Author’s Note: This article is the first of a two-part series concerning the field of international arbitration. In this article, we will be introducing the field of arbitration to the reader in relation to other forms of alternative dispute resolution (ADR), as well as the ways in which arbitration is to be distinguished from litigation within a national court system. We will also look at the constitution of the various actors in arbitration proceedings, before moving on to the perceived advantages of arbitration.
Those of us unfamiliar with the law may assume that our national courts are the sole adjudicators of disputes. While the image of a barrister bearing silk and arguing in front of a panel of judges readily comes to mind, the reality is that dispute resolution does not solely take place in the courtroom, which is strictly referred to as litigation.
In the modern day, arbitration is a method of dispute resolution, a part of the family of alternative dispute resolution (ADR). These are methods for resolving disputes without recourse to the courts. The two most common forms of ADR are mediation and arbitration. To better understand the role which arbitration plays in the wider context of dispute resolution, let us first discuss the nature of mediation.
What is Mediation?
While the first call of action (especially for private individuals) should often be to engage in simple negotiations between parties, disputes may occasionally require the presence of a mediator if parties are unable to come to a compromise or have otherwise irreconcilable differences, and yet prefer not to settle the dispute in a state court or tribunal. Both private individuals and companies can consider mediation as a precursor to arbitration. In mediation, an appointed and neutral mediator listens to the parties’ views and attempts to propose a solution which is amenable to all. To achieve this, the mediator considers the key priorities of both parties as well as the relative merits of the case. While it is no requirement for a mediator to be legally trained, state licenced mediators often possess a legal background. As a result, they frequently provide their opinion on the likely outcome (provided parties wish to have an opinion on this matter) should the matter proceed to arbitration or litigation. The ability to assess the merits of each party’s case is also essential in constructing a solution which is most likely to be accepted by both parties.
It is important to note that the views and proposals of a mediator are not binding. Should parties wish to covert the outcome of mediation into a binding decision, they should articulate the terms of the settlement into a written contract, or have a court recognise the mediation settlement as having the binding nature of a court judgment.
What is Arbitration?
In contrast to mediation, the outcome of arbitration proceedings are fully binding in the same way a decision of a court is. Furthermore, the existence of a valid agreement to arbitrate generally means that national courts should refuse to hear disputes falling within the scope of that agreement. Hence, the result of an arbitration proceeding (commonly referred to as an “arbitral award”) is not only binding on parties, but also final, in that parties have a limited right of appeal.
There are a few significant elements of arbitration which set it apart from litigation and other forms of dispute resolution. For one, arbitration is a consensual process, which means both parties have to agree to enter arbitration proceedings, either as a result of failed mediation or (more commonly) due to the inclusion of an arbitration clause within the contract between the two parties. The inclusion of arbitration clauses in contracts specify arbitration as the preferred mode of dispute resolution, as well as set out important details of the arbitration, such as the seat (location) of the arbitration, the number of arbitrators, how the arbitrators are to be appointed, and the procedural rules which the arbitration will take place under. In contrast to this, parties commencing formal litigation proceedings may bring an action against the other irrespective of consent; the location of the court generally is determined by the relevance of the dispute to the jurisdiction; and the selection of judges in litigation is a matter within the exclusive remit of the judiciary.
The ability of parties to define the procedural rules under which they wish the arbitration to be conducted is of particular interest, most notably with regard to the admissibility of evidence. In formal litigation, parties are governed by strict rules of evidence; these are applied in all civil cases within a given jurisdiction. These strict requirements may not always be amenable to the complex and often multi-jurisdictional nature of arbitration proceedings.
Therefore, in most cases, parties who consider arbitration to be in their interest (as opposed to traditional litigation) include arbitration clauses within their contracts. It may also be the case that parties articulate a tiered-dispute resolution system within the contract; mandating that parties proceed through less formal methods of dispute resolution (such as mediation) before beginning arbitration.
As discussed earlier, the rules for a given set of arbitration proceedings are highly amendable to the wishes of the parties; unlike ordinary litigation, rules of civil procedure are not necessarily applied. Because parties are able to choose the seat of arbitration, arbitration is highly suitable for multi-jurisdictional disputes where contracting parties typically desire that the dispute be held in their local courts for their advantage. Home parties are likely to be more familiar with the legislative framework and enforcement of the laws of that jurisdiction; international arbitration is therefore a compromise.
Furthermore, arbitration proceedings are private. In contrast to ordinary litigation in court, parties can also agree that the hearing and evidence, as well as other material created and disclosed in the proceedings be kept confidential. Therefore, arbitration is often the designated default dispute resolution process in disputes between governments and private entities, as well as for commercial entities who may be wary of the reputational damage of a drawn-out lawsuit in the public eye.
The parties to an arbitration also have considerable discretion in choosing their adjudicator(s). As mentioned earlier, parties have a choice as to the seat of their arbitration. Famous arbitration centres can be found around the globe, including the International Chamber of Commerce (ICC) and the United Nations Commission on International Trade Law (UNITRAL). Countries perceived to be politically neutral are also popular seats for arbitration; the Stockholm Chamber of Commerce (SCC) and the Singapore International Arbitration Centre (SIAC) amongst the more popular seats for multi-jurisdictional disputes. Each of these centres possesses a list of accredited arbitrators. These individuals are often ranked amongst the most experienced practitioners of the law in their respective fields, which lends weight to their judgment.
In summary, arbitration is an alternative to traditional litigation where parties are seeking privacy as well as discretion in choosing the circumstances in which their dispute shall be adjudicated. This is most often relevant to state entities and private firms in multi-jurisdictional disputes. However, the terms a) commercial arbitration; b) international arbitration; and c) international commercial arbitration must be distinguished from arbitration more generally. Arbitration is not, strictly speaking, the exclusive ambit of these fields. However, it is these fields which have captured most public interest in recent years, especially given the secrecy of adjudication involving state actors.
In our next article, we will discuss some of the controversy surrounding international arbitration and discuss the potential challenges for the field.
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