What is Arbitration? The Basics

Agreement

Arbitration is one of several approaches to alternative dispute resolution. The process begins with an agreement between the parties to use this method to resolve a current or future dispute.

The parties in effect make a legally binding agreement for the dispute to be decided in a private tribunal rather than through litigation in a national court system.

Rules

There are a number of institutes that have formulated procedural rules to govern the conduct of arbitrations, and whilst many are industry specific, the parties are free to choose between them as to which shall apply to their arbitration or, alternatively, they may decide to proceed on an ad hoc basis.

Tribunal

Each party is then given the opportunity to present their case under the selected laws and rules to a tribunal. The tribunal is usually made up of one or three neutrals (arbitrators) who are appointed by the parties on the basis of their capabilities to effectively deal with the dispute.

Whether by documents only or encompassing a hearing, the tribunal will then make a legally binding decision based on the parties’ submissions and evidence and drawing on their own expert understanding of the practical, technical and legal issues raised by the dispute.

 

Award

Having made a decision the tribunal will then issue an award explaining the basis for their decision. The award is final and legally binding and, subject to very limited cases, can be enforced both domestically and internationally.

Applicability

Although arbitration is not suitable for all disputes, its application is expanding into more areas of law and industry, not least, matters of international law.

Whilst litigation is the traditional approach to resolving a dispute, following the rapid advance of international and global market bases, litigation has proved to be less than ideal. Various hurdles including jurisdiction, conflicts of law, logistics and linguistics, to name a few, have made the process of resolving disputes long, drawn out and very costly.

As a result a number of alternative methods have arisen and arbitration certainly stands out as the method of choice for many of the world’s leading companies.

Advantages

Other reasons for opting for arbitration include the confidentiality of arbitration, flexibility of location and procedure, that the parties between them retain control of the timing and conduct of the proceedings, and that an arbitration can be tailored to meet the demands of the dispute, the parties and ultimately its resolution.