Arbitration is a process whereby parties to a contract submit disputes arising between them to an independent third party for resolution. The basis of all arbitration is the agreement of the disputing parties to arbitrate. The contract forming the basis of the dispute may contain a binding arbitration clause obliging the parties to submit to arbitration, or alternatively, disputing parties may opt by way of Submission Agreement to arbitrate their disputes as they arise.
In the absence of an agreement to arbitrate, the default method of dispute resolution is litigation. Litigation is often perceived to be an unwieldy, inefficient and costly process and in order to avoid same, disputing parties will often opt to arbitrate. Further benefits of arbitration are as follows;
In contrast with judicial proceedings, arbitration proceedings are held in private. This is of particular relevance in disputes involving commercially sensitive matters which the parties would prefer to exclude from the public domain.
2. Expert Arbitrator
The Arbitrator may be selected on the basis that he or she has particular qualifications, technical expertise or specialist knowledge relevant to the subject matter of the dispute. As the Arbitrator is already well versed in the area, there is no necessity to expend time and money on informing him or her. The Arbitrator may be nominated by the parties to the dispute themselves. Alternatively, the parties may decide that a particular Institution be charged with appointing a suitable Arbitrator.
3. “Party Autonomy”
The parties may retain a degree of control over resolution of the dispute. As there is no obligation to conduct Arbitration proceedings in any particular manner, the parties are free to agree all procedural and evidential matters. Arbitration is generally perceived as a more time and cost efficient method of disposing of disputes than litigation and where parties choose to actively participate in the management of the proceedings, this can certainly be the case.
4. Finality of the Award
Awards made by the Arbitrator are ordinarily understood to be final and binding and may only be set aside in certain limited circumstances. However, the lack of a real right of appeal may be unpopular with a disgruntled party who considers an erroneous award has been made.
5. Enforceability of Awards
Arbitration may be particularly appealing in the context of international commercial disputes as it is often significantly easier to enforce an Arbitration Award in other jurisdictions than a Court Order.
Arbitration as an alternative method of dispute resolution continues to increase in prevalence and popularity, particularly in the context of international commercial disputes. However, when contemplating the inclusion of a binding Arbitration Clause in an Agreement, the parties thereto should always seek the advice of a lawyer as to the form of dispute resolution most suited to the particular circumstances.
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