal definition of arbitration but the following are some key features which can be derived from all definitions of arbitration:

  • The parties must enter into an arbitration agreement before a dispute can be referred to arbitration;

  • There must be a dispute between the parties;

  • The dispute is referred to a neutral third party i.e. the arbitrator(s);

  • The arbitrator(s) renders an arbitral award;

  • There is an implicit agreement to be bound by the arbitral award.

 

Arbitration and other forms of alternative dispute resolution (ADR) methods

Arbitration must be distinguished from other forms of ADR such as mediation, conciliation and negotiation. Sometimes arbitration is referred to as being ‘adjudicative’. This means that the parties agree and are bound to refer their dispute to an arbitrator(s) who then renders an award which is binding on the parties.

Mediation, on the other hand, is consensual. This means that the parties to a dispute are free to leave the process and the mediator cannot bind the parties to an agreement – it is the parties’ choice whether to settle their dispute through mediation.

 

Advantages and disadvantages of arbitration

Advantages:

  • Arbitration is underpinned by the principle of party autonomy – parties are free to agree how their dispute is resolved through arbitration and so can appoint an arbitrator(s) of their choice;

  • Parties tend to have greater control over the arbitral process (e.g. they can set time frames for procedural steps to be taken, etc.);

  • It is less formal than litigation which is governed by strict and detailed court rules;

  • The venue for the hearing can be fixed by the parties;

  • Arbitral proceedings are confidential;

  • Arbitrator(s) may be specialist in a particular field (not always the case in court proceedings);

  • The finality of an arbitral award is recognised internationally.

 

Disadvantages:

  • It can be expensive (parties must pay arbitrator’s fees as well as legal costs etc);

  • The arbitrators’ powers to make interim remedies may be limited, may still need to go to court;

  • Advantages such as finality and confidentiality are lost if the matter is appealed to national courts;

  • An arbitrator cannot force either party to attend arbitral proceedings. This is unlike litigation (summons/contempt of court) where the court has power to fine or send defaulting party to prison. Unlike litigation, an arbitrator has limited powers and may need to revert to the courts for assistance.

 

The key question

The key question to ask yourself before trying to go to arbitration is this:

  • Does an arbitration agreement exist between the parties? The parties may already have an arbitration clause in the commercial agreement between them. Check the contract to ascertain whether there is an arbitration clause which states that the parties must go to arbitration.

  • If such a clause does exist and the other party (or you) has indicted an intention to refer the dispute to arbitration then the parties must go to arbitration. You cannot issue court proceedings. If you do this and there is a valid arbitration agreement between the parties then the other party can ask the court to stay the court proceedings and to refer you to arbitration.

  • If there is no arbitration clause in the contract then the parties can still agree to go to arbitration by drafting a submission agreement. However, if there is no arbitration clause in the contract and you (or the other side) do not want to go to arbitration then the parties may refer their matter to the court.