Among the many advantages of commercial arbitration flexibility is particularly persuasive, especially in comparison to the old fashioned, slow, public and expensive nature of court proceedings. Arbitration allows the parties much greater discretion in deciding the form their dealings will take. Parties can choose the level of formality, the arbitrators and their numbers and where the arbitration will take place. In court actions formal procedure must be observed by all involved, on pain of being held in contempt of court or compromising the party’s case. This is often not appealing to business parties who are likely to want the matter resolved with a minimum of fuss. However this is not to say that arbitration proceedings are completely informal and in fact many are conducted in a similar manner to court actions with opening statements, witness examination and cross examination. The distinction is that the parties do not have to follow the strict rules of evidence of the English Court unless they choose to.
The choice of arbitrators can also accrue great benefit to the parties. In the courts parties cannot choose their judges and may lose out if they are allocated one who is unsympathetic or unwilling to grasp technological issues. The parties can choose “any natural or legal person who has a general contractual capacity” as an arbitrator as long as they are impartial and mentally capable. This allows the parties to choose someone familiar with their business who will be able to make an applicable and useful award. If the parties wish they can request Judge Arbitrators who can order the arbitration award to be enforced as a judgement of the High Court. The parties can also have access to institutions such as the London Court of International Arbitration (LCIA) who can appoint arbitrators, provide facilities for arbitration and act as administrators. In addition to this the parties have great control over arbitrators and can dictate their level of discretion and circumstances under which they can be removed. This can also be viewed as a disadvantage of arbitration as the arbitrator’s power can be limited. Arbitrators have no coercive powers and cannot enforce all the remedies available to the English Courts. Therefore the parties can make an arbitrator little more than a mediator if they choose. However this is partly remedied by the role of the courts as a support mechanism for arbitrators and limited arbitrator liability. Arbitrators are not liable for anything they do or fail to do unless their actions were in ‘bad faith’, which is generally considered to be acts of actual malice, and this protection extends to their employees. Arbitrators are also not liable for implied contractual terms, such as reasonable care and skill, only those which are explicitly stated, as per sections 13 and 14 of the Goods and Services Act 1982. As yet there have been no instances in English law where an arbitrator has been found liable for negligence. This evens the scales a little for arbitrators preventing them from being completely at the mercy of the parties.
This aid is extended by the action of the courts. Although they cannot intervene on their own initiative, they can be asked to step in and enforce attendance of witnesses, production of documents and other actions which arbitrators cannot accomplish, under sections 43 and 44 of the Arbitration Act 1996. Sanctions can be enforced against recalcitrant parties through Peremptory Orders. These can be issued when a party fails to do something necessary for the proper and expeditious conduct of the arbitration, such as refusing to supply documentation. Sanctions can include an adverse order for costs incurred, drawing adverse evidential inferences from non-compliance, proceeding to an award on the basis of existing materials and ending the arbitration.
The seat of arbitration can be highly significant. The seat does not necessarily mean the place where the arbitration takes place but merely the legal system the arbitration is subject to. Often an international seat can be beneficial to parties due to the characteristics of the chosen legal system and possible prejudice in a local setting. An international arbitration can also benefit neutrality especially if the seat is neither of the party’s domestic setting. An international resolution can reduce the difficulties that are often encountered in enforcing national court judgments abroad.
Arbitration can correct many of the perceived problems of court proceedings. The speed of arbitral proceedings vastly outstrips that of the courts as they are not subject to court time availability and can proceed as soon as the parties have agreed to proceed. It is also legally valid to include time limits in arbitration agreements although these can be extended or dismissed if they are considered “unreasonable” under sections 3 and 7 of the Unfair Contract Terms Act 1977. The courts extend time limits where it is just to do so, if unforeseen circumstances arise or one party behaves unreasonably.
Arbitral decisions are not only fast but also definitive as the award is binding and subject to very limited appeal. The courts usually only conduct procedural review and are highly unlikely to review the substance of the decision. Also arbitration awards need not be "reasoned," unless the parties request that the arbitrators deliver a reasoned award. Arbitrators may generally make any award that is “just and equitable,” although the award of punitive damages by arbitrators is not allowed in all jurisdictions. This further limits the field of review. In reality this means there is no appeal from an arbitral award except in rare circumstances. Arbitration awards are then turned into court judgments allowing the winning parties to take advantage of the court's procedures for the enforcement of judgments. Many commercial parties value the finality of such a decision as it allows them to found future business strategies on their award. However there are disadvantages to arbitral awards such as a lack of precedent. Arbitration awards are generally not reported and may only be used in other proceedings only under the principles of res judicata and collateral estoppel. The awards also operate ‘in personam’ and can present problems as they cannot bind or be enforced against the public.
Arbitration also avoids the public nature of court proceedings. Parties can control the level of privacy of their arbitration and only allow the presence of such persons as they consider necessary. The proceedings are generally conducted behind closed doors and press and public knowledge is only allowed by party agreement. This level of privacy is a necessity to businesses that have trade secrets and reputations to protect.
However to many parties the most persuasive advantage of commercial arbitration is party and arbitral autonomy. There are no mandatory statutory or common law rules governing the way an arbitration should be conducted. The attitude of English law is that only a minimum of regulation is required and that decisions should be made by the parties and the arbitration tribunal. It also regards the tribunal as the master of its own procedure and states that judicial intrusion should be kept to a minimum. This autonomy is very attractive to commercial parties, who want to be in control of their own fates, as it allows the parties to set their own parameters for solving disputes. It also means that the award reached will probably be more applicable to the commercial sphere.
The final facet of arbitration is the cost it entails. This issue is a little clouded as the cost of arbitration varies depending on the size of the dispute and where it takes place. It has been observed that in small to medium sized disputes the costs of arbitration are similar or less than court proceedings but in larger disputes the costs rise above those of a court case. Although court costs can be high arbitration has many hidden expenses. They include the arbitrator’s and experts fees, hotel, room rental and travel costs and minor court fees. These can vary depending on the number of arbitrators and the length and complexity of the hearing. On the other hand the speed of arbitration can save money with shorter hearings which reduce the fees paid to the participants. The experienced nature of chosen arbitrators increases the likelihood that awards will be in keeping with industry or local custom and reduces the risk of runaway awards or awards not conforming to established practice or law. Arbitration agreements can also confine the parties´ dispute to a single form reducing the expense and uncertainty resulting from parallel proceedings.
On contemplation of the advantages and disadvantages of commercial arbitration it can be seen that in certain circumstances this method of dispute resolution is most applicable. If parties are self motivated and value their privacy and autonomy they are likely to choose arbitration over litigation. However if money is an issue or the parties wish to set a precedent court proceedings will be more appealing. On face value the sheer number of advantages outweighs the disadvantages but it must be remembered that their implications vary depending on the situation of the parties involved. It is evident that commercial arbitration is a valuable method of dispute resolution and should not be dismissed due to its relative youth when compared to the courts. It is also likely that its use will proliferate in the years to come.
Bibliography
1. International Handbook on Commercial Arbitration
Supplement 23
VV Veeder QC
March 1997
2. EC Competition Law
Jones and Sufrin
Oxford University Press 2001
3. ADR for Financial Institutions
Robert M. Smith
West Group
2nd ed.1998
4. International Arbitration and Forum Selection Agreements
Gary B. Born
Kluwer Law International
July 1999
International Handbook on Commercial Arbitration, Supplement 23, VV Veeder QC, 1997
