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Arbitration 101

Rock, paper, scissors

It’s no surprise that arbitration and other forms of alternative dispute resolution are in vogue: the world is becoming increasingly globalised, and litigation does not always appeal to parties doing business across borders. But what is arbitration all about, and what is it like to work in?

What is arbitration?

Arbitration is a form of Alternative Dispute Resolution (ADR), which is a dispute resolution process that occurs outside of court litigation. It’s arguably a process born out of necessity; because of limited court resources and increased litigation, ADR allows for parties to settle disputes outside of traditional courts thereby easing the courts’ caseloads. Most parties involved in international commercial contracts would usually have an arbitration clause inserted into the original agreements, and arbitration is also a common feature in employment contracts.

The Arbitration Process

The concept of arbitration is relatively simple: parties, by prior agreement, allow arbitrator(s) to settle a dispute arising between them. While this is similar to the process of mediation (another type of ADR), a key difference is that an arbitrator is an impartial observer who makes a decision (often legally binding) based on both parties’ arguments. A mediator, on the other hand would act as a middle man between the parties and try to find a common ground which they both would agree on.

The exact process of arbitration will depend on the prior agreement of the parties. Should a dispute arise and an arbitration agreement exists, an arbitral tribunal will be established and the arbitration process will commence. The tribunal could either be ad hoc (it’s composition selected by the parties) or it could also be an administered tribunal whereby the parties would have agreed to have the arbitration proceedings conducted by a professional arbitration institution.

The Pros of Arbitration

The most obvious draw of arbitration is the relatively low cost in comparison to litigation and how it lessens a traditional court’s burden. Parties may also prefer arbitration because of their increased involvement in the dispute resolution process: they have a say as to the composition of the tribunal, laws to be applied, where the arbitration would take place (the seat of arbitration), etc. Because of this, parties would also be more receptive towards the result of arbitration. Additionally, arbitrators chosen by the parties are usually experts in the specific field in which the dispute arises and are usually in a better position than a traditional judge to make a fair judgment.

The Cons of Arbitration

On the other hand, an arbitration award is usually binding and final. Unlike litigation, once an award is given it is usually not subject to appeal. Some parties may also find that even though they received a successful outcome in arbitration, the local courts may not necessarily enforce the award, even if the nation has signed the New York or Geneva Conventions relating to cross-jurisdictional enforcement.

What makes arbitration an exciting area of law to work in?

I can only speak for myself, but I have always been drawn to the idea of ADR, especially international commercial arbitration. This is merely a short description of arbitration, but there are so many different considerations that have to be taken into account when parties look towards this form of ADR.

For example when choosing an arbitrator, you have to consider the level of expertise required, impartiality, references etc. The seat of arbitration and applicable law are also important features of the arbitration agreement because those can decide the outcome of a case. In an era where law is becoming increasingly international, arbitration is an area which is constantly evolving.

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#arbitration #ADR #alternativedisputeresolution


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