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Do you currently find yourself in a commercial dispute, where settlement negotiations among your business partners, colleagues or stakeholders is proving quite difficult to resolve or have otherwise reached an impasse? Nevertheless, you may still wish to avoid a costly, protracted and public litigation before a court or tribunal. If so, you may wish to look into alternative dispute resolution (ADR). ADRs relate to a range of procedures whereby parties to a dispute agree to use a third party’s services to assist them in reaching an agreement and avoiding litigation. Arbitration is a kind of alternative dispute resolution that has become increasingly popular in Australia and internationally.

This article will explain: 

  • what arbitration involves; 
  • the advantages and disadvantages; and 
  • when it should be used. 

Why Use Arbitration?

While it is an alternative to litigation, it involves a similar process. You and the other disputing parties can set out your respective arguments and disputed claims before a decision maker. The decision maker will then make a binding determination on your dispute. This binding determination sets arbitration apart from other forms of ADR. 

For example, in other forms of ADRs, such as a mediation or conciliation, a mediator or conciliator can only recommend outcomes and assist you in reaching a negotiated resolution. However, you can choose whether or not to accept those recommendations.

How Does Arbitration Arise? 

You can often resort to arbitration to resolve your commercial dispute either:

  • on agreement with the other disputing parties. In this instance, the parties would typically enter into an arbitration agreement; or
  • as a result of a dispute resolution clause contained in the commercial contract, the subject of the dispute. 

The arbitration clause or the arbitration agreement will typically determine:

  • the number of arbitrators that will constitute the ‘tribunal’ that will determine the dispute (e.g. one or three arbitrators);
  • where you should hold the arbitration; and
  • which rules should apply (e.g. the Resolution Institute Arbitration Rules 2020).

Once the above are known, you and the other disputing parties can agree on the process and timetable for the arbitration along with the tribunal.  

Who Appoints an Arbitrator?

You, along with the other disputing parties, will usually have the ability to select the arbitrators. However, this is usually determined by the rules that you have agreed to adopt for the arbitration. For example, if only one arbitrator is to be appointed, then an arbitration clause or the rules selected 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 and then the parties may attempt to agree on the third arbitrator, or the nominated arbitrators may agree on the third.

Arbitrators are often lawyers. However, there are generally no restrictions as to the arbitrator’s professional qualifications, nationality or residency.  An essential criterion for all arbitrators to be appointed is that he, she or they must be independent and impartial. 

What Does Arbitration Involve?

The arbitration will proceed in accordance with the procedure and rules that the parties have adopted. Similar to a formal court process, arbitration will involve you and the other disputing parties exchanging written submissions of your main arguments and contentions, which is supported by evidence (i.e. witness statements, expert reports (if appropriate), and any other documents you may wish to rely on).

Arbitration will also involve a hearing. Similar to a court hearing, an arbitration hearing will also involve the presenting of arguments and possibly questioning of  each parties’ respective witnesses or experts by:

  • your legal representatives; and
  • legal representatives of the other disputing parties.

The duration of the hearing will always depend on the facts of your case and may go on for several hours, days, weeks or months.  

Following the hearing, the tribunal will determine the dispute and produce their decision in writing. This will generally set out the reasons and their decision in respect of the disputed issues between you and the other parties. The decision of the tribunal is known as an award.

You will only be generally allowed to challenge or appeal an award in very limited circumstances.  

Advantages

While arbitration is a formal process and can follow similar procedures to a court proceeding, it is most often:

  • a more efficient and economical exercise than litigation;
  • confidential, subject to the agreement of the parties (i.e. the decision of the tribunal will not be made publicly available);
  • the parties can determine with the arbitrators/tribunal how the process should be carried out depending on the circumstances of the dispute;
  • an award is enforceable similar to a judgment of a court. However, it may also be easier to enforce an award in another country than it is to enforce a court judgement. 

Disadvantages

A drawback of arbitration compared to other forms of ADR is the costs you will likely incur. They may be almost comparable to the costs of a formal court litigation. This is because:

  • arbitration generally follow a formal process;
  • the parties will often need to pay an initiation fee, the arbitrator’s fees, and costs of the facilities associated with the conduct of an arbitration; and
  • the parties will often incur considerable legal fees (assuming you and the other disputing parties will be legally represented). Your legal representatives will assist you in preparing your evidence and your written submissions. Further, they will appear on your behalf before a tribunal for the hearing.

You may also have very limited avenues to challenge or appeal the arbitrator/tribunals’ decision compared to a decision of a court.   

However, notwithstanding such disadvantages, arbitration is becoming a preferred method of resolving disputes among many commercial parties. This is due to its flexibility, efficiency and quicker results compared to court litigation.

International Disputes and Neutrality in Arbitration

Many arbitral bodies have also developed different tiers of arbitration, from a:

  • slow, thorough and more formal procedure; to
  • faster and less expensive arbitration processes.

If your business trades overseas and deals with foreign entities, then arbitration can be an efficient ADR method to resolve disputes that may arise. This is particularly so, as there would often be difficulties in litigating the dispute in a jurisdiction that will be acceptable to you and the other disputing parties.  

Arbitration in this context is particularly important, as it can give you and each of the other disputing parties some confidence that the arbitrator will be neutral. That is, the parties can agree that the arbitrator chosen will not share any of the disputing parties’ nationality, and the language in which the proceedings are generally carried out will be in English.

Some of the forums and rules of international arbitration include those of the London Court of International Arbitration (LCIA). LCIA has its administrative headquarters based in London but operates internationally. Additionally, the International Chamber of Commerce (ICC) has a presence throughout the world.

In Australia, we have the Australian Centre for International Commercial Arbitration (ACICA). ACICA is a not-for-profit organisation, which seeks to promote and facilitate the efficient resolution of commercially disputes throughout Australian and internationally by arbitration. It specifically aims to deliver:

  • expediency and neutrality of process;
  • enforceability of outcome; and
  • commercial privacy to parties in dispute.

ACICA also provides rules and model clauses to facilitate best practice in the conduct of arbitration and can assist you in arranging facilities to manage your ADR processes (e.g. room hire, transcription, and translation services). 

Key Takeaways

Arbitration allows both disputing parties to properly set out and articulate their respective arguments and disputed claims before a decision maker. The decision maker will then make a binding determination on your dispute. For advice or assistance in relation to resolving your commercial disputes through arbitration and other ADR methods, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is arbitration?

It is a form of alternative dispute resolution. It involves you and each of the other disputing parties setting out and articulating your respective arguments and disputed claims before a decision maker. The decision maker’s determination on your dispute is binding.

What are the advantages of arbitration?

Some advantages include that it is a more efficient and economical exercise than litigation, it is confidential, and the parties can determine how the process should be carried out depending on the circumstances of the dispute.

What are the disadvantages of arbitration?

A key disadvantage is that the costs of arbitration may be almost comparable to the costs of a formal court litigation. This is because arbitration generally follows a formal process, the parties will often need to pay an initiation fee, and the parties will often incur considerable legal fees if they have legal representatives. Additionally, there may be limited avenues to challenge or appeal the decision, compared to the decision of a court.

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