Q&As

Arbitration - And Why You Need It

Tuesday August 16, 2016

Greg Laughton SC of 13 Wentworth Selborne Chambers joined Sintija Dobrotinsek of Legalwise Seminars to discuss all things arbitration.

Awarded “Australian Arbitration Barrister of the Year” in the Lawyer Monthly Legal Awards in 2015, you can join Greg and his colleagues from 13 Wentowrth Selborne Chambers at the International Commercial Arbitration Masterclass on Friday 9 September.

 

What are the advantages of arbitration?

Arbitration has a number of advantages:

  • Neutral Forum

It provides a neutral forum before an arbitrator rather than getting a dispute determined by the Court of the country of the other party
The legal system of the country of the other party may be very different to that which the party understands. The courts may be unreliable for a variety of reasons
International Arbitration provides a neutral form for dispute resolution

  • Enforceability

One hundred and fifty six countries are parties to the New York Convention, 1958, which is a multilateral treaty for the enforcement of arbitral awards. As a result arbitral awards are more widely enforceable in the signature states and the Court processes in the signatory states in which arbitration awards are enforced are more accessible and streamlined. The convention makes arbitral awards more easily enforceable than interstate court judgments or awards

  • Procedural inflexibility

Arbitration rules are more simple; flexible and streamlined than most Court Civil Procedure Rules. Parties from different jurisdictions are more easily able to understand and therefore comply with the arbitral rules

  • Arbitrators with Expertise

The parties can select arbitrators with industry; country or other particular expertise, whereas in Court the parties are provided with a judge who may or may not have specialist expertise in particular areas

Also, arbitrators with knowledge of practices; trade usage and other technical aspects in arbitration can be selected. The arbitration proceeds more quickly and often with less need for expert evidence to be called on subjects with which the arbitrator is familiar. This results in a faster, less expensive hearing, and a shorter interval before the arbitral award is delivered.

  • Party Autonomy

The parties to an arbitration can control, by agreement, the processes of the arbitration, including such things as the governing law; where the arbitration is to occur; the procedure to be adopted by the arbitration and who is going to determine the dispute, by selecting the arbitrator who will ensure a fair hearing.

  • Confidentiality

A significant advantage of arbitration is its confidentiality. Evidence, often commercially sensitive, does not become part of the public record and the existence of the dispute does not go into the public domain, which ensures that all aspects of the respective businesses of the parties remain confidential.

If an award has to be registered in a Court to enable it to be enforced, only the award becomes public knowledge. Thus a large volume of evidence remains confidential except insofar as it is referred to in the award.

What are some of the challenges facing lawyers wanting to conduct arbitrations?

If an arbitration is heard in a jurisdiction which is foreign to a particular lawyer, the procedural and substantive law may be different and outside the lawyer’s expertise. It often involves appointing legal consultants, in the jurisdiction in which the arbitration is held or in the place of the law of the contract arbitration.

There are currently two significant issues, both of which have been addressed by the arbitration community, but which remain a problem:

  1. costs;
  2. delay in delivering awards.

Because the parties pay the costs of the arbitrator(s) to determine the dispute, it doesn’t necessarily raise the costs. It becomes a cost benefit question as to whether the advantages listed above in summary, outweigh the economic consequence of having to pay the arbitrator(s).

However, generally arbitration is less expensive than litigation, for a number of reasons:

  1. if arbitrator(s) have industry knowledge the duration of an arbitration is usually short 
  2. similarly, arbitrator(s) have less industry knowledge, thus expert evidence is required to be called which saves on the cost of experts.
  3. procedural rules are generally more simple than litigation and the cost of complying with the rules, such as discovery; production of third party documents and admissibility of evidence is less. There are no court fees or hearing fees which courts, in some jurisdictions impose although most arbitral institutions charge fees for filing statements of claim or initiating process and fees for administering arbitration.

The parties are able to agree upon a process that best suites the dispute, such as a terms of reference or expedited process where the real issues are identified and only those issues are determined.

There is usually no right of appeal. In the absence of any right of appeal the award potentially saves significant costs.

There is, at the moment an issue of significant delay in the delivery of arbitral awards.

The International Chamber of Commerce (ICC) is reducing the costs payable by the parties to the arbitrator(s) for the longer the delay in the delivery of the arbitrator(s)’ awards.

What’s one tip parties can use to improve the facilitation of arbitration

Choose the arbitrator(s) carefully. There is plenty of anecdotal evidence available as to the “form” of arbitrator(s) particularly as to:

  1. their legal background;
  2. attitude to particular matters;
  3. speed of delivery of awards; and
  4. cost.

Should all agreements contain an arbitration Clause?

Not all disputes should be arbitrated and it may contraindicative for some parties depending upon the nature of their business and the circumstances in which the dispute arises.
That said, for every contract that is entered an organisation; corporation or state should consider whether the contract ought to contain a dispute resolution clause, and, if so, the structure of that clause.
It is particularly important for a dispute resolution clause to be considered if:

  • The parties to the contract; or
  • The object of the contract; or
  • The assets, tangible or intangible; infrastructure or other assets of an organisation or corporation, are in different jurisdictions or whether the potential disputes may raise complex technical issues.

If, for instance, the object of the contract is to deliver fertiliser by ship from China to Nepal and the vendor is in Hong Kong, the matter of which law is to apply becomes critical. If a dispute resolution clause is inserted, it should express the law that is to apply to the disputes arising under the contract because, potentially, Chinese, Nepalese or Hong Kong law could apply to the contract, depending upon where a number of events occurred. Disputes under a contract such as this example are ideally suited to ADR, and particularly to arbitration.

Whether arbitration is a suitable process to resolve a dispute is dependent upon the objective of the parties to the contract, which in turn is dependent upon a number of factors, including:

  1. the nature of the relationship between the parties; ie whether it is an ongoing relationship;
  2. the type of contract; ie the purpose of the contract and whether it is for the ongoing provision of goods and services, such as a construction or consulting contract;
  3. when a dispute is likely to arise; ie at the inception of the contract; during the contract or at its conclusion;
  4. the extent to which the parties seek to preserve the commercial relationship between them;
  5. the type of relief likely to be sought by the injured party; eg damages; performance of the terms of the contract or rectification of work performed under the contract;
  6. the purpose of the contract; ie whether it is for the supply of goods and services or a free trade agreement that provides for arbitration in the occasion of certain events occurring.

In order to consider whether to insert an ADR and particularly an arbitration clause into a contract, the following aspects of arbitration should be considered.

While are some of the trends and developments you see ahead in the international arbitration area?

India will continue to become more international arbitration friendly by:

  1. creating rules which address the issue of delay in delivering arbitral awards;
  2. the issue of increased costs.

The more arbitration friendly states become, the greater the prospect of international capital provider finding a country to be a more attractive place for investment. 

The international arbitration community is addressing the issues of delay and cost with a view to making arbitration more attractive.

The future trends seem to be one of increasing efficiency, demonstrated by the opening of the Singapore International Commercial Arbitration Court and a similar facility in Dubai.

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