Alternative Dispute Resolution (ADR) offers a way for commercial disputes to be resolved without the need for costly litigation. A common type of ADR is arbitration.

How does arbitration work?

Arbitration is a more formal type of ADR which involves a tribunal process and an independent arbitrator who hears both sides of a dispute before coming to a legally binding decision on both parties.

What is the procedure?

The Arbitration Act 1996 and amendment Act 2015 regulates arbitration proceedings in England, Wales and Northern Ireland. The arbitration process is run as a tribunal, with either a single arbitrator or a panel of three arbitrators.

The arbitrators decide on the procedural and evidential matters. Often disclosure of documents will be required and there can be a cross-examination of witnesses, but proceedings will normally be shorter and less formal than litigation. The arbitrator makes a firm decision on a case, based on the evidence presented by the parties.

Arbitration is voluntary, so both sides must agree to go to arbitration; they should also agree in advance that they will abide by the arbitrator’s decision.

What is the role of the arbitrator?

An arbitrator is a nominated independent third party who should be experienced in handling the arbitration process. Their role is similar to that of a judge, in that they will listen to both sides and come to a decision. However, they will also encourage collaborative communication, as opposed to an adversarial approach. Although no specific qualifications are necessary to act as an arbitrator, some legal experience is useful, as is industry knowledge if the dispute involves technical matters.

Is a decision legally enforceable?

Any decision made by an arbitrator in the course of arbitration proceedings is legally binding in the same way as a judgment would be. Furthermore, under international conventions any arbitration awards or judgments in foreign countries are enforceable in the UK and vice-versa. This applies to any country who has signed the international convention. UK law also allows for the enforcement of both arbitration judgments in the UK and foreign ones too.

What is the difference between mediation, arbitration and conciliation?

Arbitration is a more formal type of ADR, with a tribunal process and a decision being made by the arbitrator. Mediation and conciliation are less formal procedures and focus on the facilitation of communication with a view to resolving a dispute. Conciliation involves evaluative methods and recommendations whereas mediators tend not to make any proposals for settlement.

What are arbitration clauses/agreements in commercial contracts?

Some commercial contracts contain an arbitration clause, which requires arbitration to be used in the case of a dispute arising. Although such clauses are not compulsory, they can avoid unnecessary litigation and are particularly recommended in the case of cross-border contracts (i.e. between businesses in different legal jurisdictions).

If statutory rights or obligations are involved, an arbitration clause will be overruled by the relevant regulations. For example, employees cannot contract out of their statutory employment law rights to give precedence to an arbitration clause in an employment contract.

When is arbitration most appropriate?

The arbitration process can be particularly useful in disputes which require an understanding of technical knowledge and where privacy is important (e.g. to avoid disclosure of commercially sensitive information) or if there is an international element (i.e. to avoid dealing with multiple legal jurisdictions).