Arbitration is a formal alternative dispute resolution process, an alternative to litigation, where an independent and neutral arbitrator makes a decision about a dispute between parties.
Arbitration has become an increasingly popular form of dispute resolution in Australia and throughout the world. It is sometimes used in combination with other forms of alternative dispute resolution such as mediation.
How does Arbitration arise?
Arbitration usually arises as a result of a dispute resolution clause in commercial contracts, where the parties agree to pursue arbitration as opposed to litigation if they have a dispute. The arbitration clause may specify where the arbitration should be held, e.g. Sydney, and which arbitration rules should apply (e.g. the Arbitration Rules of The Institute of Arbitrators & Mediators Australia). The arbitration clause may also specify the number of arbitrators, e.g. one or three.
Who appoints an arbitrator?
The parties usually have the ability to select the arbitrators. If only one arbitrator is to be appointed, then an arbitration clause or arbitration rules would usually provide that the parties agree on the selection of the arbitrator. If three arbitrators are to be appointed, usually each party would nominate an arbitrator each and then agree on the third arbitrator.
Advantages of Arbitration
While arbitration is a formal process and can follow similar procedures to court proceedings, in most cases, it is a more efficient and economic exercise than litigation. It is also confidential.
Unlike court proceedings, the parties can determine with the arbitrator how the process should be carried out depending on the circumstances of the dispute.
A decision made by an arbitrator, known as an award, is enforceable similar to a judgment of a court.
Disadvantages of Arbitration
A drawback of arbitration is its increasing cost compared to litigation, as it does generally follow a formal process, and it is necessary for the parties to pay an initiation fee, the arbitrator’s fees, and legal fees (assuming they are represented). It is also difficult to appeal an arbitrator’s decision compared to court proceedings.
However, notwithstanding some disadvantages, it is becoming a preferred method of resolving disputes among many commercial parties due to its flexibility, efficiency and quicker results compared to litigation in the courts.
Neutrality in Arbitration
Many arbitral bodies have also developed different tiers of arbitration in terms of a slow, thorough and more formal arbitration procedure, or a fast and less expensive arbitration process.
If businesses trade overseas, then arbitration can be an efficient alternative dispute resolution method to resolve disputes between parties from different countries. This is particularly important in the context of neutrality, as an arbitrator won’t share either party’s nationality, and the language in which the arbitration proceedings are carried out is always English.
Some of the forums and rules of international arbitration include those of the London Court of International Arbitration (LCIA), which has a presence in London and Singapore, and the International Chamber of Commence (ICC), which has a presence throughout the world.
LegalVision has dispute lawyers who can advise you in relation to resolving disputes through arbitration or other alternative dispute resolution methods. We can also advise you on inserting dispute resolution arbitration clauses in your commercial contracts for potential Australian or international disputes.