Some considerations of commercial arbitration
When two parties can’t agree, they may opt for arbitration. Simply explained and reiterated, arbitration involves a process of discussion that is aimed at reaching an agreement which is acceptable to both sides.
Consider, for example, two partners in a business decide to part ways. If they can’t agree on how to split the holdings, they may decide on arbitration as a better – and less expensive – option than going to court.
A key factor in arbitration is that those involved have to agree who is going to act as the third-party, impartial judge of the dispute. Once the arbitrator is agreed to, both parties have to concur that the decision is final and binding on all concerned. In other words, the case won’t end up in court, but they will have to accept the arbitrator’s ruling whether they like it or not.
Why choose arbitration?
Arbitration may be voluntary or mandatory. In the case of the former, it is when two parties agree that arbitration is in their best interest. Since it is voluntary, the parties may first decide to try mediation as a means of settling the dispute. Going directly to court is another choice.
With the latter – mandatory arbitration - there may be a clause in a contract specifying that if a dispute evolves it will be settled that way, rather than through the courts. The terms and conditions may be spelled out in the contract which simplifies matters.
There are a number of good reasons for opting for arbitration. Included under this rubric are:
- Speed
- Choice of a neutral arbitrator
- Flexibility
- Confidentiality
- Resolution of technical issues
Further, arbitration hearings are not open to the public. This is particularly important if privileged information is part of the dispute.
Arbitral awards are binding in many – but not all – states and countries. Check the legislation before proceeding.
There are also potential weaknesses of commercial arbitration:
- The outcome depends extensively on the experience and the skill of the arbitrator.
- There may be an uneven playing field for individuals taking on a corporation with more money and resources.
- Recourse is very limited if parties don’t agree to the award.
- If the parties don’t cooperate an arbitration can drag on and become costly.
- Progress may also be hindered by the lack of availability of arbitrators.
What are the steps in arbitration?
The process of a commercial arbitration adhere to certain guidelines:
- Select an arbitrator or an arbitral panel that is acceptable to both parties.
- Schedule the date and place for a preparatory conference where both sides are able to negotiate procedural details.
- Exchange information and statements of position so everyone has a clear understanding of what is at stake.
- Arrange a pre-hearing disclosure where the formation rules of evidence are stipulated.
- Begin the arbitration hearing where both parties present their case.
- Meet to hear the outcome of the arbitration and the award of the case.
An overview of commercial arbitration – including the pros and cons – helps people make an informed decision and it whether it is the best option for their particular dispute. That said, however, as with anything legal it is essential to read the fine print and to get a professional opinion if there is any doubt.