Arbitration is a private alternative to court litigation. Michael Carrigan, our Dispute Resolution Consultant and Arbitrator, navigates this deciding process.
IN BRIEF, WHAT IS ARBITRATION?
Arbitration is a private process in which an independent third party is appointed to decide the outcome of a dispute between two or more parties. It is an alternative to court litigation and it can have particular advantages over litigation. Knowing the reasons for choosing arbitration, the law, the procedure and the roles of the arbitrator and the courts can assist your organisation in how it plans to handle disputes. Organisations should consider if arbitration would be the best option for any contractual disputes they may encounter and obtain advice on whether to include arbitration clauses in their contracts.
REASONS FOR CHOOSING ARBITRATION
There are four primary reasons why parties to commercial contracts may choose to have disputes arising between them determined through arbitration rather through the courts:
1. Specialist Knowledge of the Arbitrator
When a case is litigated before the courts, it may be litigated before a judge who has little or no knowledge or experience of the subject.
Accordingly, where the dispute requires specialist knowledge or experience to understand the issues involved, the parties may feel more comfortable having the dispute adjudicated by someone with that specialist knowledge or experience. In arbitration the parties can choose their arbitrator or, alternatively, the method by which the arbitrator will be appointed. Arbitration has for that reason long been the adopted method of dispute resolution in, for example, the construction and maritime sectors and by a variety of commodity trade associations.
Arbitration proceedings are held in private. Arbitration is therefore frequently chosen for the resolution of disputes which the parties wish to have resolved privately and not in open court. Examples include partnership disputes or disputes involving sensitive information.
3. Finality of Arbitrator’s Award
An arbitrator’s award is final and binding on the parties. There are very limited grounds for appeal and so it differs from a court judgment which can much more readily be the subject of an appeal to a superior court.
Given the cost of court proceedings the limitations on appeal can be attractive.
4. International Contracts
The facts which give rise to local or national disputes are normally no different from those which give rise to international disputes save for a number of circumstances. These include the fact that the disputing parties are of different nationalities or the subject matter of the dispute, or the place where the obligation of the parties is to be performed, is outside the state in which the parties’ have their places of business.
The enforcement of court judgments abroad can be difficult. The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards makes arbitration awards much easier to enforce in countries which have subscribed to it (as have most countries around the world, including Ireland).
As there is no international court for private law disputes, all litigation has to be initiated before the courts of a particular country. As parties to an international commercial contract are generally reluctant to have disputes resolved before the courts of a country other than their own, they will favour arbitration over litigation because of their ability to have an independent arbitrator appointed and the advantages of the New York Convention in having any arbitral award enforced.
BASIS FOR ARBITRATION
Arbitration is entirely dependent on the agreement of the parties to adopt it. Without such agreement there can be no arbitration.
The parties’ agreement to submit their dispute to arbitration is most commonly found in the form of an arbitration clause in the contract entered into between them. The clause will state that any dispute arising between them in relation to the subject matter of the contract will be referred to arbitration.
Arbitration in Ireland is governed by the Arbitration Act 2010. This Act adopted, subject to a few minor amendments, the UNCITRAL Model Law which contains best practice in international arbitration. It was devised by the United Nations Commission on International Trade Law and first published in 1985.
The Arbitration Act 2010 applies to all arbitrations, both domestic and international, with the exception of arbitrations relating to terms and conditions of employment, arbitrations under the Industrial Relations Act 1964 and arbitrations under the Property Values (Arbitration and Appeals) Act 1960. It repealed all prior arbitration legislation.
The conduct of the arbitration is not tied to any defined procedure. The parties are able to choose whatever procedure they feel is best suited to them. If the parties have not agreed, or are unable to agree, on the procedure, the arbitrator can determine what the procedure should be.
Parties can choose their arbitrator, agree on how the arbitration is conducted and obtain an award which is only subject to appeal in very limited circumstances. This gives the potential to have the dispute resolved more quickly, more efficiently and less expensively than might be the case if the dispute were to be determined through the courts.
THE ROLE OF THE ARBITRATOR
The arbitrator is obliged to conduct the arbitration in accordance with both the terms of the parties’ agreement and with the provisions of the Arbitration Act 2010.
Under the Arbitration Act 2010, arbitrators are required to give their awards in writing and, unless the parties have agreed otherwise, to state in the award the reasons on which it is based.
An arbitrator’s award has the force of a High Court judgment.
Arbitration has a long tradition in Ireland. It is recognised and supported by the courts which will intervene only as required (for example, to grant an injunction or to enforce an arbitrator’s award).
STAYING PROCEEDINGS IN LITIGATION
Sometimes a party to an arbitration agreement commences court proceedings against another party to the agreement in respect of a matter agreed to be referred to arbitration. In such circumstances the Arbitration Act 2010 provides that any party to those proceedings may apply to the court for the proceedings to be stayed, i.e. prevented from being taken any further.
While it makes sense for Irish parties to an international contract to opt for arbitration, the privacy of the arbitration proceedings and the ability to choose an independent third party with the specialist knowledge of the subject matter of the dispute also make it attractive to parties to an all Irish contract. However, the very limited right to appeal any arbitrator’s decision underlines the need for the parties to appoint an arbitrator, or have an arbitrator appointed, who is not only knowledgeable and experienced in the subject matter of their dispute, but who is also competent and deserving of their trust.
For further information contact Michael or one of our Commercial Litigation and Dispute Resolution team members.
This is the second article in our alternative dispute resolution series. The first one, Mediation Explained, can be viewed here. The third one, Adjudication Explained, can be viewed here.