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Cutting through the legalese: Arbitration

Parties in dispute sometimes chose to resolve matters by arbitration rather than court action. Some commercial contracts may even specify that the parties must resolve dispute by arbitration. 

Arbitration means an impartial and independent third party (usually a solicitor, barrister, architect or quantity surveyor) decides how to resolve the dispute on a private basis.  This involves discussions from the parties with a view to coming to a final and binding decision known as the Final Award. This process involves meetings between the arbitrator and the parties, statements of case, written submissions and documentary evidence being presented.

The Arbitration Act 1996 (“the Act”) governs current arbitration practice in this country. The Act stipulates a few mandatory requirements regarding immunity, appeals, enforcement, payment of fees etc, but it offers freedom on the structure of the proceedings.

The courts require the parties to arbitration to maintain the confidentiality of the following:

  • Hearing
  • Documents generated and disclosed during the hearing; and
  • The Final Award

This confidentiality can often appeal to parties and can make arbitration more attractive than litigation.

Since Final Awards are binding, it is generally difficult to appeal them in the courts.  Certain rights of appeal can also be excluded by agreement of the parties and the Act states an award can be challenged on three grounds:

  • Challenging the tribunal’s substantive jurisdiction (Section 67 of the Act)
  • Challenging the award on the grounds of serious irregularity affecting the tribunal (Section 68 of the Act)
  • An appeal on a point of law (Section 69 of the Act)

There is a procedure for challenging or appealing arbitration awards in the local courts, however it is generally difficult to do so. Challenges of awards must be brought with 28 days of the award or within 28 days of being notified of the outcome of any arbitral appeal, review or correction to the award.

Litigation or Arbitration?

Procedures and processes of arbitration can mirror that of litigation, however there are differences. The parties have to agree to use arbitration, they cannot be forced to use this process, and therefore the parties are expected to cooperate. Below are a few comparisons between the two:

  • Arbitration is usually faster and therefore, more cost effective than litigation, this is usually because of the agreement of the parties to arbitrate.
  • As noted above, arbitration is more confidential than litigation: proceedings are usually conducted in private.
  • Recovery of legal fees may be restricted in arbitration.
  • Injunctions are not available in arbitration but can be awarded in litigation.
  • It is a common perception that arbitrators tend to “split the difference” in cases rather than coming to a more “extreme” conclusion. If one party believes that they are 100% justified in their case it may be preferable to pursue the matter through the normal court process than through arbitration.

Finally, one key point to note is that if your contract has an arbitration provision (for example, if the Articles to your JCT contract state that Arbitration “applies”) then you may be in the position that you simply cannot use the court system to resolve disputes: if a party brings a claim, the defendant can raise in its defence that the court does not have jurisdiction and the courts will usually allow this defence.  This can be detrimental where the dispute is over something relatively simple like an unpaid, undisputed invoice. 

As detailed above, arbitration has many advantages over litigation and is always worth considering when drafting a contract or dealing with a dispute.  However, it is not always the most suitable forum for dispute resolution and so the decision to have an arbitration clause in your contract should not be taken lightly. 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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