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What is arbitration?

What is arbitration?

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    Baffled by arbitration? Not sure where to start, or why you might need it? Don't fear, in this guest article, expert Andrew Farrugia from Lawbite explains it all, without the jargon.

    If the arbitration and litigation processes were to be classified as types of soft drink, arbitration would be the diet version of that soft drink. This is because arbitration is a similar process to litigation however it is less formal than litigation.

    To carry on the soft drink analogy, arbitration also comes in various flavours being the different arbitral forums which administer an arbitration and which have their own rules. 

    As arbitration is a popular form of alternative dispute resolution, it can be used by parties in different countries to settle their disputes. Whilst this article will focus on domestic arbitration in England and Wales, it is worth mentioning the five most popular international arbitration forums as this highlights both the popularity of the arbitration process and the popularity of the UK as an arbitration venue. 

    The International Court of Arbitration of the International Chamber of Commerce (ICC) is based in Paris. The London Court of International Arbitration (LCIA) is based in London. The International Centre for Dispute Resolution (ICDR) is part of the American Arbitration Association. The Hong Kong International Arbitration Centre (HKIAC) is based in Hong Kong and is popular in Asia as is the Singapore International Arbitration Centre (SIAC). Before the Covid-19 pandemic, just over 17% of all arbitrations were heard by the ICC and 89% of the remaining arbitrations were heard by the LCIA.  

    The United Kingdom is also a leader in the resolution of maritime disputes with the London Maritime Arbitration Association (LMAA) which deals specifically with maritime arbitrations. Each of these arbitral institutions has its own rules which are less complicated than the Civil Procedure Rules that govern court litigation. 

    Usually, (large) commercial contracts will have an arbitration clause contained in them which sets out the seat of the arbitration (the place where the arbitration is to be held), the number of the arbitral panel called the Arbitral Tribunal (how many arbitrators – usually one or three), the language the arbitration is to be held in and the governing law of the contract. The rules will then set out the timescales for the appointment of the arbitral panel and the procedural steps of the arbitration. 

    Arbitration that takes place between parties who are both in the UK is governed by English law under the Arbitration Act 1996. If the parties are based abroad, the seat of the arbitration can be England with either English law being applicable or the law of the country where one of the contracting parties is based. 

    Arbitration is usually undertaken by solicitors and barristers at law firms and the arbitrators are usually highly specialised and experienced in the sector of the dispute.  

    What does the arbitrator do? 

    Assuming that the arbitral panel is made up of one arbitrator, the arbitrator will liaise with the parties directly as to the deadlines for each procedural step during the course of the arbitration and will make decisions as to any deadline extensions. When the arbitration reaches the final hearing the arbitrator will make a decision as to the outcome of the arbitration. In cases where there is more than one arbitrator these roles may be shared out between the arbitrators or one of the arbitrators is appointed as the main point of contact for the conduct of the arbitration. The remaining arbitrators will usually assist with the decision making process at the final hearing. 

    >> Watch our Smarter Business Law video: Resolving Disputes, where LawBite’s CEO and co-founder of LawBite, Clive Rich, discusses how to handle a business dispute.

    How long does it take? 

    It is difficult to say with a great deal of certainty how long an arbitration will take as it depends on the complexity of the case and the parties. An arbitration can be concluded in a shorter space of time than court litigation. 

    Is arbitration right for you? 

    Arbitration is suited for companies who have a commercial dispute and its main benefit over litigation is that in circumstances where the company (or companies) in dispute are in a specialised field or sector, they can appoint similarly experienced and qualified arbitrators to decide the dispute. These arbitrators will have a greater understanding for the technicalities of the dispute and will be better placed to make a fair decision. This is not the case with a judge in litigation who may not have the necessary expertise of the parties’ sector(s). 

    When is the best time to arbitrate?

    The best time to arbitrate is as soon as a dispute emerges and in some cases there may be a time limit within which the arbitration is to be started once the dispute has formally arisen. If the arbitration clause in the contract has a time limit, it is advisable to start the arbitration within that time limit.  

    What happens after an arbitration?

    Once the final arbitration hearing has taken place, an arbitral award is produced. This is the equivalent to a court’s judgment. Once the Arbitral Award has been circulated to the parties and published, there is a period in which the parties must carry out the terms of the Arbitral Award. This could be a period within which a payment is to be made by one party to the other.  

    One of the limitations of arbitration is the lack of a formal appeal process as a party who does not agree with the Arbitration Award only has limited ways of challenging it. They will have to show that the panel lacked jurisdiction to hear the dispute, there was a serious irregularity in the procedure or that the arbitrator made a mistake as to the interpretation of a particular point of law. 

    What are the expenses of arbitration? 

    As arbitration is a process that takes place over many months, it can be more cost-effective and quicker than conducting court litigation. The cost of the arbitration will depend on the complexity of the dispute that is being arbitrated and the size of the law firms and barristers involved in the conduct of the arbitration. 

    Where can you find help 

    Most law firms are able to assist parties in settling their disputes via arbitration. The law firms will also be able to assist in the appointment and instruction of barristers to represent the parties at the arbitration’s final hearing. 

    LawBite specialises in assisting individuals and SMEs with their commercial and dispute resolution requirements. Our legal partner LawBite is here to help. They offer Crunch clients free legal consultations to help businesses identify exactly what they need to do when facing a business legal dispute. You can book your consultation via our Legal support webpage, or speak to your client managers.

    About the author

    The author of this article is Andrew Farrugia.

    Andrew is a dispute resolution consultant solicitor at LawBite with experience in commercial and property-based mediations in an array of different sectors such as property, hospitality, insurance, shipping, travel, sports and media. Andrew is qualified in England and Wales and has the experience of working in a small firm, large national firm and in highly rated West End boutique firm.