Arbitration vs Mediation – which way to turn when negotiations fail?
When business negotiations fail, there are several options businesses can take when considering the next steps in the process.
The most common option a business may take to resolve a business dispute is to take the matter to litigation through the national courts, however this procedure can be costly and the process lengthy, with scope to appeal judgements.
There are alternative dispute resolution procedures that a business should consider when seeking to resolve a dispute. In this article I will be focusing on commercial arbitration and mediation procedures, the key differences between the two compared to litigation and when to use arbitration or mediation.
“Do I believe in arbitration? I do. But not in arbitration between the lion and the lamb, in which the lamb is in the morning found inside the lion.”
What is Arbitration?
Arbitration is a party appointed procedure, governed by contract, in which a dispute is resolved by an independent and impartial panel or sole Arbitrator. The parties also agree that the decision made by the Arbitrator is final and binding.
Arbitration differs from litigation because it is informal. Most arbitrations occur in a conference room rather than a courtroom, the rules of procedure and evidence are flexible which includes rules of discovery and practice which have developed from both civil and common law jurisdictions.
The main benefits of arbitration are as follows:-
Arbitration is consensual
The process can use ad-hoc or institutional rules (e.g. ICC, LCIA, ICSID, ICDR)
An independent arbitrator or a panel of arbitrators are appointed
The parties can choose the arbitrator
The arbitrator will be chosen for their expertise
Arbitration is a confidential procedure
It is a process of adjudication
The decisions awarded are legally binding
Arbitral awards are recognised and enforced internationally under the New York Convention 1958
Some of the biggest advantages of Arbitration is that it is legally binding, the process is confidential, and arbitral awards can be recognised and enforced internationally in other jurisdiction national courts.
It also provides the opportunity for cost savings, shorter resolution times, and privacy enabling a more satisfactory process with expert decision maters.
International Treaties and domestic law
The primary source of Arbitration in the UK is under the Arbitration Act 1996 which governs both domestic and foreign arbitral proceedings. The Act does not differentiate between domestic and foreign proceedings.
The New York Convention has been in force in the UK since 1975. Recognition and enforcement of arbitral awards are limited to awards made in other contracting states, subject to the ‘reciprocity reservation’.
Other international treaties the UK is a signatory to are The Convention on the Settlement of Investment Disputes (ICSID) Convention since 1967, The Energy Charter Treaty 1994 (ECT) since 1998 and most recently the United Nations Convention on Transparency in Treaty based Investor State Arbitration (2017).
Arbitration has five advantages over litigation. The process is:-
Much faster than using the national court procedure
Less formality than litigation, parties have substantial autonomy and control over the process that will be used to resolve their dispute
Parties can appoint an arbitrator or panel of arbitrators with relevant expertise as opposed to the litigation procedure where the Judge is appointed by the State and therefore no such opportunity arises
It is less expensive compared to traditional litigation where time is spent in the discovery phase
Arbitral awards can be recognised and enforced internationally through the New York Convention 1958
Arbitration gives the parties substantial autonomy and control over the process that will be used to resolve their disputes, this is useful in international commercial arbitration as it enables parties to use an alternative system to the litigation process. This is in particular an advantage where one party fears the other has a “home court advantage”, the arbitration process offers a more neutral forum providing each side a fairer dispute resolution procedure.