Parties to disputes sometimes elect to resolve matters by arbitration rather than court action. Indeed, frequently commercial contracts specify that the parties must resolve disputes by arbitration.
For those unfamiliar with alternative dispute resolution, arbitration means an impartial and independent third party decides how to resolve the dispute. In most cases, the arbitrator's decision is binding and cannot be challenged.
To many of you, arbitration may sound a heck of a lot like court. The key difference is that arbitration usually takes place behind closed doors and the arbitrator's decision must remain secret unless the parties agree otherwise.
Why choose arbitration over litigation?
Many people are attracted to arbitration for the reasons identified above: privacy and secrecy. But there are several other reasons why people might choose arbitration over litigation.
First, people often believe that arbitration is faster and less expensive than going to court. Depending on the nature of the dispute and the type of arbitration proceeding, however, that may not actually be true. The cost of arbitration can vary significantly. For example, ACAS arbitration is free to employers and employees; IDRS schemes are either free or require payment of a registration fee (which is refunded if a party is successful); while other arbitration schemes can be really expensive.
Second, there are certain types of specialist arbitration bodies who might have significant professional expertise relevant to the dispute. For example, a chartered mechanical engineer might also have training as an arbitrator and hold himself out as someone who is available to arbitrate disputes in the construction industry.
Governing law
The Arbitration Act 1996 governs the arbitration system in the UK. Although the parties have considerable freedom on how to structure arbitration proceedings, the Act stipulates a few mandatory requirements (i.e., regarding immunity, appeals, enforcement, payment of fees, etc) and certain default rules which apply if the parties do not agree other rules before arbitration begins.
Note that arbitration proceedings often take place in accordance with the rules of the applicable arbitration organisation being used, such as the London Court of International Arbitration or the City Disputes Panel. Typically, these organisations will provide ground rules for proceedings, but again with considerable scope for flexibility. These rules are discussed in more detail in Arbitration Law: Everything You Need To Know - Part 2.
Where parties participate in arbitration pursuant to the terms of a commercial agreement, these same terms may also dictate how the arbitration process should unfold. For instance, an agreement will often specify an institution whose rules will govern the arbitration, and specify the number of arbitrators, and the procedure for selecting them.
Does the court retain any powers?
Although one idea behind arbitration is that it avoids court proceedings, under the Arbitration Act 1996 the court retains certain powers. For example, the court can grant interim injunctions, make an order requiring evidence to be preserved, and enforce arbitral awards.
Where there is an arbitration agreement, whether as part of a larger agreement between the parties or (perhaps more unusually) as a separate stand-alone arbitration agreement, each party is entitled to a "stay" of court proceedings - this means court action cannot recommence until the parties conclude arbitration.
A party can also appeal certain matters to the court. For example, a party can appeal to the court if it believes that the arbitral tribunal lacks jurisdiction or if the tribunal has ruled incorrectly on a matter of law (although the parties can agree in advance to exclude a right of appeal on questions of law).
