Arbitration is an alternative means of settling a dispute by one or more impartial persons instead of going to court. It is sometimes preferred as a means of settling a matter without the cost and time of a court proceeding.

What is arbitration?

Arbitration is an alternative means of settling a dispute by one or more impartial persons instead of going to court. It is sometimes preferred as a means of settling a matter. This is in order to avoid the expense, delay, and potential nastiness of a court proceeding.

Courts have been the traditional method for resolving legal disputes. Increasingly, however, alternative dispute resolutions (or ADRs), are used to settle disagreements. Arbitration is a form of ADR.  

Who can use arbitration in a dispute?

Anyone can agree to arbitrate a disagreement or legal issue. But arbitration cannot occur unless both parties agree to it. Just because one party prefers arbitration, does not mean the other party loses its right to take a dispute to court.

Having said that, many contracts include a clause in which the parties agree that in the event of a dispute, they will proceed with arbitration. By signing the contract, then, both parties are agreeing to abandon their right to go to court. They are agreeing to arbitrate instead.

Mandatory arbitration

For some types of disputes, arbitration is mandatory. This means the parties must settle their dispute through arbitration and do not have the option of going to court. Labour disputes in the US, for example, must be settled by arbitration. Whether or not arbitration is mandatory will depend upon the nature of the dispute. It will also depend on the jurisdiction in which it arises.

The difference between arbitration and mediation

Arbitration is often confused with mediation. Mediation is another form of ADR in which a third party goes between the disputing parties to help them settle a dispute. But unlike arbitration, the mediator does not hear any evidence. And the mediation process is not binding on the parties. The parties can walk away from a meditation without reaching a settlement - the meditator cannot force one on them.

Arbitration v litigation

Comparisons between arbitration and traditional litigation (or court proceedings) are common. Parties often see arbitration as the less expensive way of resolving a dispute. But that's not always so. An arbitrator's time and expenses can be costly. Take a minor legal issue that doesn't involve a huge amount of money. A small claims court can be faster and less expensive than arbitration.

The benefits of arbitration over litigation

But arbitration does have its benefits. There are important differences between arbitrators and judges for example. In a court case, the parties have no choice over the judge who will hear their dispute. By contrast, the parties have some say in the choice of arbitrator. And they can make sure the arbitrator is an expert in the field of the dispute.

A big plus of arbitration is that most proceedings do not become part of the public record. Unlike court proceedings which are always public. This can be very valuable for a party who wishes to keep private the details of a dispute.

Which laws govern arbitration?

In many circumstances, a contract will specify the rules and procedures that apply to a dispute.

There are many outside (third party) arbitration services specialising in specific areas. Contracts will often state that these services will deal with the arbitration and that the service's rules and procedures will apply. These could be, for example the rules of the American Arbitration Association, the International Chamber of Commerce Arbitration Rules, the London Court of International Arbitration Rules, Independent Film and Television Alliance Arbitration Rules, to name just a few.

Due to the variety of arbitration services, as well as the flexibility parties have to draw up their own rules, there is no single set of rules or procedures that apply to all arbitrations.

Rules of arbitration

No matter which set of rules the parties choose, there are some key issues typically addressed in arbitration rules:

Number of arbitrators - the parties usually outline in the contract whether one, or a panel of three or more, arbitrators will decide their dispute. As a general rule, more complicated and significant issues will involve several arbitrators.

How the arbitrators will be chosen - parties can choose to appoint arbitrators in a number of ways. These include by agreement, selecting from a list of arbitrators or by a process of elimination.

Timelines - rules can establish timelines for resolving a dispute, including when notices should be provided, how long hearings will last, etc.

Evidence - in ordinary court proceedings, rules of evidence are very complex. They are generally more relaxed in arbitrations. Arbitrators can consider more evidence, for example. On the other hand, there can be less time to present and discover evidence in an arbitration.

Awards - the rules often set down the form that an award can take, together with any deadlines for decisions.

Confidentiality and records - rules may allow parties to receive and keep records of the proceedings and/or to keep records entirely confidential.

Rules of arbitration can vary widely. So, parties should refer to their contract or the rules specified in them to work out the precise rules that govern their particular dispute.

How to commence arbitration

Arbitrations can take many forms. But they typically begin by the complaining party sending the opposing party a notice of intention to arbitrate a dispute. In this notice, the party outlines the basis and nature of the dispute. After that, there is a period in which the opposing party must respond. This is followed by the selection of arbitrators and then the hearing itself.

What happens during arbitration

In many ways, the process is the same as a courtroom trial. For example, evidence is presented, arguments are made, witnesses are called and questioned by the parties, and so forth. However, in an arbitration these aspects are often simplified or limited so as to make for a faster process than the typical court proceeding.

After the hearing, the arbitrator(s) deliver a ruling to the parties within a specific period of time. Depending on the type of arbitration, the ruling may be final, or there may be options to appeal.

How popular is arbitration?

Labour, construction and securities regulation have long used arbitration as a means to resolve disputes. But arbitration is becoming popular now in other disputes. It is increasingly used in employment, business and other venues.

Give your contracts the attention they deserve

Tame your chaos with a central place to store and manage contracts, so you can analyze, decide and act quicker.
Tame your chaos with a central place to store and manage contracts, so you can analyze, decide and act quicker.