Articles > Litigation

How does Arbitration Work?

June 7, 2021   Jayfer JoyPhilip Evangelou

Arbitration is process where parties present their disputes and arguments to an independent party called an ‘arbitrator’. The arbitrator will hand down an award which is final, binding and enforceable. 

Whether it be a minor conflict between a landlord and a tenant or a complex international commercial dispute between two companies, parties will often turn to 3rd parties if they cannot resolve the dispute by themselves. This process is called conflict resolution, and it may come in different forms. The most common forms of conflict resolution include mediation, arbitration and finally, litigation. The article will discuss what arbitration is and its general processes. 

What does an Arbitrator do?

The arbitrator is the impartial person responsible for the procedural aspects of arbitration and handing down the final award. The parties to the dispute can choose the arbitrator and the time and location of the arbitration. However, where parties fail to reach an agreement regarding procedural aspects, including the procedural rules, location and other matters, the arbitrator has the right to make determinations regarding these matters. 

Why Should You Choose Arbitration?

Parties to a conflict will often elect to to use arbitration as it can often be the most efficient and most cost-effective way to resolve disputes, regardless of the complexity. Arbitrations offer a way for parties to resolve their dispute without having to go through the court process, which is often costly and lengthy. Litigation is often considered a last resort for resolving disputes. 

What Cannot Be Arbitrated?

As arbitration is a private matter with stringent confidentiality requirements, sufficient public interest can prohibit a matter from being arbitrated. Issues that generally cannot be arbitrated include:

  • Criminal offences
  • Divorce, custody of children and non-financial matters, 
  • Property settlement, 
  • Competition law disputes, and
  • Insolvency. 

The General Arbitration Process:

Parties may seek to arbitrate their issues by having mutual consent between them to arbitrate or enforce an arbitration clause within a contract. When providing notice to the other party regarding the proceedings, you must include the following:

  • The nature of the dispute
  • How the dispute arose, and
  • The remedy you seek.

This is generally known as the “Notice of Dispute”. After receiving notice, the opposing party will need to respond to the notice with a “Notice of Response” with their position within seven days. The parties will attempt to resolve the dispute within the following seven days. The arbitration will proceed if the dispute still has not been resolved. 

The parties will then agree upon who and how many arbitrators they will have and the date and place of arbitration. If parties are unable to agree on where and when arbitration is to occur, the arbitrator has the power to binding determinations on the matter. One main advantage, and possible disadvantage, is the flexibility of arbitration procedures. Parties can also decide the procedural rules that the arbitration should follow. Where there is a lack of agreement, the tribunal has the right to conduct the proceedings in a manner it deems fit. This creates some risks for the parties due to the uncertainty involved around procedures where there is a lack of agreement between the parties. 

The arbitration process will be completed when the final award is handed down, or a settlement agreement between the parties is executed before the award is handed down. These awards can include: 

  • Damages
  • Injunctions
  • Specific performance
  • Declarations, and 
  • Cost orders. 

Benefits and Disadvantages

Benefits of arbitration include:

  • Flexibility: Parties can choose arbitration rules, the number of arbitrators and who is arbitrating, amongst other things.
  • Timeliness: Arbitration generally has fewer rules and formalities, and therefore disputes can be resolved faster. Arbitrations may also be ended if an agreement is reached before the award is handed down
  • Confidentiality: There are strict confidentiality requirements for arbitrations compared to litigation which is a public procedure, with the possibility of decisions being posted in a journal. 

Some of the drawbacks of arbitration include:

  • Ambiguity: Procedures around arbitration are agreed upon between parties and by arbitrators. Whilst this might be flexible, the arbitration rules vary from procedure to procedure, reducing the certainty of proceedings. 
  • Appeals: An arbitrator’s decision is final and binding. Unlike the court system, the arbitrator’s decision is generally final and binding, with limited avenues for appeals to a court. 
  • Costs: While costs for litigation are greater than arbitration costs, this is usually a result of litigation length. Arbitration costs vary; however, arbitration can cost around $3000 a day, with fees for arbitrators ranging from $300-$800 per hour. 

Key Takeaways

  • Arbitration is an alternative dispute resolution mechanism designed for parties to resolve disputes more agreeably.
  • An arbitrator is the individual/panel responsible for facilitating the arbitration process, including deciding upon procedural aspects and handing down the final awards. 
  • Arbitration is the preferred method of dispute resolution for commercial transactions, as the decreased time to make determinations saves costs for the parties involved.

If you require assistance with arbitration, dispute resolution, commercial litigation, or any aspect of commercial law, then contact us to see how we can assist you.

About Jayfer Joy

Jayfer JoyJayfer is a paralegal with OpenLegal. His legal areas of focus include conveyancing, intellectual property, and commercial litigation. Jayfer is also passionate about podcasts in the legal space.

About Philip Evangelou

phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.