The benefits of using arbitration to resolve disputes

Don’t hesitate, arbitrate

Arbitration is a private deal to keep disputes out of court yet still resolve them in a judicial way. But why bother? The reasons may be more compelling than you think.

Globalisation has opened new markets overseas. In an ideal world, international dealings would be sealed on a virtual handshake. In the real world, you need a written contract to spell out your rights if something goes wrong.

But in whose courts, whose laws, whose language? A simple choice between home and away may build inequality into the contract – and still not solve the real problem. This is that contracts being performed throughout the world will be breached throughout the world. Court judgments may be easily obtained in one country but not so easily enforced in another. Often, the claim has to be proved again where the debtor or his assets are.

Thanks to the 1958 New York Convention, arbitral awards made in one signatory state can be enforced in 137 other signatory states more easily than court judgments. But the benefits don’t end there.

For starters, arbitration can be conducted in private and confidentially. Going to court is a good way to wash dirty linen in public.

Arbitration lets you choose your own judges – each party usually nominating one arbitrator who between them choose a third. Because the majority rules, decisions can’t be skewed by a rogue appointee. If you like, you can choose a neutral venue for the hearing and a neutral language too.

Arbitration is reassuring because it follows internationally agreed rules. There are many versions, each approved by a different but unimpeachably neutral body, such as the ICC, LCIA or American Arbitration Association. This is particularly helpful when one party is used to an adversarial court system, as in Australia or USA, and the other is used to an inquisitorial system, as in many European countries.

Arbitration can save time – and time means money – because the arbitrators can tailor the procedure to the dispute and rights of appeal are more limited. And if both sides agree, they can forego appeals completely.

Best of all, the power and possibility of arbitration can be secured by slipping one innocent-looking clause into your contract’s boilerplate – completely standard, utterly unobjectionable and almost invisibly levelling the playing field. Let arbitration prove its worth to you in 2006 – it could be the best thing you do all year.

This article first appeared in our Litigation Annual Review January 2006. To view this publication, please click here to open a new window.