Faced with the prospect of expensive legal representation and open-season publicity from public court battles – not to mention the risk of losing and costs being awarded – more companies are turning to arbitration in a bid to resolve disputes.
Just about any type of dispute can be settled through arbitration, including contract disputes involving competitors or consumers; intellectual property disputes; employment and labour claims; real estate issues; and civil matters.
WHAT IS ARBITRATION?
Arbitration usually refers to a dispute resolution between two or more parties, using an independent or impartial third party or panel for the determination of a final and binding decision.
The independent person or panel is known as the arbitrator/s – and in most cases the arbitrator will be knowledgeable about products, services or issues involved in the dispute.
The process is designed to be private, informal, quick, practical and economical. It generally uses a commonsense approach, without all of the legal jargon and procedural manoeuvring that may happen in a court of law.
Depending on the rules of arbitration in particular countries, arbitrators are chosen by the parties involved in the dispute and their decision may be either binding (the decision is final and enforceable) or non-binding, in which case either party may reject the decision and opt to switch to litigation, or any other method, to resolve the dispute.
The most prominent feature of arbitration is that the arbitrators are private individuals without any formal connection to the government, or judicial system, of the country. Another important feature of arbitration is its lack of formality: procedures are relatively simpler than court litigations.
Advantages & disadvantages
Arbitration has several potential advantages over judicial proceedings:
- Ability to select arbitrators
When the subject matter is highly technical, arbitrators with an appropriate qualification or expertise can be appointed (you cannot choose the judge in litigation) - Secrecy of the proceedings
Awards are generally not made public and can be made confidential - Limited discovery
Extensive revelations are avoided - Less adversarial
Often the process is less adversarial than in litigation, which helps to maintain business relationships between the parties - Speed
Arbitration is faster than litigation in court - Cost
Arbitration can be cheaper and more flexible. Parties save on legal costs compared with litigation - Enforcement
In the US, through provisions of the New York Convention 1958, awards are generally easier to enforce in other countries than court judgements - Finality
Arbitration decisions can be final – and normally there is no right of appeal, which in the litigation process may lead to protracted disputes or a higher court of law changing the award.
Disadvantages are:
- Some commentators say that arbitration does little to help parties learn how to resolve their own conflicts more effectively in the future
- There is no right of appeal, even if the arbitrator makes a mistake of fact or in law
- There is no jury – which the claimant may regard as a drawback
- There is the possibility of compromise – arbitrators splitting awards
- An arbitrator may make an award based on broad principles of 'justice' and 'equity', not necessarily on rules of law or evidence
Arbitration worldwide
The number of international commercial arbitration cases has increased in recent times, particularly in emerging economies such as in China, India and Brazil.
Brazil has a long-standing culture of arbitration dating back to the mid-1990s. In addition, mediation is being used more often in Brazil – parties are required by law to submit a conflict to mediation before initiating a lawsuit.
The most prominent organisation globally dealing with arbitration is the International Chambers of Commerce in Paris, France. Other leading international arbitration centres globally are the London Court of International Arbitration, UK; the American Arbitration Association; the Hong Kong International Arbitration Center, and many more.
In the United Arab Emirates there are three international arbitration centres: Dubai International Arbitration Center; Abu Dhabi Commercial Conciliation and Arbitration Center; and Dubai International Financial Center.
When choosing an arbitration centre, parties are advised to select one that has an international reputation and to ensure, in advance, that its awards are respected and enforceable in the parties’ own domestic courts.
In Canada – where disputes are resolved at The International Centre for Arbitration, Mediation and Negotiation – many lawyers are certified arbitrators and, say expert observers, arbitration has become more popular than litigation.
Canada’s arbitration culture is supported by the ADR Institute of Canada (ADR Canada) – a national not-for-profit organisation that aims to provide national leadership in the development and promotion of dispute resolution services in Canada and internationally.
An increasing number of countries are recognising that an enforceable arbitration system is relevant to attracting foreign investment within their borders and have brought in legislation that compels protagonists in certain disputes to try to resolve their differences through arbitration before resorting to litigation.
Meanwhile, even arbitration is not the best solution in certain disputes – and they can often be resolved through mediation.
Mediation uses a consensual decision-making process in which an independent and impartial individual (often a chartered accountant) is appointed as mediator. He or she works with the disputing parties to come up with a solution – ideally that is a solution for both.
A mediator has no decision-making authority regarding the outcome (and therefore has no power to impose a settlement) and does not offer professional advice. Hence, mediation differs significantly from either arbitration or litigation.
Tim Livingstone, partner at UHY’s firm in New Zealand, UHY Haines Norton (Auckland), says: "While conducted 'in the shadow of the law', and while it may involve consideration of the parties' legal obligations, there are no formal legal procedures. The strict rules of evidence and principles of natural justice do not apply. At any time parties are free to accept or reject terms of settlement suggested during mediation."
Mediation is appropriate where:
- Parties have a genuine desire to reach settlement
- Parties need the opportunity to talk openly and frankly
- Relationships between parties are continuing
- Parties wish to determine their own outcome
- Parties wish to minimise legal costs and save time.
"The whole mediation process may be confidential and the 'without prejudice' rule usually means that information submitted or statements made by the parties cannot be used in subsequent legal proceedings," says Tim. "Everyone attending the mediation conference is bound by confidentiality provisions."
“A client advisor accountant plays a pivotal role: to project manage (in consultation with legal advisors) the process leading up to mediation, which requires either producing or obtaining from various experts reports supporting the client’s position, such as valuation, economic and scientific reports and legal opinions."
Other advantages of mediation are:
- Parties retain control of the process (in litigation disputants delegate to their lawyers, and ultimately the court, the function of resolving their dispute)
- Disputing parties reach agreement that meets their needs and interests (‘win-win’ compared to litigation that provides only ‘winner and loser’ outcomes)
- Litigation and inter-communication within the adversarial system tend to escalate antagonism and emotions.
For details of UHY firms in countries that provide consultancy services please contact the UHY executive office.
Contact: Tim Livingstone
Email: timl@uhyhn.co.nz