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If you are a party to a commercial dispute, you might be wondering the best way to resolve it. There are several dispute resolution methods available, each with its pros and cons. Arbitration is one type of dispute resolution that can prevent the need for court proceedings. As a result, arbitration is an increasingly popular way to resolve commercial disputes. This article will take you through five things to know about arbitration, to help you better understand this dispute resolution method.

1. What is Arbitration?

Arbitration is one form of alternative dispute resolution (ADR) that enables conflicting parties to resolve their disputes before, or completely remove the need for, going to court. Consequently, arbitration is also considered an impartial way to resolve commercial disputes. 

Further, the decisions made at arbitration are legally binding, making it an excellent option for parties looking to formalise their dispute resolution outcomes without legal proceedings. On the other hand, other forms of ADR, such as mediation, do not result in binding decisions. Although, mediation can result in a legally binding settlement agreement between parties. 

2. Role of the Arbitrator

The impartial third party that oversees arbitration is known as the arbitrator. The arbitrator is responsible for hearing submissions and evidence from both sides to the dispute, before making a decision. Consequently, this decision will be binding and enforceable. Moreover, often the appointed arbitrator will have professional or technical experience in your industry, giving them sufficient expertise to deal with the matter appropriately.

The disputing parties usually select the arbitrator. Often, the way to appoint an arbitrator will be determined in a dispute resolution clause in the initial agreement. In addition, the contract might also outline how many arbitrators are appointed. However, in the absence of an agreement, the parties may enter an arbitration agreement that sets out how they will appoint the arbitrators.

Indeed, there are very few restrictions as to who can be an arbitrator, with there being no limitation as to their: 

  • qualifications; 
  • expertise; 
  • nationality; or 
  • licencing. 

They are often lawyers and have expertise in a particular type of dispute, such as construction, but the main requirement is that they are impartial to the dispute. 

3. When to Use Arbitration

Arbitration is used to resolve commercial disputes. There are several ways by which arbitration might arise. For example, two parties in a dispute might agree that arbitration is the best way to resolve the issue. On the other hand, an action might occur that triggers a dispute resolution clause in the contract between the parties, and this clause requires arbitration.

In an Australian context, arbitration is most common in the mining or construction industries or when disputes have a transnational element. Further, each Australian state and territory has its own laws governing arbitration. However, this legislation is mostly uniform and largely reflects international arbitration standards and procedures.

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4. Advantages of Arbitration

There is a range of advantages to using arbitration to resolve commercial disputes. The table below outlines some key advantages of arbitration:

Flexibility

Arbitration is often quite flexible for parties, with arbitration guidelines often being outlined in the initial contract. For example, an initial contract might include provisions for appointing an arbitrator and the procedure that you must follow.

Efficiency 

Compared to court proceedings, arbitration is often both time and cost-efficient. Further, the orders from arbitration are enforceable, making it more efficient than other forms of dispute resolution where certainty is not guaranteed.

Confidentiality 

Arbitration is regarded as confidential, as it can be held in private. On the other hand, court proceedings are open for public viewing, which includes the media. Arbitration is a suitable alternative to court proceedings for avoiding unwanted, negative attention.

5. Disadvantages of Arbitration

Despite the benefits of arbitration, it is not without its disadvantages. The table below outlines some disadvantages of using arbitration in a commercial setting: 

Costs

Compared to other types of dispute resolution, arbitration can be costly. For example, costs include initiation fees, arbitrator’s fees and any other associated costs with the arbitration process.

Formality

Although not as much as court proceedings, arbitration is quite formal compared to other types of dispute resolution. Also, parties generally require legal representation, which adds to the costs. 

Key Takeaways

There is a range of dispute resolution methods, each with its own advantages and disadvantages. Arbitration is one type of ADR that:

  • prevents the need for court;
  • results in a binding decision; and
  • has the advantage of being efficient, flexible and confidential.

If you need assistance understanding your dispute resolution options, LegalVision’s experienced dispute resolution lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is arbitration?

Arbitration is one form of alternative dispute resolution (ADR) that enables conflicting parties to resolve their disputes before, or without the need to, go to court. Further, arbitration is considered an impartial way to resolve commercial disputes.

When do parties use arbitration? 

Arbitration is used to resolve commercial disputes. Additionally, arbitration might arise if conflicting parties agree to resolve a dispute by arbitration or if an action occurs that triggers a dispute resolution clause in the contract between the parties. 

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