Arbitration is a private dispute resolution process that parties may choose as an alternative to going to court. The arbitration process is consensual in that the parties must agree to refer their dispute to arbitration. The arbitration agreement (typically referred to as an ‘arbitration clause’) is usually contained in the main contract between the parties. However, parties may separately agree to arbitration after a dispute has arisen.
In arbitration proceedings the dispute is decided either by a single arbitrator or a panel of arbitrators (usually three in number). An arbitrator performs a similar role to that of a judge in that they are responsible for managing the proceedings to ensure the parties to the dispute have a reasonable opportunity of presenting their case. At the conclusion of the arbitration, the arbitrator will deliver an award which is final and binding on the parties.
Types of Arbitration
There are typically two types of arbitration that private parties can agree to. Both types can be conducted in ADGM.
Ad hoc arbitration
An ad hoc arbitration is not administered by a specialised institution. It therefore does not benefit from the administrative assistance that is provided in an institutional arbitration. However, the parties do not incur the added administrative costs associated with an institutional arbitration.
While an ad hoc arbitration has the potential to be more flexible, faster and less expensive than an institutional arbitration, much depends on the cooperation of the parties and the case management of the arbitration by the arbitral tribunal for its effectiveness. To assist with this, the parties may agree to adopt an internationally accepted set of arbitration rules (such as the UNCITRAL Arbitration Rules) for the purposes of the arbitration.
An institutional arbitration is administered by a specialised arbitral institution. An arbitral institution has its own set of rules which provides a procedural framework for the arbitration. It also has its own form of administration to assist with the arbitral process (although the precise services that are on offer can differ from institution to institution).
The primary advantage of an institutional arbitration is that the parties benefit from an established format for the arbitration with a proven track record from an institution which specialises in assisting parties with the arbitral process. The primary disadvantage is the additional administrative costs associated with having the institution administer the arbitration.
Reasons to choose arbitration
While arbitration sometimes mirrors the courtroom process, there are a number of distinguishing features that often persuade parties to choose arbitration as opposed to court litigation for the resolution of their dispute. These include:
Due to its consensual nature, parties are able to agree to the procedures that they want to apply to their arbitration. These agreed procedures will usually be contained in the arbitration agreement or in a set of rules which the parties agree are to apply to the arbitration or will be agreed between the parties on an ad hoc basis during the course of the arbitration. Accordingly, arbitration provides the parties with the flexibility to apply procedures which are tailor-made for their dispute.
Choice of arbitrators
In arbitration, the parties can (and often do) agree that they will have a role in selecting the arbitrator or arbitrators who will decide their dispute. This enables the parties to select an arbitrator who is neutral to the parties and has the expertise to decide the dispute which may be of particular importance if the dispute involves novel or technical issues that are industry or case specific.
In addition to choosing an arbitrator who is neutral, the parties can also select a place for their arbitration which is neutral and independent of the nationalities of the parties. Of importance, the place of the arbitration determines which court has supervisory jurisdiction over the arbitration. Selecting a neutral venue is of particular relevance in international disputes where parties often do not want to find themselves in the home territory of the opposing party.
In contrast to court proceedings, which are normally held in public, arbitration hearings are held in private. Further, parties can agree that the arbitration will remain confidential as between themselves. This is conducive to keeping sensitive commercial information out of the public domain and resolving disputes discretely in order to preserve the commercial relationship between the parties.
Enforcement of court judgments across borders can be problematic especially in the absence of an applicable enforcement treaty. In contrast, an arbitration award can be enforced in more than 150 countries pursuant to the New York Convention (which is the most widely recognised enforcement instrument in the world).
An arbitration award is final and can normally only be challenged on narrow and discrete grounds. This means that the usual court appeal process can be avoided providing for more certainty and a faster route to enforcement for the winning party.