Arbitration, is a form of Alternative Dispute Resolution (ADR) and a way to resolve disputes outside the courts. The disputes will be decided by one person agreed by the parties and an arbitration award is legally binding on both sides and enforceable in the courts.
Arbitration is often used for the resolution of commercial disputes rather than disputes involving consumers. In certain countries such as the United States, arbitration is employed in consumer disputes.
Arbitration can be either be voluntary or mandatory (although mandatory arbitration can only come from a statute or from a contract that is voluntarily entered into, in which the parties agree to hold all existing or future disputes to arbitration, without necessarily knowing, specifically, what disputes will ever occur) and can be either binding or non-binding.
Non-binding arbitration is similar to mediation in that a decision cannot be imposed on the parties. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbiter remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.
Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding. There are limited rights of review and appeal of arbitration awards.
1. Parties often seek to resolve disputes through arbitration because of a number of perceived potential advantages over judicial proceedings. Companies often require arbitration with their customers but prefer the advantages of courts in disputes with competitors.
2. In contrast to litigation, where one cannot "choose the judge", arbitration allows the parties to choose their own tribunal.
3. This is especially useful when the subject matter of the dispute is highly technical.
4. Arbitration is often faster than litigation in court.
5. Arbitral proceedings and an arbitral award are generally non-public and can be made confidential.
6. Because of the provisions of the New York Convention 1958, arbitration awards are generally easier to enforce in other nations than court verdicts.
7. In most legal systems there are very limited avenues for appeal of an arbitral award, which is sometimes an advantage because it limits the duration of the dispute and any associated liability.
Some of the disadvantages include
1. Arbitration agreements are sometimes contained in ancillary agreements, or in small print in other agreements, and consumers and employees often do not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job.
2. If the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case.
3. If the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee.
4. There are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned.
5. 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.
6. In some legal systems, arbitration awards have fewer enforcement options than judgments; although in the United States arbitration awards are enforced in the same manner as court judgments and have the same effect.
7. Arbitrators are generally unable to enforce interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of a member or a small group of members in arbitration due to increasing legal fees, without explaining to the members the adverse consequences of an unfavourable ruling.
8. Discovery may be more limited in arbitration or entirely non-existent.
9. The potential to generate billings by attorneys may be less than pursuing the dispute through trial.
10. Unlike court judgments, arbitration awards themselves are not directly enforceable. A party seeking to enforce an arbitration award must resort to judicial remedies, called an action to "confirm" an award.
England and Arbitration
Arbitration in its common law form developed in England; in the Middle Ages, tribunals such as the Courts of the Boroughs, of the Fair and of the Staple arose as the Royal Courts were not designed for trade disputes, and trade with foreigners was otherwise unenforceable.
In the mid-16th century, common law courts developed contract law and the Admiralty Court became accessible for disputes with foreign merchants, broadening the venues for trade disputes.
Courts became suspicious of arbitration; for example, in Kill v. Hollister (1746), an English court ruled that the arbitration agreement could 'oust' courts of law and equity of jurisdiction. Merchants, however, retained provisions to settle disputes among themselves, but tension between the arbitration proceedings and courts eventually resulted in the Common Law Procedure Act 1854 which provided for the appointment of arbitrators and umpires, allowed courts to 'stay proceedings' when a disputant filed a suit despite an agreement to arbitrate, and provided a process for arbitrators to submit questions to a court. Later, the Arbitration Act 1889 was passed, followed by other Arbitration Acts in 1950, 1975, 1979 and 1996. Arbitration Act 1979 limited judicial review for arbitration awards.