Arbitration is defined as an alternative dispute resolution (ADR) mechanism in which the parties get their disputes settled through the intervention of a third person and without having recourse to the court of law. It is a mode in which the dispute is referred to a nominated person who decides the issue in a quasi-judicial manner after hearing both sides. Generally, the disputing parties refer their case to an arbitral tribunal and the decision arrived at by the tribunal is known as an 'award'.

Other forms of ADR include mediation (a form of settlement negotiation facilitated by a neutral third party) & non-binding resolution by professionals. It is more obliging, though, simply to classify arbitration as a form of binding dispute resolution, equivalent to lawsuit in the courts, and completely distinct from the other forms of dispute resolution, such as negotiation, mediation, or determinations by specialists, which are usually non-binding. Arbitration is most frequently used for the resolution of business disputes, particularly in the context of international commercial dealings. The use of arbitration is far more debatable in consumer and employment matters, where arbitration is not voluntary but is instead imposed on consumers or employees through fine-print contracts, denying individuals of their right to access the courts.

Arbitration can be either voluntary or mandatory and can be either binding or non-binding. Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains completely removed from the settlement procedure and will only give a determination of liability and, if suitable, an sign of the quantum of compensation payable.


It is not known exactly when official non-judicial arbitration first began but it can be said with some certainty that arbitration, as a way of resolving disputes predates formal courts. Records from ancient Egypt attest to its use particularly with high priests and their interaction with the public. Arbitration was admired both in ancient Greece and in Rome.

Under English law, the first law on arbitration was the Arbitration Act 1697, but when it was passed arbitration was already common. The first recorded judicial decision relating to arbitration was in England in 1610. Early arbitrations at common law suffered from the fatal weakness that either party to the dispute could withdraw the arbitrator's permission right up until the release of the award if things appeared to be going against them.

The Jay Treaty of 1794 between Britain and the United States sent unresolved issues regarding debts and boundaries to arbitration, which took 7 years and proved successful.

In the first part of the twentieth century, many countries began to pass laws sanctioning and even promoting the use of private adjudication as a substitute to what was perceived to be inefficient court systems.

The development of international trade however, brought better style to a process that had formerly been largely ad hoc in relation to disputes between merchants resolved under the sponsorship of the lex mercatoria. As trade grew, so did the practice of arbitration, ultimately leading to the creation of a alternative now known as international arbitration, as a means for resolving disputes under international commercial contracts.

Today, arbitration also occurs online, in what is commonly referred to as Online Dispute Resolution, or ODR. Typically, ODR proceedings occur following the filing of a claim online, with the proceedings taking place over the internet, and conclusion rendered on the basis of records and testimony offered.


Arbitration is a proceeding in which a dispute is resolved by a neutral judge whose judgment the parties to the dispute have agreed will be final and binding. Arbitration is not the same as:

1. judicial proceedings, although in some jurisdictions, court procedures are sometimes referred as arbitrations
2. alternative dispute resolution (or ADR)
3. expert determination
4. mediation

- Most current Supreme court case concerning arbitration:

Advantages and disadvantages

Parties frequently seek to resolve their disputes through arbitration because of a number of supposed potential rewards over judicial proceedings:

1. when the subject matter of the dispute is highly technical, arbitrators with an suitable degree of expertise can be appointed (as one cannot "choose the judge" in litigation)
2. arbitration is often faster than litigation in court
3. arbitration can be cheaper and more flexible for businesses
4. arbitral proceedings and an arbitral award are generally non-public, and can be made confidential
5. because of the provisions of the New York Convention 1958, arbitration awards are generally easier to enforce in other nations than court judgments
6. in most legal systems, there are very limited avenues for appeal of an arbitral award

However, some of the disadvantages of arbitration can be that:

1. arbitration agreements are sometimes contained in ancillary agreements, or in small print in other agreements, and consumers and employees sometimes do not know in advance that they have decided to obligatory binding pre-dispute arbitration by purchasing a product or taking a job
2. if the arbitration is mandatory and binding, the parties waive their rights to access the courts and have a judge or jury decide the case
3. in some arbitration agreements, the parties are required to pay for the arbitrators, which adds an additional layer of legal cost that can be prohibitive, especially in small consumer disputes
4. in some arbitration agreements and systems, the recovery of attorneys' fees is unavailable, making it difficult or impossible for consumers or employees to get lawful demonstration; though most arbitration codes and agreements provide for the same relief that could be granted in court
5. if the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee
6. there are very restricted avenues for appeal, which means that an erroneous decision cannot be easily overturned
7. although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays
8. in some legal systems, arbitral awards have less enforcement remedies than judgments; while in the United States, arbitration awards are enforced in the same manner as court judgments and have the same effect
9. arbitrators are normally incapable to enforce interlocutory actions against a party, making it easier for a party to take steps to avoid enforcement of an award, such as the relocation of assets offshore
10. rule of applicable law is not necessarily binding on the arb itrators, although they cannot disregard the law.
11. discovery may be more limited in arbitration
12. the potential to generate billings by attorneys may be less than pursuing the dispute through trial
13. Unlike court judgments, arbitration awards themselves are not directly enforceable. A party seeking to enforce an arbitration award must resort to judicial remedies, called an action to "confirm" an award
14. although grounds for attacking an arbitration award in court are limited, efforts to confirm the award can be fiercely fought, thus necessitating huge legal expenses that negate the perceived economic incentive to arbitrate the dispute in the first place.


By their nature, the subject matter of some disputes is not capable of arbitration. In general, two groups of legal procedures cannot be subjected to arbitration:

§ Procedures which necessarily lead to a determination which the parties to the dispute may not enter into an agreement upon: Some court procedures lead to judgments which bind all members of the general public, or public authorities in their capacity as such, or third parties, or which are being conducted in the public interest. Examples: Until relatively recently (80s), antitrust matters were not arbitrable in the United States. Matters relating to crimes, position and family law are generally not considered to be arbitrable, as the power of the parties to enter into an agreement upon these matters is at least restricted. However, most other disputes that involve private rights between two parties can be resolved using arbitration. In some disputes, parts of claims may be arbitrable and other parts not. For example, in a dispute over patent violation, a determination of whether a patent has been infringed could be adjudicated upon by an arbitration tribunal, but the validity of a patent could not: As patents are subject to a system of public registration, an arbitral panel would have no power to order the relevant body to rectify any patent registration based upon its determination.

§ Some legal orders exclude or restrict the possibility of arbitration for reasons of the protection of weaker members of the public, e.g. consumers. Examples: German law excludes disputes over the rental of living space from any form of arbitration, while arbitration agreements with consumers are only considered legitimate if they are signed by either party, and if the signed document does not bear any other content than the arbitration agreement.

Arbitration agreement

In theory, arbitration is a consensual process; a party cannot be forced to arbitrate a dispute unless he agrees to do so. In practice, though, many fine-print arbitration agreements are inserted in situations in which consumers and employees have no bargaining power. Moreover, arbitration clauses are frequently placed within sealed users' manuals within products, within long click-through agreements on websites, and in other contexts in which significant consent is not realistic. Such agreements are generally separated into two types:

1. Agreements which provide that, if a dispute should arise, it will be resolved by arbitration. These will generally be normal contracts, but they contain an arbitration clause
2. agreements which are signed after a dispute has arisen, agreeing that the dispute should be resolved by arbitration (sometimes called a "submission agreement")

The former is the far more prevalent type of arbitration agreement. Sometimes, legal significance attaches to the type of arbitration agreement. For example, in certain Commonwealth countries, it is possible to provide that each party should bear their own costs in a conservative arbitration clause, but not in a submission agreement.

In keeping with the informality of the arbitration process, the law is generally keen to uphold the validity of arbitration clauses even when they lack the normal formal language associated with legal contracts. Clauses which have been upheld include:

1. "arbitration in London - English law to apply"
2. "suitable arbitration clause"
3. "arbitration, if any, by ICC Rules in London"

The courts have also upheld clauses which specify resolution of disputes other than in accordance with a specific legal system. These include provision indicating:

1. that the arbitrators "must not necessarily judge according to the strict law but as a general rule ought chiefly to consider the principles of practical business"
2. "internationally accepted principles of law governing contractual relations"

Agreements to refer disputes to arbitration generally have a special status in the eyes of the law. For example, in disputes on a contract, a common defence is to plead the contract is void and thus any claim based upon it fails. It follows that if a party successfully claims that a contract is void, then each clause contained within the contract, including the arbitration clause, would be void. However, in most countries, the courts have accepted that:

1. a contract can only be declared void by a court or other tribunal; and

2. if the contract (valid or otherwise) contains an arbitration clause, then the proper forum to determine whether the contract is void or not, is the arbitration tribunal.

Arguably, position is potentially unjust; if a person is made to sign a contract under duress, and the contract contains an arbitration clause highly favorable to the other party, the dispute may still referred to that arbitration tribunal. Equally a court may be persuaded that the arbitration agreement itself is void having been signed under duress. However, most courts will be unwilling to interfere with the general rule which does allow for commercial expediency; any other solution (where one first had to go to court to decide whether one had to go to arbitration) would be self defeating.

Applicable laws

Arbitration is subject to different laws. These may be summarized as follows:

1. The law governing the arbitration agreement
2. The law governing the arbitral tribunal and its proceedings (lex arbitri - procedural law)
3. The law governing the substance of the dispute
4. The law governing recognition and enforcement of the award

Seat of the arbitration

Most legal systems recognize the concept of a "seat" of the arbitration, which is a geographical and legal jurisdiction to which the arbitration is tied. The seat will usually determine the procedural rules (lex arbitri) which the arbitration follows, and the courts which exercise jurisdiction over the seat will have a administrative role over the conduct of the arbitration.

Parties to the arbitration are free to choose the seat of arbitration and often do so in practice. If they do not, the arbitral tribunal will do it for them. Whereas it is possible to detach procedural law from the seat of arbitration (e.g. seat in Switzerland, English procedural law) this creates confusion as it subjects the arbitration to two controlling and possibly conflicting laws. The procedural law of arbitration, normally determined by the seat, ought to be illustrious from the procedure that the arbitration panel will follow. The latter refers to daily operation of the arbitration and is normally determined either by the institution in question (if arbitration is institutional, e.g. ICC Rules) or by reference to a ready-made procedure (such as the UNCITRAL Rules).

The seat of arbitration might not be the same as the place where proceedings are actually happening. Thus, for instance, an ICC arbitration may have its seat in London (and therefore be governed by the English lex arbitri and ICC procedural rules) and most sessions may take place outside the UK.

Law applicable to procedure

The necessary matters of procedure -- such as any disagreement over the engagement or replacement of arbitrators, the jurisdiction of the tribunal itself, or the validity of an arbitration award -- are determined by the procedural law of the seat of the arbitration, and may be determined by recourse to courts. The parties normally pressure this through their choice of the seat of arbitration or directly through choice of procedural law.

All other matters of procedure are generally determined by the arbitral tribunal itself (depending on national law and respect for due process) and the preferences of the arbitrators, the parties, and their counsel. The arbitrators' power to determine procedural matters normally includes:

§ mode of submitting (and challenging) proof

§ time and place of any hearings

§ language and translations

§ exposé of documents and other evidence

§ use of pleadings and/or interrogatories

§ the appointment of experts and assessors

Law applicable to substance

Parties in a commercial dispute will repeatedly choose the law applicable to the matter of their dispute. In fact, they are more likely to choose substantive than procedural law as this will have direct impact on the outcome of their dispute. This choice is usually expressed in the arbitration clause itself or at least in part of the contract where the clause is situated.

If the parties do not choose the applicable law, the arbitral tribunal will. This is normally interpreted as the ability of the tribunal to choose the choice-of-law rules which will, in turn, point to the applicable law. The arbitrators are not strictly speaking bound by public policy order or obligatory rules of third states but will normally watch them as that increases the chance of the award being recognized.

Law applicable to recognition and enforcement

The law that applies to issues of recognition will always be the law of the state where this recognition is sought. In a great number of states this will be governed by 1958 New York Convention which harmonizes the acknowledgment and enforcement of foreign arbitral awards.

Sources of law

States regulate arbitration through a variety of laws. The main body of law applicable to arbitration is normally contained either in the national Private International Law Act (as is the case in Switzerland) or in a separate law on arbitration (as is the case in England). In addition to this, a number of national procedural laws may also contain provisions relating to arbitration.

By far the most important international instrument on arbitration law is the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. Some other relevant international instruments are:

1. The Geneva Protocol of 1923
2. The Geneva Convention of 1927
3. The European Convention of 1961
4. The Washington Convention of 1965 (governing settlement of international investment disputes)
5. The UNCITRAL Model Law (providing a model for a national law of arbitration)
6. The UNCITRAL Arbitration Rules (providing a set of rules for an ad hoc arbitration)

Arbitral tribunal

The term arbitral tribunal is used to denote the arbitrator or arbitrators sitting to determine the dispute. The composition of the arbitral tribunal can vary extremely, with either a sole arbitrator sitting, two or more arbitrators, with or without a chairman or umpire, and different other combinations.

In most jurisdictions, an arbitrator enjoys resistance from liability for anything done or omitted whilst acting as arbitrator unless the arbitrator acts in bad faith.

Arbitrations are usually divided into two types:

- ad hoc arbitrations and administered arbitrations.

In ad hoc arbitrations, the arbitral tribunals are appointed by the parties or by an appointing authority chosen by the parties. After the tribunal has been formed, the appointing authority will normally have no other role and the arbitration will be managed by the tribunal.

In administered arbitration, the arbitration will be administered by a professional arbitration institution providing arbitration services, such as the LCIA in London or the ICC in Paris. Normally the arbitration institution also will be the appointing authority.

Arbitration institutions tend to have their own rules and procedures, and may be more formal. They also tend to be more expensive, and, for procedural reasons, slower.

Duties of the tribunal

The duties of a tribunal will be determined by a combination of the provisions of the arbitration agreement and by the procedural laws which apply in the seat of the arbitration. The extent to which the laws of the seat of the arbitration permit "party autonomy" (the ability of the parties to set out their own procedures and regulations) determines the interplay between the two.

However, in almost all countries the tribunal owes several non-derogable duties. These will normally be:

- to act fairly and impartially between the parties, and to allow each party a reasonable opportunity to put their case and to deal with the case of their opponent (sometimes shortened to: complying with the rules of "natural justice"); and

- to adopt procedures suitable to the circumstances of the particular case, so as to provide a fair means for resolution of the dispute.

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