This is an extract of our Arbitration 1 document, which we sell as part of our Alternative Dispute Resolution Notes collection written by the top tier of City Law School students.
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Arbitration = an adjudicative procedure by which an impartial tribunal decides the outcome of a dispute between parties, following their voluntary submission to that procedure.
Contractual basis: Based on an agreement between the parties to refer a dispute/difference to impartial arbitration for a decision.
o Adjudicative ? CF mediation & negotiation; somebody makes a decision for the parties.
o Impartial tribunal ? general duty, s33 Act.
o Must be a dispute between the parties ? s6 Act, the arb agreement must refer a 'dispute' (including differences, s82).
o Voluntary/consensual ? though once they are in arbitration, they cannot leave. Is based on an agreement between the parties to refer the dispute to arbitration.
Arbs are based on an agreement between the parties, to have their dispute decided by impartial arbitrators.
Arbitration is NOT a step on the pathway to litigation/trial at court . You might negotiate or mediate before court proceedings if they are unsuccessful; but arbitration is not a pathway to litigation. You might end up in court after arbitration or during arbitral process, but it is not a step to litigation.
Strong public policy in favour of upholding arbitration agreements, which is supported by:
o (1) the idea that the arbitration clause in a contract is separable from the rest of the substantive contract;
o (2) by the jurisdiction to stay court proceedings that are commenced in breach of an arbitration agreement.
If parties agree to arbitration ,this implies that they want their disputes decided:
o By a tribunal they have chosen
In a neutral location and with neutral arbitrators
By the arbitrators speedily & efficiently
With light but efficient supervision by the courts.
Arbitration v Litigation?Arbitration is most like litigation CF negotiation/mediation. Is a sort of private version of litigation.
Similarities with litigation:
o is adjudicative;
o 3rd party makes a decision;
o can be pleadings/rules/procedures which might look like rules of court.
Differences with litigation
Based on agreement ? dispute will be referred to arbitration only if agreed by the parties.
It is not a step on pathway to litigation.
o Speed of the processes:
-eg you might be kept waiting to appear before court; but might find an arbitrator who is free quickly.
Degree of party autonomy
-If litigating in Eng & Wales, will be litigating in accordance with the
-Parties can agree to have flexible process/rules etc.
o Arbitrators appointed by the parties (or through an agreed mechanism)
Egs, arbitral institutions??CEDR (Centre for Effective Dispute Resolution)
CIA (Chartered Institute of Arbitrators)
ICC (International Chamber of Commerce)
LCIA (London Court of International Arbitration)
UNCITRAL (United Nationals Commission on International Trade Law).
Pros & cons of Arbitration
ADVANTAGES of arbitration CF litigation?
Privacy & Confidentiality
Arb proceedings are confidential (subject to certain exceptions), CF court is public
The public has no right to attend a hearing before an arb tribunal.
o Some parties might want disputes determined out of the public gaze.
Choice of the tribunal (appointed by the parties/an agreed mechanism, CF by the state as in court)
o The right to choose, or to have a say, in the choice of one or one members of the arbitral tribunal is an advantage.
o Even if the degree of influence is minimal because the choice is left to an appointing authority, there has nonetheless been some involvement in the selection process, by agreeing to that appointing authority, and the parties may take comfort from the institution's previous experience of appointing and working with particular arbitrators.
o Further, some disputes involve highly technical issues, can be useful to have at least one member of tribunal who is familiar with the technical issues or applicable law by virtue of his training.
o [[a disadvantage ? hard to find arbitrators better qualified than High Court judges, who are provided free]] ???International enforceability of arbitral award (New York Convention 1958).
o Extensive enforceability of the award.
o As a result of various conventions (eg New York Conventino), arbitral awards are recognized and enforceable in many more countries than English court judgments.
o Much easier overseas to enforce than court judgments.
Flexibility and control over proceedings
(1) flexibility re procedure
-? s34, procedural & evidential matters
-As arbitration is consensual, the parties can choose the most suitable procedure.
-Not bound by formal rules of court ? eg written submissions in letter form may be appropriate for a dispute over the interpretation of a written agreement; whereas examination of witnesses may be required for the determination of disputed facts.
-The parties can be represented by anyone of their choice , as they are not bound by rules limiting appearance to persons with particular legal qualifications (eg not bound by solicitors/barristers having to have advocacy certificates to appear in court).
o (2) flexibility in time: if dispute needs urgent resolution, parties can choose a tribunal who will act promptly.
o (2) flexibility in appointment of arbitrator, eg having a specialist arbitrator, eg an engineer.
Formality is often given to arbitrations by adopting institutional rules, but parties can choose very informal proceedings if they prefer.
o Proceedings often less formal than in court.
o By choosing which institution rules to adopt, or choose ad hoc arb ? the parties can decide between themselves the level of formality and complexity of procedures to be used (CF, in court, procedures laid down by
Parties may maintain relationships
NEUTRALITY AND EQUALITY
o Where parties come from different countries, arb may be preferable to litigation if neither party is wiling to submit to the jurisdiction of the national court of the other.
o Arb offers neutrality in choice of law, venue, procedure and tribunal.
o The parties may agree upon the law and procedure of a third country ,or leave choice to the tribunal.
o Can appoint an arbitrator from another country or request an international arb institution to make the appointment of 1 or multiple tribunal members.
o In so doing, parties may be more confident that there will be equality of treatment.
Finality of award (generally no appeal)
o Finality can be of great benefit to business people. ?
o More difficult to overturn an arbitral award than a court judgment
(although CRP has made appeals harder, limited grounds of appeal and permission is required).
SUMMARY of advantages
Flexibility and privacy of proceedings;
o parties' ability to choose (directly or indirectly) the tribunal
enforceability of the award.
o Neutrality as regards location, governing law and constitution of the tribunal (very attractive in international commerce, in a world of crossborder transactions and collaborations).
-It is an open question whether it is cheaper to arbitrate or go to court: depends on nature of dispute and approach of parties.
o Often is a balance between: ability to save costs on simpler procedures in arbitration compared to court; VS the fees payable to arbitrators and the arb institution.
-Expense and delay (but these are also features of litigation).
o Extra cost re fees of the arb tribunal; but in many cases the tribunal can more than pay its way by taking control of the proceedings from the outset and conducting them in an efficient manner.
o NB general duty of tribunal + s1 Arb Act ? requires an arb tribunal to avoid unnecessary delay or expense.
o Some delays are peculiar to arbitration: eg, those that can occur at the beginning of the proceedings as a result of the procedures for appointing the tribunal, particularly if challenges are made to the arb agreement or to an arbitrator.
o However, the limited scope for appeal/recourse against the award may ultimately make the proceedings shorter than similar court litigation
(avoiding the possibility of 1+ appeals).
o Some say that the limited coercive powers of the tribunal make arb vulnerable to delay: this, but once appointed an experienced tribunal will take control of the proceedings and proceed, despite an obstructive party, in order to maintain a reasonable timetable.
-Arbitral decisions are final (no right of appeal as in court)
-Lack of coercive powers/weak powers to impose sanctions re failing to comply with timetables and procedural orders
CF judge in court, active case management system
So more scope for parties to cause delays in arb
-No summary procedures (eg security for costs, summary judgments)
o The summary procedures used in English courts are not available in arb.
o An arb tribunal must give each party a reasonable opportunity of putting his case and dealing with opponent's case (s33), which does not allow a summary decision in favour of C on ground that respondent has no real prospect of successfully defending its claim.
o However, an arb tribunal, in appropriate cases, can identify issues for determination in advance of the remainder of the case. Where those issues ????are determinative of the dispute as a whole, the tribunal is able to ensure that efficiency of the process is maintained.
NB, tribunal can make peremptory orders in case of party's default, s41
S42 ? can apply to court to seek order to compel compliance with peremptory order.
o BUT problem, s42(4): court won't make an order (re peremptory order)
unless satisfied that 'reasonable time' ? gives court discretion, English High
Court rarely makes peremptory orders.
No joinder of parties or consolidation of proceedings
The consensual nature of arb means that a tribunal will usually lack the power to add or substitute a party to the proceeding without the consent of all the existing parties.
o And for same reason, without agreement of the parties, the tribunal has no power to consolidate its arbitration with another, in order to bring before one tribunal related claims for determination (s35).
o Even if there is express power for the claims to be consolidated ,
consolidation may not be possible once arb proceedings have commenced.
o Some arb institutions have sought to address this issue by including provisions within their rules which provide for consolidation of arb in specified circumstances.
o CF courts in litigation: powers to add parties and consolidate proceedings.
Arbitrators have no powers against 3rd parties (CF court), disadvantage eg where docs or property that needs to be inspected by an expert are in control of a 3 rd party.
Unless the parties agree to confer such a power, arbitrators have no power to grant interim injunctions. They do have power to make final awards for injunctive relief
(s48(5)), and may have limited power to grant interim injunctive relief (ss38-39), but they cannot enforce their orders by committal.
o OR other interim orders, eg search orders, freezing orders, security for costs, summary judgment.
Arbitrators cannot grant orders such as search orders and freezing orders.
Quality of decision making
Criticism is sometimes made because decisions or reasoning of a tribunal are not up to the standard expected by one party or other party tot eh arb.
o When a party has a choice in the nomination or appointment of the tribunal,
care should be taken to ensure that members of the tribunal are well qualified to decide the particular dispute.
Doesn't create PRECEDENT
Consensual nature ? arb usually works best when only 2 parties. Although possible to have more parties, there are problems, re agreeing arbitral rules.
Availability to create precedent (no precedent created in arbitration).
Right of appeal ????
Availability of summary proceedings, joinder, consolidation of proceedings.
Coercive powers to deal with delay/obstruction by parties.
Fixed/certain procedure, CPR.
It can be cheaper (cost of arbitrator, cost of institutions etc).
You might WANT THE PUBLICITY of open court.
You don't need an agreement to litigate.
Interim stages to enforce. Institutional v Ad Hoc Arbitration
-Where the arb is administered by an arb institution (CF ad hoc arb)
-Often, an institutional arb will be conducted in accordance with the institutions'
own arb rules (although some institutions apply the rules of another organization, eg
CEDR uses the UNCITRAL Model Law).
-The institution may provide a range of support services, eg:
o Machinery for appointing the arbitrators
Arranging facilities for hearings
Supporting in ensuring proceedings are expeditious and smooth
Support re awards being drawn up in a manner making them readily enforceable through the courts if not complied with.
-Some institutions even have an internal appeal process against the arb award
-There will be additional costs when using an institutions' services, although this may be less expensive than trying to agree an equiv with the other side; ant he benefits may outweigh the costs.
Ad Hoc Arb
-Particularly used in maritime disputes.
-Ad hoc arb agreement ? parties have agreed to arbitrate and not to use one of the arb institutions.
-This does not prevent the parties from using such an institution as an appointing authority, but often the parties to an ad hoc arb will want to appoint the arbitrators themselves.
-It does not prevent the parties adopting the rules of an arb institution, but they may not and leave the details of the procedures to the arbitrators to decide.
-Net result: in an ad hoc arb the parties save the fees that would be charged by an arbitral institution, and are free to themselves choose arbitrators in any manner that they may agree, and to agree any procedures/rules.
-This level of freedom often attractive where parties on an amicable terms, but difficult if not.
-If parties not amicable: Delays and additional expense can result if one party becomes obstructive. Arbitrators have limited powers to force the parties into making progress in preparing the case. Ultimately, arbitrators may need to result to the courts if one of the parties becomes deliberately obstructive.
Pros & Cons of institutional/ad hoc arb?
When should the parties decide on the institution to use?
o In advance of the dispute arising, in the contract.
o Or After a dispute has arisen
Name 3 arbitral institutions which parties might use in circumstances where they wanted to conduct a commercial arbitration
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