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Arbitration is a Legal technique for the resolution of Dispute s outside the Court s, wherein the parties to a dispute refer it to one or more persons (the "arbitrators" or " Arbitral Tribunal "), by whose decision (the " Award ") they agree to be bound. Arbitration In The United States and in other countries often includes Alternative Dispute Resolution ( ADR ), a category that more commonly refers to Mediation (a form of settlement negotiation facilitated by a neutral third party). It is more helpful, however, simply to classify arbitration as a form of binding dispute resolution, equivalent to Litigation in the courts, and entirely distinct from the various forms of non-binding dispute resolution, such as Negotiation , Mediation , or non-binding determinations by experts. Arbitration is today most commonly used for the resolution of Commercial disputes, particularly in the context of International Commercial Transactions and sometimes used to enforce credit obligations. It is also used in some countries to resolve other types of disputes, such as Labour disputes, Consumer disputes or Family disputes, and for the resolution of certain disputes between State s and between investors and states. HISTORY It is not known exactly when formal non-judicial arbitration of disputes first began, but records from Ancient Egypt to attest to its use especially with high priests and their interaction with the public. Under English Law , the first law on arbitration was the Arbitration Act 1697,9 & 10 Will. III c.15 but when it was passed arbitration was already common. The first recorded judicial decision relating to arbitration was in England in 1610.''Vynior's Case'' (1610) 8 Co Rep 80 The noted Elizabethan English legal scholar Sir Edward Coke refers to an earlier decision dating from the reign of Edward IV (which ended in 1483). Early arbitrations at Common Law suffered from the fatal weakness that either party to the dispute could withdraw the arbitrator's mandate right up until the delivery of the award if things appeared to be going against them (this was rectified in the 1697 Act). The Jay Treaty of 1794 between Britain and the United States sent unresolved issues regarding debts and boundaries to arbitration, which took 7 years and proved successful. In the first part of the twentieth century, many countries ( France and the United States being good examples) began to pass laws sanctioning and even promoting the use of private adjudication as an alternative to what was perceived to be inefficient court systems. The growth of international trade however, brought greater sophistication to a process that had previously been largely ''ad hoc'' in relation to disputes between merchants resolved under the auspices of the '' Lex Mercatoria ''. As trade grew, so did the practice of arbitration, eventually leading to the creation of a variant now known as International Arbitration , as a means for resolving disputes under international commercial contracts. Today, arbitration also occurs online, in what is commonly referred to as Online Dispute Resolution , or ODR. Typically, ODR proceedings occur following the filing of a claim online, with the proceedings taking place over the internet, and judgment rendered on the basis of documentation presented. NATURE OF ARBITRATION Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed will be final and binding. Arbitration is not the same as:
Advantages & disadvantages of arbitration Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings: # when the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed # arbitration is often faster than litigation in court # arbitration can be cheaper # arbitral proceedings and an arbitral award are generally private # the arbitral process enjoys a greater degree of flexibility than the courts # because of the provisions of the New York Convention 1958 , arbitration awards are generally easier to enforce abroad than court judgments # in most legal systems, there are limited avenues for appeal of an arbitral award, which can mean swifter enforcement and less scope for a party to delay matters. However, some of the disadvantages of arbitration can be that: # the parties need to pay for the arbitrators, which adds an additional layer of legal cost # although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays # in some legal systems, arbitral awards have fewer enforcement remedies than judgments # arbitrators are generally unable to order interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of an award, such as the relocation of assets offshore # rule of applicable law is not binding, and arbitrators not subject to overturn on appeal may be more likely to rule according to their personal ideals # large corporations may exert inappropriate influence in consumer disputes, pressuring mediators to decide in their favor or lose future business Arbitrability By their nature, the subject matter of some disputes are not capable of arbitration. Matters relating to Crimes , Status and Family Law are generally not considered to be arbitrable. However, most other disputes that involve private rights between two parties can be resolved using arbitration. In some disputes, parts of claims may be arbitrable and other parts not. For example, in a dispute over Patent Infringement , a determination of whether a patent has been infringed could be adjudicated upon by an arbitration tribunal, but the validity of a patent could not (as patents are subject to a system of public registration, an arbitral panel would have no power to order the relevant body to rectify any patent registration based upon its determination). Seat of the arbitration Most legal systems recognise the concept of a "seat" of the arbitration, which is a geographical and legal jurisdiction to which the arbitration is tied. The seat will normally determine the procedural rules which the arbitration follows, and the courts which exercise jurisdiction over the seat will have a supervisory role over the conduct of the arbitration. ARBITRATION AGREEMENT See also: Arbitration Clause Arbitration is a consensual process; parties will only ever arbitrate where they agree to do so.Although parties are sometimes unaware that they have agreed to arbitrate, for example, where they sign terms and conditions which provide for arbitration without reading them. Such agreements are generally divided into two types:
The former is the far more prevalent type of arbitration agreement. Sometimes, legal significance attaches to the type of arbitration agreement. For example, in certain Commonwealth countries, it is possible to provide that each party should bear their own costs in a conventional arbitration clause, but not in a submission agreement. In keeping with the informality of the arbitration process, the law is generally keen to uphold the validity of arbitration clauses even when they lack the normal formal language associated with legal contracts. Clauses which have been upheld include:
The courts have also upheld clauses which specify resolution of disputes other than in accordance with a specific legal system. These include provision indicating:
Agreements to refer disputes to arbitration generally have a special status in the eyes of the law. For example, in disputes on a contract, a common defence is to Plead the contract is Void and thus any claim based upon it fails. It follows that if a party successfully claims that a contract is void, then each clause contained within the contract, including the arbitration clause, would be void. However, in most Common Law countries, the courts have accepted that: # a contract can only be declared void by a court or other tribunal; and # if the contract (valid or otherwise) contains an arbitration clause, then the proper forum to determine whether the contract is void or not, is the arbitration tribunal.For example, under English law see ''Heyman v Darwins Ltd.'' {Link without Title} AC 356 Arguably position is potentially unfair; if a person is made to sign a contract under Duress , and the contract contains an arbitration clause highly favourable to the other party, the dispute is still referred to that arbitration tribunal. Nonetheless, the general rule does allow for commercial expediency; any other solution (where one first had to go to court to decide whether one had to go to arbitration) would be self defeating. ARBITRAL TRIBUNAL See Also: Arbitral tribunal The term, arbitral tribunal is used to denote the arbitrator or arbitrators sitting to determine the dispute. The composition of the arbitral tribunal can vary enormously, with either a sole arbitrator sitting, two or more arbitrators, with or without a chairman or umpire, and various other combinations. In most jurisdictions, an arbitrator enjoys immunity from liability for anything done or omitted whilst acting as arbitrator unless the arbitrator acts in Bad Faith . Arbitral tribunals are usually divided into two types:
Permanent tribunals tend to have their own rules and procedures, and tend to be much more formal. They also tend to be more expensive, and, for procedural reasons, slower.For example, all arbitral awards issued by the ICC have to be reviewed internally before being handed down, which helps certainty and improves the quality of awards, but leads to delay and expense. Most television court shows are considered to be Binding Arbitration . Duties of the tribunal The duties of a tribunal will be determined by a combination of the provisions of the arbitration agreement and by the procedural laws which apply in the seat of the arbitration. The extent to which the laws of the seat of the arbitration permit "party autonomy" (the ability of the parties to set out their own procedures and regulations) determines the interplay between the two. However, in almost all countries the tribunal owes several non-derogable duties. These will normally be:
Procedure of the tribunal The most essential matters of procedure -- such as any disagreement over the appointment or replacement of arbitrators, the jurisdiction of the tribunal itself, or the validity of an arbitration award -- are determined by the procedural law of the seat of the arbitration, and may be decided by recourse to the courts of the place that is the seat of the arbitration. All other matters of procedure are generally determined by the arbitral tribunal itself under its own inherent jurisdiction (depending on national law and respect for due process) and the preferences of the arbitrators, the parties, and their counsel. The arbitrators' power to determine procedural matters normally includes:
ARBITRAL AWARDS See Also: Arbitration award Although arbitration awards are characteristically an award of Damages against a party, in many jurisdictions tribunals have a range of remedies that can form a part of the award. These may include: # payment of a sum of money (conventional damages) # the making of a " Declaration " as to any matter to be determined in the proceedings # in some jurisdictions, the tribunal may have the same power as a court to: ## order a party to do or refrain from doing something (" Injunctive Relief ") ## to order Specific Performance of a Contract ## to order the Rectification , setting aside or cancellation of a Deed or other document. # In other jurisdictions, however, unless the parties have expressly granted the arbitrators the right to decide such matters, the tribunal's powers may be limited to deciding whether a party is entitled to damages. It may not have the legal authority to order injunctive relief, issue a declaration, or rectify a contract, such powers being reserved to the exclusive jurisdiction of the courts. Enforcement of Arbitration Awards One of the reasons that arbitration is so popular in international trade as a means of dispute resolution, is that it is often easier to enforce an arbitration award in a foreign country than it is to enforce a judgment of the court. Under the New York Convention 1958 , an award issued a contracting state can generally be freely enforced in any other contracting state, only subject to certain, limited defences. Virtually Every Significant Commercial Country In The World is a party to the Convention, but relatively few countries have a comprehensive network for cross-border enforcement of judgments of the court. The other characteristic of cross-border enforcement of arbitration awards that makes them appealing to commercial parties is that they are not limited to awards of damages. Whereas in most countries only monetary judgments are enforceable in the cross-border context, no such restrictions are imposed on arbitration awards and so it is theoretically possible (although unusual in practice) to obtain an injunction or an order for specific performance in an arbitration proceeding which could then be enforced in another New York Convention contracting state. The New York Convention is not actually the only treaty dealing with cross-border enforcement of arbitration awards. The earlier Geneva Convention on the Execution of Foreign Arbitral Awards 1927 {Link without Title} remains in force, but the success of the New York Convention means that the Geneva Convention is rarely utilised in practise. Arbitration with sovereign governments Certain international conventions exist in relation to the enforcement of awards against nation states.
Costs In many legal systems - both Common Law and Civil Law - it is normal practice for the courts to award Legal Costs against a losing party, with the winner becoming entitled to recover an approximation of what it spent in pursuing its claim (or in defense of a claim). The U.S.A. is a notable exception to this generally applicable rule, as except for certain extreme cases, a prevailing party in a US legal proceeding does not become entitled to recoup its legal fees from the losing party. Like the courts, arbitral tribunals generally have the same power to award costs in relation to the determination of the dispute. In International Arbitration as well as domestic arbitrations conducted in countries where courts may award costs against a losing party, the arbitral tribunal will also determine the portion of the arbitrators' fees that the losing party is required to bear. Appeals Generally speaking, by their nature, arbitration proceedings tend not to be subject to appeal, in the ordinary sense of the word. However, in most countries, the court maintains a supervisory role to set aside awards in extreme cases, such as Fraud or in the case of some serious legal irregularity on the part of the tribunal. "Manifest disregard" In American Arbitration Law there exists a small but significant body of case law which deals with the power of the courts to intervene where the decision of an arbitrator is in fundamental disaccord with the applicable principles of law or the contract.The expression appears in the majority judgment in the U.S. Supreme Court decision in ''Wilko v Swan'' 346 US 427 (1953) Unfortunately there is little agreement amongst the different American judgments and textbooks as to whether such a separate doctrine exists at all, or the circumstances in which it would apply. There does not appear to be any recorded judicial decision in which it has been applied. However, conceptually, to the extent it exists, the doctrine would be an important derogation from the general principle that awards are not subject to review by the courts. NOMENCLATURE As methods of dispute resolution, arbitration procedure can be varied to suit the needs of the parties. Certain specific "types" of arbitration procedure have developed, particularly in North America.
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