Arbitration is a formal dispute resolution process whereby two or more parties agree to submit all or selected disputes between them to an independent party called an arbitrator who can provide a binding decision. The arbitrator is selected by the parties, or by an agreed nominating body, because of their experience, skill and expertise as an arbitrator in matters closely related to the subject matter of the dispute.
During the arbitration the parties will present their evidence and provide their arguments to the arbitrator who makes a decision, called an award, that is binding on the parties and is enforceable as a judgment of the Court. The primary objective of arbitration is to provide a flexible and efficient means of resolving disputes quickly, cost effectively and confidentially without necessarily adhering to the formalised and technical procedures of court processes.
Advantages and disadvantages of Arbitration
The advantages of arbitration are:
The parties have control over the selection of the arbitrator;
If a voluntary resolution between the parties is unlikely, arbitration will resolve the dispute without the need of using the court system, although the parties may not agree with the outcome;
The process of arbitration is usually less costly than litigation and is commonly more time effective; and
Arbitration hearings are private and the results are not a matter of public record.
The disadvantages of arbitration are:
In some circumstances, arbitration can be a formal and lengthy process depending on the complexity of the matter and quantity of information to review;
Although you present your evidence to the arbitrator, you are relying on the arbitrator to interpret the evidence rather than a judge or jury;
The parties have no control over the outcome of the arbitration; and
Arbitration can be adversarial and does not aim to preserve important relationships.
Differences between Mediation and Arbitration
Mediation and arbitration are commonly used ADR methods. However, although each method is voluntary, they can produce significantly different results.
Mediation is a process where an independent party called a mediator assists the parties to reach an agreement through the course of the negotiations. Mediation allows the parties to control the terms of the agreement; these terms are not required to reflect the parties’ legal rights and entitlements. The mediation process may not result in an agreement, and the mediator has no power to recommend an agreement unless authorised to by the parties. If you would like to find out more about mediation in the context of employment disputes, see our article “Mediation in an Employment Context” in our previous newsletter.
Arbitration can be used after mediation has failed or as an alternative to mediation. The arbitration process takes the control away from the parties and gives the decision-making power to the arbitrator who will determine, in light of the evidence, an outcome. In contrast to mediation, the arbitrator’s decision will be guided by the parties’ legal rights and entitlements.
There are clear advantages and disadvantages of engaging in arbitration. Despite this, the primary objective of arbitration is to be a fair, prompt and cost-effective process that addresses and resolves disputes in a manner that is proportionate to the amounts in dispute and the complexity of the issues involved.
If you are currently involved in a dispute, we recommend that you seek legal advice about what ADR method would suit you.
See the next newsletter to find out more about formal and informal negotiation.