Arbitration v Courts

To solve civil disputes individuals and companies have two options. They can either go to court or use arbitration.  The latter is a method of dispute resolution where a third party makes a decision called an “award”. This method has many advantages in comparison with court proceedings. It is more informal, faster and cheaper than courts. However, its decisions can be challenged. In such situations the award may become ineffective which happens rarely, however. 

As arbitration is a private form of adjudication outside of the court system parties can select an arbitrator or arbitral panel themselves. They do not have such a possibility if their case got to court. Such an option allows the parties to have more control over how their case is dealt with.

But, arbitrators are still required to observe due process and natural justice. Due process means respect to ones rights while natural justice means acting fairly without bias. So, the way arbitrators hear cases is very similar to courts’ in context of fairness.

Another similarity of arbitration to court trial is that arbitrators make binding decisions called an “enforceable award”. It does not differ from decisions which courts make. But, before arbitrators make their decision they can seek help from experts which is a great advantage.  

Another plus is that parties can choose to have arbitration in an institutional setting or to set up their own arrangements. Currently, Institutional arbitration is used more often, for example arbitration by the Chartered Institute of Arbitrators in consumer contracts. But, having such an arbitration does not differ much from courts as it can be similarly formal.

But, a significant difference between arbitration and court proceedings is that all parties have to agree to arbitration. It can be a disadvantage if one party is not willing to cooperate. So, good will is important in achieving an outcome of a dispute. But, the outcome does not depend on whether parties reached an agreement or not. 

However, courts operate based on state power and jurisdiction. So, they can make and enforce decisions in absence of one party. So, when one party is not willing to solve the dispute courts are a better option to choose.

But, it is a positive side of arbitration that experienced arbitrators have developed expertise in designing procedures that maximise time and cost efficiency and which minimise disruption to ordinary business of parties. But, to solve complex international disputes still takes a lot of time and money. Nevertheless, arbitration tends to be faster and cheaper because of more informal procedures. However, because of fast track courts which hear cases worth less than £15,000 in a very short time, arbitration may not be a faster option. Besides, costs of arbitration and of court proceedings can be similar. 

It is also a huge obstacle that courts are needed to ensure effectiveness of arbitration by enforcing orders. However, courts cannot interfere any further. It allows to keep the informality of arbitral proceedings. But, lawyers are usually involved in more complex cases. So, in some situations it is difficult to avoid this kind of formalities.

Nevertheless, arbitration can be more confidential than courts as in courts public is present.  Besides, the case management is in the hands of parties. Additionally, arbitration can deal with domestic matters ie consumer, family disputes and with international matters which allows arguments over conflict of law to be avoided. 

All of those useful functions of arbitration are stated in s1 of the Arbitration Act 1996. It specifically says that the object of arbitration is to obtain fair resolution without unnecessary delay or expense. It also states that it is for parties to decide how disputes are to be resolved. But, public interest should be also considered by arbitral panel and for this reason courts can intervene in exceptional circumstances. 

Because of numerous advantages arbitration can be chosen ad hoc as a means of resolving issues without going to court. But, there can also be a pre-dispute arbitration agreement in a contract. For example, it can be stated in a contract that if a dispute arises this will be resolved by an arbitrator appointed by the President of the Law Society. It can be in a form of Scott v Avery Clause which is an express provision in a contract to make sure that before litigation is commenced any dispute will be subject of arbitration.

Once an arbitration agreement is reached it is very important as it remains valid even if it is a part of another agreement which is invalid or ineffective as s.7 of Arbitration Act states. However, as shown in Portman Building Society v Dusangh (2000) and in s.44 of the Act courts have wide powers in support of arbitral proceedings. For example, it can make orders as in the legal proceedings about matters such as taking of the evidence from witnesses, the preservation of evidence and it can make orders relating to property. However, court can only act if the arbitral tribunal cannot act effectively.

Another way in which courts can intervene in arbitral decisions is when an award given by an arbitrator is challenged by a party who applied to the court for an order declaring an award ineffective. A party can challenged a decision if there was a lack of substantive jurisdiction of the tribunal as s.67 states. Besides, a party can claim a serious irregularity of the tribunal when it exceeded its powers, failed to allow procedures, if there was a fraud or irregularity in the contract of the proceedings according to s 68. In such situations the court can set aside the award, declare it to be of no effect or remit it for reconsideration, in whole or in part. 

Therefore, one could argue that arbitration is not worth the time and costs because the award can be changed by courts and so the parties will not avoid court proceedings. Besides, the dispute will be decided by the court also if according to s.69 the parties decide to appeal. However, it is an advantage that both parties must agree and the court must be satisfied that rights of the parties are substantially affected. Besides, a party against whom legal proceedings are brought can apply to the court to stay the proceedings as s.9 states. However, the court should not grant a stay if arbitration agreement is null, void, inoperative or incapable of being performed. For example, in Zambia Steel and Building Supplies LTD v James Clark and Eaton Ltd (1986) the Court of Appeal held that the proceedings should be stayed because there was a contract made partly in writing as s.5 requires and it contained an arbitration clause. 

In conclusion, arbitration may be faster and cheaper than courts but in some cases the time of proceedings and costs are the same. However, the biggest advantage is that arbitration is less formal than court proceedings. However, the parties must agree to take part in arbitration, unless it has been previously decided by attaching an arbitration clause to a contract. The most serious disadvantage of arbitration is, however, that courts have some powers during arbitral proceedings which the arbitral tribunal does not. Besides, its decisions can be challenged.

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