Definition
Arbitration is a procedure for the settlement of disputes, under which the parties agree to be bound by the decision of an arbitrator whose decision is, in general, final and legally binding on both parties. It is governed by both statute law and the common law.
The fact that an arbitrator's award is enforceable summarily in the courts of counties which have ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards makes arbitration a unique alternative to litigation when compared to other means of dispute resolution.
Arbitrator
An arbitrator is independent, impartial and selected by the parties (or on their behalf by an appointing authority, e.g. The Hong Kong International Arbitration Centre, the Singapore International Arbitration Centre, etc.). Arbitrators are appointed on the basis of their arbitral/technical expertise, reputation and experience in the field of activity from which the dispute stems.
Disputes
Almost any dispute which can be resolved by litigation in the courts can be settled by arbitration. Areas where arbitration has proved especially effective include: building and civil engineering contracts, shipping, rent review clauses in commercial leases, partnership disputes, insurance, manufacturing generally, computer applications, imports and exports, process industry, general trading, commodities and the engineering industry.
Matters not suitable for arbitration are those requiring power of enforcement e.g. granting injunctions, imposition of a fine or prison sentence and matrimonial matters such as divorce, custody and so on. Furthermore an arbitrator's award is a private matter and cannot therefore, be effective against anyone who is not party to the dispute. This means that arbitration cannot be used in a dispute that necessarily involves parties outside the arbitration agreement, thus an arbitration agreement cannot bind third parties.
Features of Arbitration
Privacy
In many cases the whole arbitration process will be considered private and confidential.
Flexibility
The parties may control the manner of the proceedings having regard to the nature of the dispute and to their precise needs. The parties indicate the degree of formality or informality of the procedure, unless there are pre-ordained rules or the parties are uncertain as to the procedure to adopt in which case the arbitrator will direct an appropriate procedure. There is no need for arbitration procedures to follow those of the courts; the parties may choose documents-only and expedited hearing procedures. However, it should be borne in mind that in some instances the mandatory provisions of relevant statutes will preclude any agreement of the parties to the contrary.
Expertise
The parties or a 'nominating body' (usually referred to as the appointing body) may appoint an arbitrator who is an expert in the matter under dispute.
Costs
Arbitration may be less costly than litigation as the use of the expert as arbitrator can save time on explanations of a technical nature. In addition, an arbitrator will normally be able to attend the hearing at a location to suit the convenience of the parties.
The costs of an arbitration are primarily time-related and will depend upon the matters in dispute, the procedure chosen by the parties and their choice of representative.
Finality
The award of the arbitrator is final and binding upon the parties. It may only be challenged in the courts on limited grounds:
- Lack of substantive legislation;
- Serious irregularity;
- Error of law arising out of an award made in the proceedings;
- Contrary to public policy.
Enforceability
The arbitrator's award is enforceable summarily in the courts. A court will treat the award as if it were one of its own judgments.