See F. Elkouri, How Arbitration Works (1985); M. Bognanno, Labor Arbitration in America (1992).
See J. H. Ralston, International Arbitration from Athens to Locarno (1929); C. M. Bishop, International Arbitral Procedure (1930); K. S. Carlston, The Process of International Arbitration (1946); H. W. Briggs, The Law of Nations (2d ed. 1952); J. L. Brierly, The Law of Nations (6th ed. 1963); A. Cox, Prospects for Peacekeeping (1967); R. Fisher, Improving Compliance with International Law (1981).
Process of resolving a dispute or a grievance outside a court system by presenting it for decision to an impartial third party. Both sides in the dispute usually must agree in advance to the choice of arbitrator and certify that they will abide by the arbitrator's decision. In medieval Europe arbitration was used to settle disputes between merchants; it is now commonly used in commercial, labour-management, and international disputes. The procedures differ from those used in the courts, especially regarding burden of proof and presentation of evidence. Arbitration avoids costly litigation and offers a relatively speedy resolution as well as privacy for the disputants. The main disadvantage is that setting guidelines is difficult; therefore the outcome is often less predictable than a court decision. Seealso mediation.
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Arbitration can be either voluntary or mandatory and can be either binding or non-binding.
It is not known exactly when formal non-judicial arbitration first began but it can be said with some certainty that arbitration, as a way of resolving disputes predates formal courts. Records from ancient Egypt attest to its use especially with high priests and their interaction with the public. Arbitration was popular both in ancient Greece and in Rome.
Under English law, the first law on arbitration was the Arbitration Act 1697, but when it was passed arbitration was already common. The first recorded judicial decision relating to arbitration was in England in 1610. The noted Elizabethan English legal scholar Sir Edward Coke refers to an earlier decision dating from the reign of Edward IV (which ended in 1483). Early arbitrations at common law suffered from the fatal weakness that either party to the dispute could withdraw the arbitrator's mandate right up until the delivery of the award if things appeared to be going against them (this was rectified in the 1697 Act).
The Jay Treaty of 1794 between Britain and the United States sent unresolved issues regarding debts and boundaries to arbitration, which took 7 years and proved successful.
In the first part of the twentieth century, many countries (France and the United States being good examples) began to pass laws sanctioning and even promoting the use of private adjudication as an alternative to what was perceived to be inefficient court systems.
The growth of international trade however, brought greater sophistication to a process that had previously been largely ad hoc in relation to disputes between merchants resolved under the auspices of the lex mercatoria. As trade grew, so did the practice of arbitration, eventually leading to the creation of a variant now known as international arbitration, as a means for resolving disputes under international commercial contracts.
Today, arbitration also occurs online, in what is commonly referred to as Online Dispute Resolution, or ODR. Typically, ODR proceedings occur following the filing of a claim online, with the proceedings taking place over the internet, and judgment rendered on the basis of documentation presented.
Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed will be final and binding. Arbitration is not the same as:
Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings:
However, some of the disadvantages of arbitration can be that:
By their nature, the subject matter of some disputes are not capable of arbitration. In general, two groups of legal procedures cannot be subjected to arbitration:
In theory, arbitration is a consensual process; a party cannot be forced to arbitrate a dispute unless he agrees to do so. In practice, however, many fine-print arbitration agreements are inserted in situations in which consumers and employees have no bargaining power. Moreover, arbitration clauses are frequently placed within sealed users' manuals within products, within lengthy click-through agreements on websites, and in other contexts in which meaningful consent is not realistic. Such agreements are generally divided into two types:
The former is the far more prevalent type of arbitration agreement. Sometimes, legal significance attaches to the type of arbitration agreement. For example, in certain Commonwealth countries, it is possible to provide that each party should bear their own costs in a conventional arbitration clause, but not in a submission agreement.
In keeping with the informality of the arbitration process, the law is generally keen to uphold the validity of arbitration clauses even when they lack the normal formal language associated with legal contracts. Clauses which have been upheld include:
The courts have also upheld clauses which specify resolution of disputes other than in accordance with a specific legal system. These include provision indicating:
Agreements to refer disputes to arbitration generally have a special status in the eyes of the law. For example, in disputes on a contract, a common defence is to plead the contract is void and thus any claim based upon it fails. It follows that if a party successfully claims that a contract is void, then each clause contained within the contract, including the arbitration clause, would be void. However, in most countries, the courts have accepted that:
Arguably, either position is potentially unfair; if a person is made to sign a contract under duress, and the contract contains an arbitration clause highly favourable to the other party, the dispute may still referred to that arbitration tribunal. Conversely a court may be persuaded that the arbitration agreement itself is void having been signed under duress. However, most courts will be reluctant to interfere with the general rule which does allow for commercial expediency; any other solution (where one first had to go to court to decide whether one had to go to arbitration) would be self defeating.
Most legal systems recognise the concept of a "seat" of the arbitration, which is a geographical and legal jurisdiction to which the arbitration is tied. The seat will normally determine the procedural rules (lex arbitri) which the arbitration follows, and the courts which exercise jurisdiction over the seat will have a supervisory role over the conduct of the arbitration.
Parties to the arbitration are free to choose the seat of arbitration and often do so in practice. If they do not, the arbitral tribunal will do it for them. Whereas it is possible to detach procedural law from the seat of arbitration (e.g. seat in Switzerland, English procedural law) this creates confusion as it subjects the arbitration to two controlling and possibly conflicting laws. The procedural law of arbitration, normally determined by the seat, ought to be distinguished from the procedure that the arbitration panel will follow. The latter refers to daily operation of the arbitration and is normally determined either by the institution in question (if arbitration is institutional, e.g. ICC Rules) or by reference to a ready-made procedure (such as the UNCITRAL Rules).
The seat of arbitration might not be the same as the place where proceedings are actually happening. Thus, for instance, an ICC arbitration may have its seat in London (and therefore be governed by the English lex arbitri and ICC procedural rules) and most sessions may take place outside the UK.
All other matters of procedure are generally determined by the arbitral tribunal itself (depending on national law and respect for due process) and the preferences of the arbitrators, the parties, and their counsel. The arbitrators' power to determine procedural matters normally includes:
If the parties do not choose the applicable law the arbitral tribunal will. This is normally interpreted as the ability of the tribunal to choose the choice-of-law rules which will, in turn, point to the applicable law. The arbitrators are not strictly speaking bound by public policy order or mandatory rules of third states but will normally observe them as that increases the chance of the award being recognized.
The tribunal may decide ex aequo et bono only if the parties have expressly authorized them to do so.
By far the most important international instrument on arbitration law is the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. Some other relevant international instruments are:
The term, arbitral tribunal is used to denote the arbitrator or arbitrators sitting to determine the dispute. The composition of the arbitral tribunal can vary enormously, with either a sole arbitrator sitting, two or more arbitrators, with or without a chairman or umpire, and various other combinations.
In most jurisdictions, an arbitrator enjoys immunity from liability for anything done or omitted whilst acting as arbitrator unless the arbitrator acts in bad faith.
Arbitrations are usually divided into two types:
In ad hoc arbitrations the arbitral tribunals are appointed by the parties or by an appointing authority chosen by the parties. After the tribunal has been formed, the appointing authority will normally have no other role and the arbitation will be managed by the tribunal.
In administered arbitration, the arbitration will be administered by a professional arbitration institution providing arbitration services, such as the LCIA in London or the ICC in Paris. Normally the arbitration institution also will be the appointing authority.
Arbitration institutions tend to have their own rules and procedures, and may be more formal. They also tend to be more expensive, and, for procedural reasons, slower.
The duties of a tribunal will be determined by a combination of the provisions of the arbitration agreement and by the procedural laws which apply in the seat of the arbitration. The extent to which the laws of the seat of the arbitration permit "party autonomy" (the ability of the parties to set out their own procedures and regulations) determines the interplay between the two.
However, in almost all countries the tribunal owes several non-derogable duties. These will normally be:
Although arbitration awards are characteristically an award of damages against a party, in many jurisdictions tribunals have a range of remedies that can form a part of the award. These may include:
One of the reasons that arbitration is so popular in international trade as a means of dispute resolution, is that it is often easier to enforce an arbitration award in a foreign country than it is to enforce a judgment of the court.
Under the New York Convention 1958, an award issued a contracting state can generally be freely enforced in any other contracting state, only subject to certain, limited defences.
Only foreign arbitration awards can be subject to recognition and enforcement pursuant to the New York Convention. An arbitral decision is foreign where the award was made in a state other than the state of recognition or where foreign procedural law was used.
Virtually every significant commercial country in the world is a party to the Convention, but relatively few countries have a comprehensive network for cross-border enforcement of judgments of the court.
The other characteristic of cross-border enforcement of arbitration awards that makes them appealing to commercial parties is that they are not limited to awards of damages. Whereas in most countries only monetary judgments are enforceable in the cross-border context, no such restrictions are imposed on arbitration awards and so it is theoretically possible (although unusual in practice) to obtain an injunction or an order for specific performance in an arbitration proceeding which could then be enforced in another New York Convention contracting state.
The New York Convention is not actually the only treaty dealing with cross-border enforcement of arbitration awards. The earlier Geneva Convention on the Execution of Foreign Arbitral Awards 1927 remains in force, but the success of the New York Convention means that the Geneva Convention is rarely utilised in practise.
Generally speaking, by their nature, arbitration proceedings tend not to be subject to appeal, in the ordinary sense of the word.
However, in most countries, the court maintains a supervisory role to set aside awards in extreme cases, such as fraud or in the case of some serious legal irregularity on the part of the tribunal.
Only domestic arbitral awards (i.e. those where the seat of arbitration is located in the same state as the court seised) are subject to set aside procedure.
In American arbitration law there exists a small but significant body of case law which deals with the power of the courts to intervene where the decision of an arbitrator is in fundamental disaccord with the applicable principles of law or the contract.
Unfortunately there is little agreement amongst the different American judgments and textbooks as to whether such a separate doctrine exists at all, or the circumstances in which it would apply. There does not appear to be any recorded judicial decision in which it has been applied. However, conceptually, to the extent it exists, the doctrine would be an important derogation from the general principle that awards are not subject to review by the courts.
In many legal systems - both common law and civil law - it is normal practice for the courts to award legal costs against a losing party, with the winner becoming entitled to recover an approximation of what it spent in pursuing its claim (or in defense of a claim). The United States is a notable exception to this rule, as except for certain extreme cases, a prevailing party in a US legal proceeding does not become entitled to recoup its legal fees from the losing party.
Like the courts, arbitral tribunals generally have the same power to award costs in relation to the determination of the dispute. In international arbitration as well as domestic arbitrations conducted in countries where courts may award costs against a losing party, the arbitral tribunal will also determine the portion of the arbitrators' fees that the losing party is required to bear.