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Arbitration is a form of alternative dispute resolution (ADR) that allows parties to settle their dispute before it goes to court. Essentially, an arbitration usually works by having parties present their case to an impartial third party, known as the arbitrator. The arbitrator will take in the submissions and evidence from both sides and make a determination. Moreover, the determination works the same way as a judgment from a court. Specifically, parties will be able to enforce the arbitrator’s determination. Therefore, it is important to know how arbitration works to understand its use in commercial disputes. This article will explain when you should consider arbitration in a commercial dispute. Additionally, it will explain situations where you should not use arbitration.

When Will Parties Use Arbitration?

Parties will use arbitration when the relevant law states that they should resolve their dispute through arbitration. Additionally, another situation where parties will use arbitration is if the commercial or contractual agreement in dispute requires them to do so. Specifically, the contract’s arbitration clause will state that parties must resolve disputes through arbitration. Therefore, you should ensure that you read what your contract states to determine whether you can use arbitration. 

The industries that commonly use arbitration as a method of dispute resolution are:

  • construction;
  • engineering;
  • infrastructure;
  • oil and gas;
  • mining; and
  • transport.

Therefore, it is important to check your industry rules and regulations to see whether arbitration is an option for you. 

Additionally, each state and territory will have its own laws that deal with arbitration processes.

For instance, arbitration is governed by the Commercial Arbitration Act 2010 in the state of New South Wales.

Generally, you should use arbitration as a step to resolve the dispute before going to court. This is because arbitration allows parties to have their case heard before an impartial third party.

Moreover, arbitration is one of the more formal methods of alternative dispute resolution. However, it is still much more flexible to parties’ needs than a court. Indeed, depending on the size of the dispute, you can scale the arbitration process accordingly.

For example, simpler claims may only require written submissions. On the other hand, more complex claims may require additional documents and evidence. 

Advantages of Arbitration in a Commercial Dispute

If arbitration is available to you, you should consider using it to resolve your disputes rather than going to court. Specifically, arbitration is a viable solution to many commercial disputes for the following reasons:

Advantage Explanation

Speed

Arbitration is generally faster and more efficient than traditional litigation. Therefore, parties are able to save time and costs by avoiding lengthy court procedures.

Flexibility

Arbitration proceedings are also very flexible. This is because you can adapt it to the size and complexity of the commercial matter in question.

Privacy

Moreover, you can hold arbitrations in private. By contrast, court hearings are open to the public and the media.

Enforceability

The orders or awards from an arbitration proceeding are final and enforceable. This is advantageous as it increases certainty.
Arbitrator experience Generally, the appointed arbitrator will have relevant professional or technical experience in your industry.

Disadvantages of Arbitration in a Commercial Dispute

Arbitration generally is a good way for disputes to be resolved. However, there are certain disadvantages you should be aware of:

DisadvantageExplanation

Speed may vary

If your dispute is very complex, the arbitration may resemble a court proceeding. Importantly, this means that you may not enjoy the speed and efficiency of a typical arbitration process. If this is the case, you may wish to consider commencing litigation instead.

Evidence required

Additionally, more complex arbitrations will generally require a large amount of technical evidence. This will usually take the form of pleadings, documents and witnesses.

Costs

Parties that use arbitration are responsible for 50% of the arbitration venue’s costs. They will also need to pay the fees of the arbitrator.

Limited appeal options

Finally, once an arbitrator makes their decision, there are very limited options to appeal it.

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Key Takeaways

In most cases, arbitration is a great way for parties to resolve their disputes quickly and cheaply. Indeed, because of its many advantages, most commercial contracts include arbitration provisions. Furthermore, arbitration is also beneficial where you are seeking a determination for a dispute that has more industry-specific questions. However, if your dispute is complex, arbitration may not necessarily be for you. Specifically, it may not be the most cost-effective or fastest method to resolve your dispute. If you have any questions about arbitration, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill in the form on this page.

Frequently Asked Questions

When should I use arbitration over other alternative dispute resolution processes?

You should use arbitration if the legislation that governs your industry requires that you use arbitration. Additionally, you should use arbitration if your contracts have an arbitration clause that makes it mandatory to use arbitration.

What are the advantages of arbitration?

Arbitration is generally cheaper, faster, and more flexible than traditional litigation. Furthermore, parties using arbitration enjoy the benefit of privacy. Finally, they can also appoint an arbitrator who is experienced in the industry.

What are the disadvantages of arbitration?

If your dispute is highly complex, you may find the arbitration is run like a court anyway. Moreover, there are also limited appeal options once you have received a decision from an arbitrator.

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