What is arbitration?
An alternative to court litigation, arbitration is a method of alternative dispute resolution (ADR). With arbitration, the parties involved in a legal dispute agree to submit their case to a neutral third party called an arbitrator. Subject to what the disputing parties have agreed, an arbitration tribunal may consist of one or more arbitrators.
The arbitrator (or panel of arbitrators) considers the arguments, examines the evidence, and then makes a binding award. Arbitration differs from other forms of ADR (e.g. mediation and conciliation) in that it provides a legally binding decision. Arbitration is the preferred choice for many businesses – especially where international contracts are involved – as it allows for a final decision and an impartial tribunal for the dispute.
A consensual process that both parties must agree to, arbitration is used in various types of disputes, including commercial matters, construction disputes, and more. While parties can agree to arbitration after a dispute has arisen, many commercial contracts include arbitration clauses. These clauses specify that any disputes arising from the contract will be resolved through arbitration.
In 2023, the international arbitration landscape is dominated by macroeconomic factors. The inflationary pressures combined with price volatility and the use of sanctions by governments following Russia’s invasion of Ukraine have caused serious difficulties for businesses across the globe. This is leading to a proliferation of disputes across a wide range of sectors as businesses seek to recoup some of their pandemic losses through arbitration. Chambers & Partners 2023
Do you need legal advice with arbitration?
Getting to grips with arbitration law can be difficult, and if you are considering arbitration to resolve your dispute, it is easy to get overwhelmed. This is where our specialist arbitration lawyers can step in to support your business and achieve the most desirable outcome.
- Commercially astute – With an eye on your bottom line, we ensure any disputes are resolved as quickly and cost-effectively as possible. We also provide an affordable service with various flexible payment options.
- Specialist advice – We use all our skills and expertise to resolve your legal problems swiftly and satisfactorily. Where we do not believe arbitration is right for you and your business, we offer other dispute resolution methods, such as mediation and litigation.
- Dispute resolution experts – Our highly skilled litigation solicitors know what it takes to get a successful conclusion via arbitration.
- Industry recognition – We have been awarded the prestigious Lexcel Accreditation status, demonstrating our commitment to client care.
Our expert arbitration solicitors provide legal services for individuals and businesses in London, the UK, and across the globe. To book your free consultation, simply call us today on 020 7467 3980 or complete the enquiry form on this page.
The arbitration process
The arbitration process is not necessarily the same in each case. A lot depends on the rules/processes agreed upon, and where the dispute is being heard. Nevertheless, the arbitration process typically involves several key stages, including:
- THE ARBITRATION AGREEMENT
Before the arbitration process begins, the parties involved must agree on the process to be followed, the arbitrators, the legal seat, the language to be used, the parameters for the award, and anything else that might be relevant.
This is then set out in an arbitration agreement. Things likely to be included in the arbitration agreement are:
- Who the arbitrators will be, and whether the tribunal will comprise one person or three
- How the disputing parties will select the arbitrators
- Where the arbitration will take place
- The ‘legal seat ‘. This isn’t necessarily where the arbitration will physically take place. Instead, it establishes the procedural laws which will apply
- The legislative framework. E.g. whether institutional or ad hoc rules will apply. With institutional arbitration, the parties follow the rules of a specific institution, for example, the ICC or LCIA (amongst others).
- HOW IS THE ARBITRATION INITIATED?
To initiate arbitration, a claimant must make a “Request for Arbitration”. The respondent then has a set period to file their response (also referred to as “Answer to the Request for Arbitration”).
Once the initial paperwork has been served, the tribunal will be appointed and an initial pre-hearing conference will take place to set out the steps and timetable.At this stage, both parties (with the help of their arbitration lawyers) should collate all the evidence needed to present their case at the final hearing, make any necessary disclosures, and finalise the pre-tribunal paperwork.
- THE ARBITRATION HEARING
The arbitration hearing will consider the dispute. Some hearings take place on paper, while others require both parties to attend and make statements. As such, some arbitration tribunals take just a few hours, while others can take weeks or even longer.
After everyone has presented their case, the tribunal will consider the case and make an award. The arbitrator may make this decision in a day, or it could take considerably longer depending on the complexity of the issues involved. Ideally, the arbitrator should deliver the award within six months.
- THE AWARD
After the hearing, the tribunal will make a final decision. This ruling is known as the arbitration award. The arbitration award is legally binding and sets out the arbitrator’s decision on the issues being considered. The award also determines the rights and obligations of the parties involved.
A party can ask the court to enforce the award if the other party ignores it.There is no fixed or average amount for arbitration awards. Awards can range from relatively small amounts to significant sums, depending on the specific facts and circumstances of each case. Furthermore, claimants may seek relief beyond monetary damages, such as a specific action or injunctive relief.
Up until now, the largest arbitration award continues to be the 2014 ruling where Russia was ordered to pay $50 billion to the former shareholders of OAO Yukos Oil Company. You can read more about the Yukos Oil vs Russia case here.
Top 5 benefits of litigation
Litigation allows for more extensive discovery than arbitration. This can help in uncovering evidence and building a comprehensive case.
- Right to Appeal.
Parties have the right to appeal a court decision to a higher court if they believe there was an error in the legal process or judgment. It is only possible to appeal an arbitration award in very limited circumstances.
Unlike arbitration, litigation is typically a matter of public record, with court proceedings, filings, and judgments publicly accessible. This provides transparency and accountability, which can be advantageous in certain cases.
Litigation court mandates both parties to be cooperative, while arbitration has no inherent power or jurisdiction in commercial disputes. However, the ease of enforcement depends on the legal framework and international conventions in place.
Certain legal remedies available via the court, such as specific types of injunctions, may not be within the authority of arbitrators.
Can an arbitration decision be appealed
It is only possible to appeal an arbitration award in very limited circumstances. For example, permission to appeal may be sought if:
- The arbitrator or tribunal did not conduct itself properly
- Serious irregularities took place
- A question of law arose.
If the appeal is successful, the award could be set aside, or the case may need to return to the arbitrator for review.
What are the benefits to arbitration?
Arbitration offers several compelling benefits as a method of dispute resolution, making it an attractive alternative to traditional litigation. Some of the key advantages of arbitration include:
- Control. Unlike with litigation, both parties can collectively choose their arbitrator, the rules governing the process, and the location of the arbitration.
- Cost-effectiveness. Arbitration can be more cost-effective than litigation. The streamlined process and quicker resolution often result in lower legal fees and expenses. The parties can also save on court fees and other associated costs.
- Faster. Arbitration is more straightforward than traditional court litigation. Because everyone agrees to the rules in advance, the process can be streamlined, and parties have more control over the schedule.
- Expertise. Arbitrators are often chosen based on their expertise in the disputed subject matter, leading to more informed and specialised decisions.
- Enforceability. Due to international agreements (e.g. the New York Convention), arbitration decisions cannot be challenged except in very specific and limited circumstances.
- Neutrality. Arbitration provides a neutral forum to resolve disputes. This is particularly useful in cross-border cases. In some cases, arbitrators of different nationalities may be appointed to the tribunal (including one from the jurisdiction of each party).
- Confidentiality. Unlike with court proceedings, arbitration hearings are usually private, with the evidence and award kept confidential.
To learn about the key differences between arbitration and litigation to resolve business disputes, please read our dedicated post on “arbitration vs litigation”.
What are the disadvantages to arbitration?
While arbitration offers several advantages, its appropriateness depends on the specific circumstances of a case. We can advise you on the pros and cons of arbitration when including arbitration clauses in contracts, or when looking for the best dispute resolution method.
Disadvantages of arbitration include:
- Limited right to appeal. The grounds for challenging an arbitration award are more limited than challenging a court judgment, which can be a disadvantage if the award is not in your favour.
- Difficulties with enforcement. While arbitration awards are generally easier to enforce internationally, the process can still be complicated, especially in jurisdictions that do not fully recognise and enforce foreign arbitration awards.
- Costs. While arbitration is considered cost-effective compared to litigation at court, mediation can be even more cost-effective and thus more suitable for less complex disputes.
- Limited remedies. Certain legal remedies available in court, such as specific types of injunctions, may not be within the authority of arbitrators.
Arbitration facts & stats
- In 2014, an arbitration award of over US$50 billion in damages was awarded in the case of Yukos shareholders v. Russia. As of Jan 2024, this was the largest arbitration award on record, with appeals continuing.
- Technology and AI are impacting the arbitration landscape, with a proliferation of a new type of dispute involving digital assets, blockchain, and fintech. (Chambers & Partners 2023)
- The areas that are seeing the most disputes are construction, the energy sector and transport and commodities. Chambers & Partners 2023
- The number of arbitration cases globally has been steadily increasing over the last few years.
- Most leading arbitral institutions reported a record – or close-to-record – caseload in 2023. Chambers & Partners 2023
The alternatives to arbitration
Disputes must be resolved as quickly and effectively as possible to minimise the potential disruption. Arbitration is one option that you can use to help do this, but it is only suitable for some situations.
At Summit Law, we provide specialist legal advice to ensure you understand all the options available to you, including:
As arbitral tribunals have no inherent power or jurisdiction in commercial disputes, some companies prefer traditional litigation over arbitration. In addition, there are cases where an aggressive court-based strategy is required. Furthermore, some companies like the procedural safeguard of an appeal, so avoid arbitration due to its final and binding nature.
With mediation, the disputing parties try to settle their dispute with the help of an impartial mediator. Both sides will usually be in the room as the mediation occurs. Should an agreement be reached via mediation, it is not legally binding.
How are arbitrators appointed?
The appointment of arbitrators depends on the arbitration agreement between the parties, the institutional rules, and the applicable laws. As the arbitrator must be neutral, standard methods for appointing arbitrators include:
- The disputing parties choosing one arbitrator each. The two arbitrators select a third neutral arbitrator to form a panel of three.
- Choosing from a list of qualified arbitrators, provided by an arbitration institution. If the parties cannot agree or the arbitration agreement specifies an institutional appointment, the institution may appoint the arbitrators.
- Agreeing a method for appointing arbitrators in the arbitration agreement. This could include selecting arbitrators from a pre-established list, using a particular appointing authority (e.g. the Law Society), or following specific procedures outlined in the agreement.
- The court can appoint an arbitrator if necessary.
The arbitrator (or arbitration tribunal panel) selected will likely have in-depth expertise in the disputed issues, sector, technicalities, etc. Appointing a sole arbitrator is the less expensive option. However, in more complex cases, three arbitrators are recommended to ensure the necessary level of strategic thinking, debate, and consideration.
How to commence arbitration proceedings
Depending on whether or not there is an arbitration clause in your commercial contract, steps may have to be followed before arbitration can be initiated. For example, the contract may require informal attempts to resolve the dispute or mediation to take place.
To formally commence the arbitration process, a claimant must make a Request for Arbitration/ Notice of Arbitration. This request will include:
- A summary of the dispute
- The parties involved
- The claim(s) being made
- The resolution being sought
- The claimant’s choice of arbitrator(s) and preferred seat and language.
The respondent has a set period to file their Answer to the Request for Arbitration. This is not an in-depth response, but should include:
- The initial response to the claimant’s request, including the choice of arbitrators, law, and language
- Any counterclaims being made (the claimant will then provide a reply to these).
If you wish to serve a Notice of Arbitration or have received such notice, we can advise you on the next steps.
Arbitration – FAQs
Contact our arbitration lawyers today
Summit Law’s arbitration lawyers have over 20 years experience settling commercial disputes for our clients. This includes arbitration cases seated in the UK and across the world. Our approach is based around non-confrontational dispute resolution, and we strive to make the process as simple and stress-free as possible.
We can help draft arbitration clauses in new commercial contracts, advise on the appointment of arbitrators, and steer you through the entire arbitration process to ensure the best possible outcome.
For the best arbitration legal advice, book your free consultation today by calling 020 7467 3980 or simply complete the enquiry form on this page.