Definition of Arbitration

Arbitration is a non-court procedure for resolving disputes using one or more

neutral third parties, called the arbitrator or arbitration panel. Arbitration uses rules of

evidence and procedure that are less formal than those followed in trial courts, which

usually leads to a faster, less-expensive resolution. There are many types of arbitration in

common use: Binding arbitration is similar to a court proceeding in that the arbitrator has

the power to impose a decision, although this is sometimes limited by agreement. In non-

binding arbitration, the arbitrator can recommend but not impose a decision. Many

contracts require mandatory arbitration in the event of a dispute. This may be reasonable

when the arbitrator really is neutral, but is justifiably criticized when the large company

that writes the contract is able to influence the choice of the arbitrator.

There are certain laws governing the conduct of an arbitration proceeding that

must be considered by those planning to use arbitration to resolve the dispute. Most

importantly, perhaps, is the fact that an arbitration award is final and binding, subject to

review by a court only on a very limited basis. Parties should recognize, too, that in

choosing arbitration as a means of resolving a dispute, they generally give up their right

to pursue the matter through the courts. Arbitration continues to be an effective tool for

conflict resolution, especially for international and national commercial or investment

disputes, as well as labor disputes.

Arbitration can be defined also as an extra-judicial mechanism through which

conflicts can be solved. It is an adversarial process, which is governed by the principle of

party autonomy. This means that it is the parties to a conflict who determine whether they

want their dispute to be solved through arbitration. Thus the arbitrators derive their
authority solely from the parties. Parties are free to choose the place (seat) of arbitration,

and often do so through a contractual clause before a dispute emerges. The parties

determine the "rules of the game," either by designing the process themselves or by

choosing the seat of arbitration. In the latter case, the parties agree to make use of

existing institutions, which provide facilities and a set of adopted rules that govern the

process.

In most cases, arbitral awards are conclusive, final, and binding. However, it can

occur that the unsuccessful party challenges the award by claiming that the arbitrators

exceeded their power, or by asserting that they cannot be bound by a foreign award. In a

small number of cases, national arbitration legislation allows for the right of appeal.

Theoretically, the submission of the parties to arbitration implies that the parties

will agree to carry out the award without delay. However, this can only be true for

situations in which the disputants are seeking a conclusive settlement of their conflict.

Parties submit themselves to arbitration only when they are incapable of reaching a

negotiated agreement. In adversarial dispute resolution procedures, parties are hoping to

see their interests served. If defeated, they are likely to consider options that promise

more favorable outcomes, by challenging an obtained award or by trying to evade

implementation of the decision.

For entirely national arbitration awards, those granted by a national body to two

private entities both subject to the same national legislation, laws provide a solid

framework for the enforcement of decisions or for options to transfer the matter to a

national court. The implementation of international awards, however, can be more than

difficult in cases where parties decide not to abide by the decision. One factor which can
make a national court more or less willing to enforce an award is the nation in which the

seat of arbitration is located. Yet, the determination of the seat can become a controversial

matter, as different national jurisdictions treat this issue differently. One of the reasons

that arbitration is so popular in international trade as a means of dispute resolution, is that

it is often easier to enforce an arbitration award in a foreign country than it is to enforce a

judgment of the court.

Advantages of Arbitration

Expense: Substantial savings can be achieved through arbitration. Attorney fees

are reduced because the average hearing is shorter than the average trial (typically less

than a day versus several days). Time consuming and expensive pre-trial procedures,

including depositions, interrogatories, and motions, are usually eliminated. Out-of-pocket

expenses are reduced because stenographic fees, transcripts, and other items are not

required.

Time: Arbitration hearings and final awards are obtained quickly; cases are

usually decided in a matter of months, compared to several years in formal litigation.

Privacy: The arbitration hearing is held in a private conference room, rather than

a courtroom. Unlike a trial, the hearing cannot be attended by the general public.

Expertise of arbitrators: Arbitrators usually have special training in the area of

the case. In a breach of an entertainment contract dispute, for example, arbitrators serving

on the panel are typically respected lawyers or other professionals with significant

experience in the entertainment industry. Their knowledge of trade customs helps them

identify and understand a problem more quickly than a judge or jury.

 Increased odds of obtaining an award: Some lawyers believe that arbitrators are

more likely than judges to split close cases down the middle. The theory is that arbitrators

bend over backwards to satisfy both parties to some degree since their rulings are final

and binding. This tendency to compromise, if true, benefits claimants with weaker cases.

Disadvantages of Arbitration

Finality: Arbitrators, unlike judges, need not give formal reasons for their

decisions. They are not required to maintain a formal record of the proceedings. The

arbitrator's decision is binding. This means that an appeal cannot be taken if you lose the

case or disagree with the size of the award except in a few extraordinary circumstances

where arbitrator misconduct, dishonesty, or bias can be proved.

Arbitrator selection: The parties sometimes agree that each will select its own

arbitrator. In such cases it may be assumed that the chosen arbitrators are more

sympathetic to one side than the other.

Loss of sympathetic juries: Some knowledgeable lawyers believe that juries tend

to empathize more with certain kinds of people such as fired employees, destitute wives,

and older individuals. Arbitrators are usually successful lawyers and business people

whose philosophical orientation may lean more toward companies rather than

individuals.

Loss of discovery devices: Some claimants must rely upon an adversary's

documents and records to prove their case. For example, sales agents, authors, patent

holders, and others often depend upon their company's (or licensee's) sales figures and

accurate record keeping to determine how much commission and royalties they are owed.
The same is true for minority shareholders who seek a proper assessment of a company's

profit picture.

Enforce Arbitration Award

Winning an arbitration award may not immediately end the dispute, especially

when it comes to collecting payment from the losing party. In the case of the Canadian

company and the Moroccan one that used the arbitration method to settle the dispute, the

three arbitrators decided that the Moroccan company has to pay damages to the Canadian

one. However, Orbonor refused to go along with the decision of the arbitrators. As many

studies have confirmed, an arbitration award can easily be confirmed as a court judgment,

which can then be used to collect payment from the losing party through judicial

enforcement. So, for the Canadian company to enforce the arbitration award on the

Moroccan company, they have to bring a lawsuit against Orbonor in the appropriate

court, which is in our case the commercial court. The court then has to confirm the award

and enter the judgment on it, unless, the unsuccessful party and for one of the very few

reasons allowed by the Federal Act or Uniform Act, the court vacates, modifies or

corrects the arbitration award. Thus, an arbitration award can easily be confirmed as a

court judgment, which can then be used to collect payment from the losing party. Even if

winning an arbitration award may not immediately end the dispute, particularly where the

unsuccessful party refuses to voluntarily comply with the award, some rules are in place

to enforce such awards. This makes arbitration a particularly valuable tool for conflict

resolution.
Characteristics of Arbitration

Decision-making authority
Parties decide to submit their dispute to arbitration (often through contractual
arbitration clause)
Parties choose the seat
Arbitrators decide on disputes submitted to them
Decisions made by arbitrator(s)
Rarely can be appealed

Procedure
Confidential
Adversarial
Flexible process
Parties choose the "rules of the game"

Characteristics of third party involved

Arbitrators are selected by the parties
Arbitrators are experts on the issues
Arbitration panels often include partial as well as non-partial arbitrators or one
non-partial arbitrator

Institution
Ad-hoc panels

End of process
Parties can determine an end date (fast track arbitration)
Win-lose solution (unless arbitrator negotiates a win-win outcome)

Enforcement
National regulations provide enforcement mechanism

International arbitration often lacks an established enforcement mechanism

Award conclusive, final and binding (right of appeal is the exception)
 References

Joseph Colagiovanni & Thomas Hartmann (2007). The 'Lectric Law Library: Enforcing

Arbitration Awards. Retrieved March 28, 2008, from

http://www.lectlaw.com/files/adr15.htm

Steven M. Sack (1998). Arbitration Procedures. Retrieved March 28, 2008, from

http://employment.findlaw.com/employment/employment-employee-more-

topics/employment-employee-arbitration.html

The Beyond Intractability Project University of Colorado at Boulder (2007).

Arbitration as a Solution for Protracted and Intractable Conflicts. Retrieved

March 28, 2008, from http://www.beyondintractability.org/essay/arbitration/

Wikipedia (2008). Arbitration. Retrieved March 28, 2008, from

http://en.wikipedia.org/wiki/Arbitration