Arbitration is a technique to resolve disputes outside courts. Parties can refer a dispute to arbitration by one or more persons and agree to be bound by the arbitration decision known as “award” which is legally binding on both sides and is enforceable in courts. It is a procedure in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding. Arbitration is often used to resolve commercial disputes, particularly in context of international commercial transactions. In certain countries such as USA arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by terms of employment or commercial contracts. Arbitration can be either voluntary or mandatory. Mandatory arbitration can only come from a statute or from a contract that is voluntarily entered into, where parties agreed to hold all existing or future disputes to arbitration, without necessarily knowing what disputes will ever occur. A non binding arbitration is in fact not arbitration but mediation.  in that a decision cannot be imposed on the parties. 

Parties often seek to resolve disputes through arbitration because of many perceived potential advantages over judicial proceedings. In litigation, parties to a dispute cannot “choose the judge.” Arbitration allows them to choose their own tribunal. This is especially useful when the subject matter of the dispute is highly technical and arbitrators with appropriate technical ability are needed. Also arbitral proceedings and an arbitral award are generally non-public, and can be made confidential. In arbitral proceedings language of arbitration can be chosen. But in judicial proceedings official language of country of the court is automatically applied. For commercial parties, arbitration awards are generally easier to enforce in other countries than court verdicts. New York Convention 1958 provides for it.

Arbitrators which determine outcome of a dispute are called ‘arbitral tribunal’. Composition of arbitral tribunal can vary enormously, with either a sole arbitrator sitting, two or more arbitrators, with or without a chairman or umpire and other combinations. In most jurisdictions, an arbitrator enjoys immunity from liability for anything done or omitted whilst acting as arbitrator unless he acts in bad faith. Duties of arbitration tribunal are determined by a combination of provisions of arbitration agreement and by procedural laws which apply in the seat of arbitration. But in most countries the tribunal owes several non-derogable duties. These include to act fairly and impartially between the parties, and to allow each party a reasonable opportunity to put their case and to adopt procedures suitable to circumstances of the case, so as to provide a fair means for resolution of dispute. Arbitration proceedings are usually not subject to appeal. 

But in most countries, courts maintains a supervisory role to set aside awards. In arbitration law of USA, case law deals with power of courts to intervene where decision of an arbitrator is in fundamental disaccord with applicable principles of law or contract. US supreme court has recently questioned it.  Conceptually, such a doctrine would be an important derogation from the general principle that awards are not subject to review by the courts.

There are agreements which provide that, if a dispute should arise, it will be resolved by arbitration. When arbitration is mandatory in a contract, it is binding on parties who waive their rights to access the courts and to have a judge or jury decide the case. These will generally be normal contracts which contain an arbitration clause. But if an agreement to resolve a dispute is signed after a dispute has arisen, it is called “submission agreement” In some Commonwealth countries, it is possible to provide that each party should bear their own costs. But this does not happen in a submission agreement. Agreements to refer disputes to arbitration have a special status in law. For example, In disputes on contracts, a common defence is to plead the contract is void and that therefore any claim based upon it fails. In such a case every clause contained within the contract, including arbitration clause, would be void. But in most countries, courts have accepted that a contract can only be declared void by a court or other tribunal. But if it contains arbitration clause, then proper forum to determine whether the contract is void or not, is the arbitration tribunal. 

USA and UK were pioneers in use of arbitration to resolve their differences. First used in Jay Treaty of 1795, it played a major role in Alabama Claims case of 1872 when major tensions regarding British support for the Confederacy during American Civil War were resolved. By Hague Peace Conference of 1899, major world powers agreed to a system of arbitration and creation of a Permanent Court of Arbitration. In 1911 USA signed arbitration treaties with France and Britain. The 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards is a most important international instrument on arbitration law. Virtually every significant commercial country is a signatory to it. UNCITRAL Model Law on International Commercial Arbitration of 1985 was revised in 2006. It is often easier to enforce arbitration awards in a foreign country than court judgments. Article V of the New York Convention provides an exhaustive list of grounds on which enforcement can be challenged. These are generally narrowly construed to uphold the pro-enforcement bias of the Convention. In most countries arbitration is regulated by a variety of laws. Procedural laws may contain provisions relating to arbitration. Federal Arbitration Act of USA 1925 established a public policy in favor of arbitration. Many arbitration organizations exist in many countries including the American Arbitration Association, ICC and ICA and ICADR in India.

By LawZ Bureau,