Arbitration is an alternative dispute resolution process and is typically an alternative to litigating a matter in court. Instead, parties resolve their dispute by presenting their case to an impartial and independent third party (the arbitrator). The arbitrator hears the evidence, positions of the parties and their submissions before making his or her determination. The determination, known as an award, is enforceable in the same way a court’s judgment is.
Parties more commonly use arbitration in the following situations:
- Where the Government has legislated that parties resolve their dispute through arbitration.
- Commercial and/or contractual disputes where the contract or agreement specifies that parties should resolve their dispute through arbitration.
Arbitration is governed by the Commercial Arbitration Act 2010 NSW. There are equivalent Acts in other States.
Despite being the most formal and court like ADR process, arbitration still offers parties greater flexibility. The procedure is adapted to suit each case, for example, a smaller matter may not require anything other than written submissions, but a complex case may require official documents and evidence. Each ADR process presents advantages and disadvantages and below, we set out when you should consider arbitration in a commercial dispute.
Advantages of Arbitration a Commercial Dispute
Parties in commercial contracts should consider arbitration to resolve their disputes. It presents an attractive option for the following reasons:
- The process is comparatively efficient and quick.
- Arbitration is still relatively flexible and can be adapted to suit each matter.
- Unlike court which is open to the public and the media’s scrutiny, arbitration can be held in private.
- The arbitrator’s award is final and enforceable.
- The process is generally faster than if the parties tried to resolve the matter through the Courts.
- Parties can reach an agreement to make the process and outcome confidential.
- Parties can agree on the arbitrator who has relevant expertise in an area, rather than a judge.
Disadvantages to Arbitration in a Commercial Dispute
There are, however, some disadvantages to arbitration that parties should consider. Depending on a matter’s complexity, the process may end up mimicking the Court process. So, you may not get the advantages of speed and informal process. Arbitrators in complex matters may also require pleadings, evidence, and cross-examination of witnesses. Much of it depends on the arbitrator and what parties agree to.
Parties should also be aware that they are responsible for 50% of the costs of both the arbitrator and the venue for the arbitration. This is an additional cost which is absent if parties litigate the matter through court. Parties also have limited appeal options once the arbitrator makes his or her final award.
Arbitration’s aim is to limit the costs associated with resolving a dispute and trying to obtain a result as quickly as possible, and in most instances, the process works well. Arbitration occurs both domestically and internationally and should be considered by parties when entering into commercial contracts. If you have any questions about arbitration, let our disputes lawyers know.