Arbitration allows parties the opportunity to resolve disputes without going to court. It is widely used in commercial agreements, construction disputes, franchise agreements, joint ventures, supply contracts, and international trade disputes.
When should you consider using the arbitration route?
Arbitration usually occurs because the parties have agreed in advance—most commonly through an arbitration clause in a contract—that any dispute will be resolved by arbitration rather than litigation. This approach is particularly popular in complex or technical matters, where parties prefer a specialist decision-maker with industry expertise.
An arbitration is conducted by an independent arbitrator, or a panel of arbitrators, appointed by the parties or, where necessary, by an arbitral institution or the court. The arbitrator reviews the evidence and legal submissions and delivers a decision known as an arbitration award. In most cases, the award is final and legally binding, with only limited rights of appeal.
Advantages of arbitration
- Greater control and flexibility – Arbitration allows parties to control key aspects of the dispute resolution process, including the choice of arbitrator, the procedure, and the timetable.
- Expert decision makers – Parties can appoint arbitrators with specialised legal or technical expertise, such as construction law, intellectual property, maritime law, or international commerce. This can result in more informed decisions compared to those made in court proceedings.
- Faster and more efficient dispute resolution – Arbitration is generally faster than litigation. The process is streamlined, with fewer procedural formalities and limited discovery, allowing disputes to be resolved efficiently. Flexible scheduling also avoids delays associated with court backlogs.
- Confidential and private process – Arbitration proceedings are private and confidential, making them ideal for disputes involving commercially sensitive information or reputational concerns.
Disadvantages of arbitration
- Limited rights of appeal – Arbitration awards are usually final and binding. There are very narrow grounds to challenge or appeal an arbitral decision, which may be a disadvantage if an error occurs.
- Potentially high costs – Arbitration proceedings are not always cheaper than court proceedings. Arbitrators’ fees, venue costs, and legal expenses can make arbitration expensive for smaller disputes.
- Limited disclosure – Arbitration typically involves limited disclosure, which may disadvantage parties that require extensive documentation or evidence to support their case.
- Risk of bias or inconsistent outcomes – The arbitrator selection process may raise concerns about impartiality, and, there is also a lack of binding legal precedent.
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