Cogs 670x270

When to Avoid Arbitration.

Posted on 21/03/2016 · Posted in Arbitration

Arbitration is a form of alternative dispute resolution (‘ADR‘) which is actively encouraged by the courts and is today most commonly used for the resolution of commercial disputes. An arbitrator’s role is similar to a judge’s in so far as they are an independent and neutral third party who reviews the evidence presented in court and makes a resulting judgement; like a judge, an arbitrator’s final decision is also considered legally binding. However an arbitrator resolves disputes outside the courts and is most likely to be a field expert in their own right.

Disputing parties often favour the arbitration route as it offers the privacy and flexibility that formal judicial proceedings usually would not. Arbitration as a process is usually more time and cost efficient, and can also offer up more practical solutions than court proceedings.

Arbitration is a good way of levelling the playing field and finding a mutually acceptable solution in a reasonable time frame; because disputing parties are encouraged to participate fully and even to actively collaborate to find a solution, this means the environment is less hostile and tensions may be less likely to escalate.

Arbitration, as it becomes more commonplace is also developing its own best codes of practice. In recent years there has been a greater move towards institutionalised arbitration rather than ad hoc arbitration as it has been in the past. This move has resolved many of the criticisms that were once levelled at arbitration for being too laissez-faire. In this vein, institutionalised arbitration offers numerous advantages with respect to controlling the process to the advantage of the parties. These include offering pre-established rules and procedures, which ensure that the arbitration proceedings begin in a timely manner; offering administrative assistance, often from a secretariat or court; a list of qualified arbitrators to choose from; assistance in encouraging reluctant parties to proceed with arbitration; and an established format with a proven record of success. As such, many of the pitfalls of arbitration are being made redundant by the evolution of arbitration itself.

No battle is worth fighting except the last one”
Enoch Powell

But when is arbitration best avoided? Being aware of the possible drawbacks of arbitration, and when not to go down this route of alternative dispute resolution, but rather choose mediation or litigation, is important.

  • No going back – An arbitrator’s decision is final and legally binding, so if a party doesn’t like this decision or deems it unfair, there is little they can do to change it. Arbitration decisions are rarely reviewed by the courts. This is a tacit agreement amongst practitioners of law as a means of validating the decisions made by arbitrators, and arbitration as a whole, without which courts would become overburdened.
  • A Closed Book – It is mostly viewed as a positive that arbitration hearings tend to be held in private rather than in an open court and decisions are not shared publicly, however in some cases this lack of transparency is considered as possibly opening the process up to bias. Some argue that particularly in commercial cases, if there is a dispute that involves the malpractice of members of a company, the employees of that company have a right to know what happened.
  • Rising Cost – While it is generally agreed that arbitration is still a more cost efficient route than judicial court proceedings, it is becoming more expensive with arbitrators’ fees and administrative costs all adding up. There is also the potential for an uncooperative party to delay or disrupt proceedings (and thus create more cost all round) more easily than in court litigation. For example, challenges to an arbitrator’s decision ‘on frivolous grounds’ more often than not are intended to delay and disrupt the claimant’s case and pressure the arbitrator into standing down. This creates the following phenomena;
  • Process paranoia – whilst it is not commonplace for arbitrators to miss the award deadline, a trend has been identified called ‘process paranoia’. This describes a reluctance by tribunals to act decisively in certain situations for fear of the arbitral award being challenged on the basis of a party not having had the chance to present its case. Arbitrators thus have been shown to develop excuses to extend deadlines and repeatedly admit late evidence to safeguard against the possibility of this happening. This clearly undermines arbitration’s core principles of being a fast, efficient and less costly alternative to formal litigation.
  • Suitability – Arbitration is not suitable for every dispute and some types of dispute cannot be referred to arbitration; these include criminal cases, divorce, and planning laws, which restrict landowners’ property development rights.

Arbitration will not be suited to each and every case. However, often mediation or litigation will be able to help when arbitration fails. Mediation is best suited to developing successful communication between two parties, or perhaps seeking professional guidance in business. Whilst arbitration lends itself to resolving disputes that have already become sour and helping both parties to make a ‘clean break’ from their contractual agreements. With this in mind, one can be confident in knowing that there are a number of tried and tested alternative dispute practitioners out there who have successfully helped to resolve business disputes.

Expert Evidence is a professional firm concentrating on the four main areas of dispute resolution; acting as expert witnesses in financial litigation, mediation, arbitration and adjudication. The firm has a civil, criminal and international practice and has advised in many recent cases. Areas of specialisation include banking, lending, regulation, investment, and tax.

Ask a question about arbitration services. We are here to help!

Contact Us Now

Disclaimer – Please confirm any of the above views with your solicitor. Expert Evidence takes no responsibility or provides any guarantee that the views above are correct for your particular case or jurisdiction.