What is arbitration and why choose it to resolve disputes?

The recent King’s Speech introduced an Arbitration Bill (“the Bill”), with the aim to “support more efficient dispute resolution, attract international legal business, and promote UK economic growth”. The London Court of International Arbitration (LCIA) is one of the main arbitration forums in the world, with 80% of pending cases brought by non-English parties. However, in recent years the Singapore International Arbitration Centre (SIAC) has gained ground on the LCIA for these sorts of cases. It is hoped that the provisions in the Bill will tilt matters back in London’s favour.

What is arbitration?

Arbitration is a form of alternative dispute resolution often preferred to litigation for reasons of confidentiality, simpler international enforcement of arbitration awards and due to it potentially being more cost-effective, more flexible, and quicker than going to court.

What legislation governs arbitration?

In the United Kingdom, arbitration is currently governed by the Arbitration Act 1996 and (if applicable) the rules of the relevant arbitral institution that the parties have chosen (e.g. the LCIA Rules 2020).

What will the Bill include?

The Bill will clarify the law applicable to arbitration agreements that do not arise from investor-state agreements. The law applicable will be that of the jurisdiction chosen for the arbitration unless the parties expressly agree otherwise (i.e. if London is the chosen jurisdiction, English law will apply to the arbitration agreement).

Arbitrators will have a duty to disclose circumstances that might give rise to justifiable doubts about their impartiality. It will strengthen arbitrator immunity against liability for resignations and applications for removal, so they cannot be sued by either party.

Arbitrators will be able more easily to make awards on a summary basis on issues that have no real prospect of success. A common (and well-justified) criticism of arbitration is that arbitrators often shy away from summary judgment on weak cases. It is hoped that the Arbitration Bill might reverse this trend. Courts will also be able to make orders in support of emergency arbitrators.

The Government will revise the framework for challenges, in circumstances where the challenge alleges that the arbitral tribunal lacked jurisdiction.

How does arbitration work?

Both parties to the dispute must agree to resolve their dispute through arbitration, either through an arbitration clause in a contract or through a separate agreement to arbitrate.

The parties choose neutral arbitrators, which can either be a single arbitrator or a panel of, typically, three arbitrators, to hear the case. If they fail to agree on an arbitrator, they can ask an arbitral institution to appoint an arbitrator or panel for them.

The parties must exchange information and documents relevant to the dispute and may undertake disclosure (the process of gathering documentary evidence and information) in accordance with the rules of the arbitral institution or any rules agreed upon by the parties.

During the arbitration hearing, the parties will present their cases to the arbitrator, who then considers the evidence and arguments. The hearing may be conducted in person, by video conference, or by other means agreed upon by the parties. After considering the evidence and arguments, the arbitrator renders a decision, called an award, which is final and binding on the parties.

Benefits of arbitration

Arbitration is often considered more favourable due to the following:

• Speed: arbitration proceedings are typically faster than going to court as they are not subject to the same delays and scheduling constraints. This can be especially helpful if the parties need to resolve the dispute quickly to move forward with their business or personal lives.
• Cost: arbitration can be less expensive than going to court, as it typically involves fewer legal procedures and, in particular, typically less extensive disclosure. The parties do, however, have to pay for the arbitrators’ fees.
• Confidentiality: arbitration proceedings are generally more confidential than court proceedings, as they are not open to the public and the parties can agree to keep the outcome of the arbitration confidential.
• Flexibility: arbitration can be tailored to the specific needs of the parties, and the parties can agree on the procedures and rules that will apply to the arbitration. This can allow for a more efficient and effective resolution of the dispute.
• Expertise: the arbitrator(s) appointed to hear the case will often have expertise in the subject matter of the dispute, which can be particularly helpful if the dispute involves technical or specialised issues.
• Enforcement: arbitration awards are typically much easier to enforce internationally than court judgments because of the simple and effective enforcement regime of the New York Convention.

Disadvantages of arbitration

However, there are also several disadvantages to arbitration that parties should consider before choosing this option:

• Limited remedies: in some cases, the remedies available through dispute resolution may be more limited than those available through the courts. For example, where injunctive relief would be the most valuable and/or necessary relief, arbitration might not be the best option, because arbitration awards do not act on third parties in the way court-issued injunctions do. For this reason, arbitration agreements often have a carve-out to allow parties to seek injunctive relief from a relevant court.
• Lack of appeal: in most cases, the decisions made in an arbitration are final and not subject to appeal. This means that parties may not have the opportunity to have the decision reviewed by a higher court if they believe that an error was made.
• Limited disclosure: in most arbitrations the parties have reduced scope to conduct disclosure (the process of gathering evidence and information) than they would in court. This can make it more difficult for a party to build a strong case or challenge the other party’s evidence.

The decision of whether to arbitrate or litigate is an important consideration, based on multiple commercial and legal factors, which will be different from case to case. An experienced dispute resolution lawyer can advise on which form of dispute resolution might work best for you.

If you are considering arbitration to resolve a dispute, please contact Nick Scott.