Arbitration - solicitor guide

Arbitration is a method for resolving disputes in various industries, including construction. Arbitration clauses are commonly included in commercial agreements, especially where the terms of the contract and service are technical, such that an expert is needed to resolve any dispute.

Arbitration clauses are commonly included in contracts to provide a clear mechanism for resolving potential disputes. The reasons for including arbitration in contracts are:

• Faster Resolution - arbitration generally offers a quicker resolution than court proceedings.

• Confidentiality - the process is private, ensuring sensitive business matters remain undisclosed.

• Expert Arbitrators - arbitrators are often selected for their expertise in the specific area of the dispute, leading to a more informed resolution.

• Cost-Effective - while not always inexpensive, arbitration can be more cost-effective than litigation, particularly when the process is streamlined.

• Finality - arbitration awards are usually final and binding, with limited grounds for appeal, providing closure to disputes.

Arbitration clauses are commonly found in various types of contracts, such as construction contracts, franchise agreements, international trade agreements, supply agreements and joint venture agreements.

How arbitration works

Arbitration is a private, legally binding process where an impartial third party, known as an arbitrator, resolves disputes outside of court. It offers a quicker, more confidential alternative to litigation, with the flexibility to tailor proceedings to the specific needs of the dispute.

The arbitration process typically follows these steps:

Arbitration Clause: The contract must include an arbitration clause outlining the method for resolving disputes (e.g., institution of choice, procedure).

• Notice of Arbitration - one party initiates the process by filing a notice, outlining the dispute and its desired outcome.

• Appointment of Arbitrator(s) - the parties agree to an arbitrator or panel of arbitrators. If they cannot agree, an institution or court may appoint one.

• Preliminary Hearing - the arbitrator may hold a preliminary hearing to set out the rules, timelines, and procedures.

• Disclosure - both parties exchange relevant information and documents needed for the arbitration.

• Arbitration Hearing - formal hearing where both sides present their case, including evidence, witnesses, and arguments.

• Arbitration Award - arbitrator issues a binding decision, known as an award, that is legally enforceable.

Pitfalls and tripwires in arbitration

Despite its advantages, arbitration does come with challenges :-

• Limited Appeal Options - arbitration awards are binding, with limited options to appeal the decision unless there are exceptional grounds such as misconduct or lack of jurisdiction.

• Cost - while potentially cheaper than a dispute that goes anywhere near a trial, arbitration can still incur significant costs.

• Enforcement - while arbitration awards are generally enforceable, practical challenges can arise, particularly when the losing party is unwilling to comply or is located in another jurisdiction.